UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One) ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended 2020 or | |||
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 1-8610
AT&T INC.
Incorporated under the laws of the State of Delaware
I.R.S. Employer Identification Number 43-1301883
208 S. Akard St., Dallas, Texas 75202
Telephone Number: (210) 821-4105
Securities registered pursuant to Section 12(b) of the Act
Name of each exchange | ||
Title of each class | Trading Symbol(s) | on which registered |
Common Shares (Par Value $1.00 Per Share) | T | New York Stock Exchange |
Depositary Shares, each representing a 1/1000th interest in a share of 5.000% Perpetual Preferred Stock, Series A | T PRA | New York Stock Exchange |
Depositary Shares, each representing a 1/1000th interest in a share of 4.750% Perpetual Preferred Stock, Series C | T PRC | New York Stock Exchange |
AT&T Inc. Floating Rate Global Notes due August 3, 2020 | T 20C | New York Stock Exchange |
AT&T Inc. 1.875% Global Notes due December 4, 2020 | T 20 | New York Stock Exchange |
AT&T Inc. 2.650% Global Notes due December 17, 2021 | T 21B | New York Stock Exchange |
AT&T Inc. 1.450% Global Notes due June 1, 2022 | T 22B | New York Stock Exchange |
AT&T Inc. 2.500% Global Notes due March 15, 2023 | T 23 | New York Stock Exchange |
AT&T Inc. 2.750% Global Notes due May 19, 2023 | T 23C | New York Stock Exchange |
AT&T Inc. Floating Rate Global Notes due September 5, 2023 | T 23D | New York Stock Exchange |
AT&T Inc. 1.050% Global Notes due September 5, 2023 | T 23E | New York Stock Exchange |
AT&T Inc. 1.300% Global Notes due September 5, 2023 | T 23A | New York Stock Exchange |
AT&T Inc. 1.950% Global Notes due September 15, 2023 | T 23F | New York Stock Exchange |
AT&T Inc. 2.400% Global Notes due March 15, 2024 | T 24A | New York Stock Exchange |
AT&T Inc. 3.500% Global Notes due December 17, 2025 | T 25 | New York Stock Exchange |
Name of each exchange | ||
Title of each class | Trading Symbol(s) | on which registered |
AT&T Inc. 0.250% Global Notes due March 4, 2026 | T 26E | New York Stock Exchange |
AT&T Inc. 1.800% Global Notes due September 5, 2026 | T 26D | New York Stock Exchange |
AT&T Inc. 2.900% Global Notes due December 4, 2026 | T 26A | New York Stock Exchange |
AT&T Inc. 1.600% Global Notes due May 19, 2028 | T 28C | New York Stock Exchange |
AT&T Inc. 2.350% Global Notes due September 5, 2029 | T 29D | New York Stock Exchange |
AT&T Inc. 4.375% Global Notes due September 14, 2029 | T 29B | New York Stock Exchange |
AT&T Inc. 2.600% Global Notes due December 17, 2029 | T 29A | New York Stock Exchange |
AT&T Inc. 0.800% Global Notes due March 4, 2030 | T 30B | New York Stock Exchange |
AT&T Inc. 2.050% Global Notes due May 19, 2032 | T 32A | New York Stock Exchange |
AT&T Inc. 3.550% Global Notes due December 17, 2032 | T 32 | New York Stock Exchange |
AT&T Inc. 5.200% Global Notes due November 18, 2033 | T 33 | New York Stock Exchange |
AT&T Inc. 3.375% Global Notes due March 15, 2034 | T 34 | New York Stock Exchange |
AT&T Inc. 2.450% Global Notes due March 15, 2035 | T 35 | New York Stock Exchange |
AT&T Inc. 3.150% Global Notes due September 4, 2036 | T 36A | New York Stock Exchange |
AT&T Inc. 2.600% Global Notes due May 19, 2038 | T 38C | New York Stock Exchange |
AT&T Inc. 1.800% Global Notes due September 14, 2039 | T 39B | New York Stock Exchange |
AT&T Inc. 7.000% Global Notes due April 30, 2040 | T 40 | New York Stock Exchange |
AT&T Inc. 4.250% Global Notes due June 1, 2043 | T 43 | New York Stock Exchange |
AT&T Inc. 4.875% Global Notes due June 1, 2044 | T 44 | New York Stock Exchange |
AT&T Inc. 4.000% Global Notes due June 1, 2049 | T 49A | New York Stock Exchange |
AT&T Inc. 4.250% Global Notes due March 1, 2050 | T 50 | New York Stock Exchange |
AT&T Inc. 3.750% Global Notes due September 1, 2050 | T 50A | New York Stock Exchange |
AT&T Inc. 5.350% Global Notes due November 1, 2066 | TBB | New York Stock Exchange |
AT&T Inc. 5.625% Global Notes due August 1, 2067 | TBC | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or emerging growth company. See definition of "accelerated“accelerated filer," "large” “large accelerated filer," "smaller” “smaller reporting company"company” and "emerging“emerging growth company"company” in Rule 12b-2 of the Exchange Act.
Large | [X] | Accelerated | [ ] | |
Non-accelerated filer | [ ] | Smaller reporting company | [ ] | |
Emerging growth company | [ ] |
If an emerging growth company, indicate by checkmark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Yes [ ] No [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
At OctoberJuly 31, 2017,2020, there were 6,1397,125 million common shares outstanding.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
AT&T INC. | |||||||||||
CONSOLIDATED STATEMENTS OF INCOME | |||||||||||
Dollars in millions except per share amounts | |||||||||||
(Unaudited) | |||||||||||
|
| Three months ended |
|
| Six months ended | ||||||
|
| June 30, |
|
| June 30, | ||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
Operating Revenues |
|
|
|
|
|
|
|
|
|
|
|
Service | $ | 37,051 |
| $ | 41,023 |
| $ | 75,934 |
| $ | 81,707 |
Equipment |
| 3,899 |
|
| 3,934 |
|
| 7,795 |
|
| 8,077 |
Total operating revenues |
| 40,950 |
|
| 44,957 |
|
| 83,729 |
|
| 89,784 |
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses |
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues |
|
|
|
|
|
|
|
|
|
|
|
Equipment |
| 3,978 |
|
| 4,061 |
|
| 8,070 |
|
| 8,563 |
Broadcast, programming and operations |
| 5,889 |
|
| 7,730 |
|
| 12,643 |
|
| 15,382 |
Other cost of revenues (exclusive of depreciation and |
|
|
|
|
|
|
|
|
|
|
|
amortization shown separately below) |
| 8,116 |
|
| 8,721 |
|
| 16,458 |
|
| 17,306 |
Selling, general and administrative |
| 9,831 |
|
| 9,844 |
|
| 18,591 |
|
| 19,493 |
Asset impairments and abandonments |
| 2,319 |
|
| - |
|
| 2,442 |
|
| - |
Depreciation and amortization |
| 7,285 |
|
| 7,101 |
|
| 14,507 |
|
| 14,307 |
Total operating expenses |
| 37,418 |
|
| 37,457 |
|
| 72,711 |
|
| 75,051 |
Operating Income |
| 3,532 |
|
| 7,500 |
|
| 11,018 |
|
| 14,733 |
Other Income (Expense) |
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
| (2,041) |
|
| (2,149) |
|
| (4,059) |
|
| (4,290) |
Equity in net income (loss) of affiliates |
| (10) |
|
| 40 |
|
| (16) |
|
| 33 |
Other income (expense) – net |
| 1,017 |
|
| (318) |
|
| 1,820 |
|
| (32) |
Total other income (expense) |
| (1,034) |
|
| (2,427) |
|
| (2,255) |
|
| (4,289) |
Income Before Income Taxes |
| 2,498 |
|
| 5,073 |
|
| 8,763 |
|
| 10,444 |
Income tax expense |
| 935 |
|
| 1,099 |
|
| 2,237 |
|
| 2,122 |
Net Income |
| 1,563 |
|
| 3,974 |
|
| 6,526 |
|
| 8,322 |
Less: Net Income Attributable to Noncontrolling Interest |
| (282) |
|
| (261) |
|
| (635) |
|
| (513) |
Net Income Attributable to AT&T | $ | 1,281 |
| $ | 3,713 |
| $ | 5,891 |
| $ | 7,809 |
Less: Preferred Stock Dividends |
| (52) |
|
| - |
|
| (84) |
|
| - |
Net Income Attributable to Common Stock | $ | 1,229 |
| $ | 3,713 |
| $ | 5,807 |
| $ | 7,809 |
Basic Earnings Per Share Attributable to |
|
|
|
|
|
|
|
|
|
|
|
Common Stock | $ | 0.17 |
| $ | 0.51 |
| $ | 0.81 |
| $ | 1.06 |
Diluted Earnings Per Share Attributable to |
|
|
|
|
|
|
|
|
|
|
|
Common Stock | $ | 0.17 |
| $ | 0.51 |
| $ | 0.81 |
| $ | 1.06 |
Weighted Average Number of Common Shares |
|
|
|
|
|
|
|
|
|
|
|
Outstanding – Basic (in millions) |
| 7,145 |
|
| 7,323 |
|
| 7,166 |
|
| 7,318 |
Weighted Average Number of Common Shares |
|
|
|
|
|
|
|
|
|
|
|
Outstanding – with Dilution (in millions) |
| 7,170 |
|
| 7,353 |
|
| 7,192 |
|
| 7,347 |
See Notes to Consolidated Financial Statements. |
|
|
|
|
|
|
|
|
|
|
|
3
AT&T INC. | ||||||||||||||||
CONSOLIDATED STATEMENTS OF INCOME | ||||||||||||||||
Dollars in millions except per share amounts | ||||||||||||||||
(Unaudited) | ||||||||||||||||
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Operating Revenues | ||||||||||||||||
Service | $ | 36,378 | $ | 37,272 | $ | 109,372 | $ | 111,515 | ||||||||
Equipment | 3,290 | 3,618 | 9,498 | 10,430 | ||||||||||||
Total operating revenues | 39,668 | 40,890 | 118,870 | 121,945 | ||||||||||||
Operating Expenses | ||||||||||||||||
Cost of services and sales | ||||||||||||||||
Equipment | 4,191 | 4,455 | 12,177 | 13,090 | ||||||||||||
Broadcast, programming and operations | 5,284 | 4,909 | 15,156 | 14,239 | ||||||||||||
Other cost of services (exclusive of depreciation and amortization shown separately below) | 9,431 | 9,526 | 27,714 | 28,436 | ||||||||||||
Selling, general and administrative | 8,317 | 9,013 | 24,917 | 26,363 | ||||||||||||
Depreciation and amortization | 6,042 | 6,579 | 18,316 | 19,718 | ||||||||||||
Total operating expenses | 33,265 | 34,482 | 98,280 | 101,846 | ||||||||||||
Operating Income | 6,403 | 6,408 | 20,590 | 20,099 | ||||||||||||
Other Income (Expense) | ||||||||||||||||
Interest expense | (1,686 | ) | (1,224 | ) | (4,374 | ) | (3,689 | ) | ||||||||
Equity in net income (loss) of affiliates | 11 | 16 | (148 | ) | 57 | |||||||||||
Other income (expense) – net | 246 | (7 | ) | 354 | 154 | |||||||||||
Total other income (expense) | (1,429 | ) | (1,215 | ) | (4,168 | ) | (3,478 | ) | ||||||||
Income Before Income Taxes | 4,974 | 5,193 | 16,422 | 16,621 | ||||||||||||
Income tax expense | 1,851 | 1,775 | 5,711 | 5,803 | ||||||||||||
Net Income | 3,123 | 3,418 | 10,711 | 10,818 | ||||||||||||
Less: Net Income Attributable to Noncontrolling Interest | (94 | ) | (90 | ) | (298 | ) | (279 | ) | ||||||||
Net Income Attributable to AT&T | $ | 3,029 | $ | 3,328 | $ | 10,413 | $ | 10,539 | ||||||||
Basic Earnings Per Share Attributable to AT&T | $ | 0.49 | $ | 0.54 | $ | 1.69 | $ | 1.70 | ||||||||
Diluted Earnings Per Share Attributable to AT&T | $ | 0.49 | $ | 0.54 | $ | 1.69 | $ | 1.70 | ||||||||
Weighted Average Number of Common Shares Outstanding – Basic (in millions) | 6,162 | 6,168 | 6,164 | 6,171 | ||||||||||||
Weighted Average Number of Common Shares Outstanding – with Dilution (in millions) | 6,182 | 6,189 | 6,184 | 6,191 | ||||||||||||
Dividends Declared Per Common Share | $ | 0.49 | $ | 0.48 | $ | 1.47 | $ | 1.44 | ||||||||
See Notes to Consolidated Financial Statements. |
AT&T INC. |
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME |
|
|
|
|
|
|
|
|
| ||
Dollars in millions |
|
|
|
|
|
|
|
|
|
|
|
(Unaudited) |
|
|
|
|
|
|
|
|
|
|
|
| Three months ended |
| Six months ended | ||||||||
| June 30, |
| June 30, | ||||||||
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Net income | $ | 1,563 |
| $ | 3,974 |
| $ | 6,526 |
| $ | 8,322 |
Other comprehensive income (loss), net of tax: |
|
|
|
|
|
|
|
|
|
|
|
Foreign currency: |
|
|
|
|
|
|
|
|
|
|
|
Translation adjustment (includes $(8), $2, $(59) and $2 |
|
|
|
|
|
|
|
|
|
|
|
attributable to noncontrolling interest), net of taxes of |
|
|
|
|
|
|
|
|
|
|
|
$(135), $(1), $(197) and $48 |
| 305 |
|
| (127) |
|
| (1,549) |
|
| 161 |
Securities: |
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gains (losses), net of taxes of $5, $10, $27 |
|
|
|
|
|
|
|
|
|
|
|
and $15 |
| 14 |
|
| 26 |
|
| 80 |
|
| 42 |
Derivative instruments: |
|
|
|
|
|
|
|
|
|
|
|
Net unrealized gains (losses), net of taxes of $168, $(165), |
|
|
|
|
|
|
|
|
|
|
|
$(803) and $(131) |
| 631 |
|
| (617) |
|
| (3,026) |
|
| (490) |
Reclassification adjustment included in net income, |
|
|
|
|
|
|
|
|
|
|
|
net of taxes of $4, $3, $4 and $5 |
| 17 |
|
| 6 |
|
| 17 |
|
| 17 |
Defined benefit postretirement plans: |
|
|
|
|
|
|
|
|
|
|
|
Amortization of net prior service credit included in net |
|
|
|
|
|
|
|
|
|
|
|
income, net of taxes of $(150), $(107), $(301) |
|
|
|
|
|
|
|
|
|
|
|
and $(220) |
| (461) |
|
| (342) |
|
| (922) |
|
| (688) |
Other comprehensive income (loss) |
| 506 |
|
| (1,054) |
|
| (5,400) |
|
| (958) |
Total comprehensive income |
| 2,069 |
|
| 2,920 |
|
| 1,126 |
|
| 7,364 |
Less: Total comprehensive income attributable to |
|
|
|
|
|
|
|
|
|
|
|
noncontrolling interest |
| (274) |
|
| (263) |
|
| (576) |
|
| (515) |
Total Comprehensive Income Attributable to AT&T | $ | 1,795 |
| $ | 2,657 |
| $ | 550 |
| $ | 6,849 |
See Notes to Consolidated Financial Statements. |
|
|
|
|
|
|
|
|
|
|
|
4
AT&T INC. | |||||
CONSOLIDATED BALANCE SHEETS | |||||
Dollars in millions except per share amounts | |||||
| June 30, |
| December 31, | ||
| 2020 |
| 2019 | ||
Assets | (Unaudited) |
|
| ||
Current Assets |
|
|
|
|
|
Cash and cash equivalents | $ | 16,941 |
| $ | 12,130 |
Accounts receivable - net of related allowances for credit loss of $1,606 and $1,235 |
| 19,127 |
|
| 22,636 |
Prepaid expenses |
| 1,439 |
|
| 1,631 |
Other current assets |
| 19,048 |
|
| 18,364 |
Total current assets |
| 56,555 |
|
| 54,761 |
Noncurrent Inventories and Theatrical Film and Television Production Costs |
| 14,514 |
|
| 12,434 |
Property, plant and equipment |
| 332,883 |
|
| 333,538 |
Less: accumulated depreciation and amortization |
| (203,938) |
|
| (203,410) |
Property, Plant and Equipment – Net |
| 128,945 |
|
| 130,128 |
Goodwill |
| 143,651 |
|
| 146,241 |
Licenses – Net |
| 98,763 |
|
| 97,907 |
Trademarks and Trade Names – Net |
| 23,757 |
|
| 23,567 |
Distribution Networks – Net |
| 14,704 |
|
| 15,345 |
Other Intangible Assets – Net |
| 18,452 |
|
| 20,798 |
Investments in and Advances to Equity Affiliates |
| 2,302 |
|
| 3,695 |
Operating Lease Right-Of-Use Assets |
| 24,692 |
|
| 24,039 |
Other Assets |
| 21,563 |
|
| 22,754 |
Total Assets | $ | 547,898 |
| $ | 551,669 |
Liabilities and Stockholders’ Equity |
|
|
|
|
|
Current Liabilities |
|
|
|
|
|
Debt maturing within one year | $ | 15,576 |
| $ | 11,838 |
Accounts payable and accrued liabilities |
| 41,881 |
|
| 45,956 |
Advanced billings and customer deposits |
| 5,723 |
|
| 6,124 |
Accrued taxes |
| 2,548 |
|
| 1,212 |
Dividends payable |
| 3,741 |
|
| 3,781 |
Total current liabilities |
| 69,469 |
|
| 68,911 |
Long-Term Debt |
| 153,388 |
|
| 151,309 |
Deferred Credits and Other Noncurrent Liabilities |
|
|
|
|
|
Deferred income taxes |
| 58,387 |
|
| 59,502 |
Postemployment benefit obligation |
| 18,167 |
|
| 18,788 |
Operating lease liabilities |
| 22,230 |
|
| 21,804 |
Other noncurrent liabilities |
| 32,804 |
|
| 29,421 |
Total deferred credits and other noncurrent liabilities |
| 131,588 |
|
| 129,515 |
Stockholders’ Equity |
|
|
|
|
|
Preferred stock ($1 par value, 10,000,000 authorized ): |
|
|
|
|
|
Series A (48,000 issued and outstanding at June 30, 2020 and December 31, 2019) |
| - |
|
| - |
Series B (20,000 issued and outstanding at June 30, 2020 |
|
|
|
|
|
and 0 issued and outstanding at December 31, 2019) |
| - |
|
| - |
Series C (70,000 issued and outstanding at June 30, 2020 |
|
|
|
|
|
and 0 issued and outstanding at December 31, 2019) |
| - |
|
| - |
Common stock ($1 par value, 14,000,000,000 authorized at June 30, 2020 and |
|
|
|
|
|
December 31, 2019: issued 7,620,748,598 at June 30, 2020 and December 31, 2019) |
| 7,621 |
|
| 7,621 |
Additional paid-in capital |
| 130,046 |
|
| 126,279 |
Retained earnings |
| 56,045 |
|
| 57,936 |
Treasury stock (495,425,902 at June 30, 2020 and 366,193,458 December 31, 2019, |
|
|
|
|
|
at cost) |
| (17,945) |
|
| (13,085) |
Accumulated other comprehensive income |
| 129 |
|
| 5,470 |
Noncontrolling interest |
| 17,557 |
|
| 17,713 |
Total stockholders’ equity |
| 193,453 |
|
| 201,934 |
Total Liabilities and Stockholders’ Equity | $ | 547,898 |
| $ | 551,669 |
See Notes to Consolidated Financial Statements. |
|
|
|
|
|
5
AT&T INC. | |||||
CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||
Dollars in millions | |||||
(Unaudited) |
|
|
| ||
| Six months ended | ||||
| June 30, | ||||
| 2020 |
| 2019 | ||
Operating Activities |
|
|
|
|
|
Net income | $ | 6,526 |
| $ | 8,322 |
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
Depreciation and amortization |
| 14,507 |
|
| 14,307 |
Amortization of television and film costs |
| 3,985 |
|
| 5,199 |
Undistributed earnings from investments in equity affiliates |
| 64 |
|
| 76 |
Provision for uncollectible accounts |
| 1,199 |
|
| 1,216 |
Deferred income tax expense |
| 653 |
|
| 1,080 |
Net (gain) loss on investments, net of impairments |
| (705) |
|
| (905) |
Pension and postretirement benefit expense (credit) |
| (1,495) |
|
| (808) |
Actuarial (gain) loss on pension and postretirement benefits |
| - |
|
| 2,131 |
Asset impairments and abandonments |
| 2,442 |
|
| - |
Changes in operating assets and liabilities: |
|
|
|
|
|
Receivables |
| 2,522 |
|
| 3,584 |
Other current assets, inventories and theatrical film and television production costs |
| (5,592) |
|
| (5,422) |
Accounts payable and other accrued liabilities |
| (3,847) |
|
| (3,056) |
Equipment installment receivables and related sales |
| 226 |
|
| 1,144 |
Deferred customer contract acquisition and fulfillment costs |
| 322 |
|
| (614) |
Postretirement claims and contributions |
| (228) |
|
| (424) |
Other - net |
| 346 |
|
| (494) |
Total adjustments |
| 14,399 |
|
| 17,014 |
Net Cash Provided by Operating Activities |
| 20,925 |
|
| 25,336 |
Investing Activities |
|
|
|
|
|
Capital expenditures: |
|
|
|
|
|
Purchase of property and equipment |
| (9,372) |
|
| (10,542) |
Interest during construction |
| (60) |
|
| (112) |
Acquisitions, net of cash acquired |
| (1,174) |
|
| (320) |
Dispositions |
| 347 |
|
| 3,593 |
(Purchases), sales and settlements of securities and investments, net |
| 47 |
|
| 396 |
Advances to and investments in equity affiliates, net |
| (66) |
|
| (314) |
Net Cash Used in Investing Activities |
| (10,278) |
|
| (7,299) |
Financing Activities |
|
|
|
|
|
Net change in short-term borrowings with original maturities of three months or less |
| 498 |
|
| 119 |
Issuance of other short-term borrowings |
| 8,440 |
|
| 3,067 |
Repayment of other short-term borrowings |
| (5,975) |
|
| (3,148) |
Issuance of long-term debt |
| 21,060 |
|
| 10,030 |
Repayment of long-term debt |
| (17,284) |
|
| (16,124) |
Payment of vendor financing |
| (1,354) |
|
| (1,836) |
Issuance of preferred stock |
| 3,869 |
|
| - |
Purchase of treasury stock |
| (5,480) |
|
| (240) |
Issuance of treasury stock |
| 84 |
|
| 455 |
Dividends paid |
| (7,474) |
|
| (7,436) |
Other |
| (2,295) |
|
| 330 |
Net Cash Used in Financing Activities |
| (5,911) |
|
| (14,783) |
Net increase in cash and cash equivalents and restricted cash |
| 4,736 |
|
| 3,254 |
Cash and cash equivalents and restricted cash beginning of year |
| 12,295 |
|
| 5,400 |
Cash and Cash Equivalents and Restricted Cash End of Period | $ | 17,031 |
| $ | 8,654 |
See Notes to Consolidated Financial Statements. |
6
AT&T INC. |
|
|
|
|
|
|
|
|
|
| |||||||||
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY | |||||||||||||||||||
Dollars and shares in millions except per share amounts |
|
|
|
|
|
|
|
|
|
| |||||||||
(Unaudited) |
|
|
|
|
|
|
|
|
|
| |||||||||
| Three months ended |
| Six months ended | ||||||||||||||||
| June 30, 2020 |
| June 30, 2019 |
| June 30, 2020 |
| June 30, 2019 | ||||||||||||
| Shares |
| Amount |
| Shares |
| Amount |
| Shares |
| Amount |
| Shares |
| Amount | ||||
Preferred Stock - Series A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year | - |
| $ | - |
| - |
| $ | - |
| - |
| $ | - |
| - |
| $ | - |
Issuance of stock | - |
|
| - |
| - |
|
| - |
| - |
|
| - |
| - |
|
| - |
Balance at end of period | - |
| $ | - |
| - |
| $ | - |
| - |
| $ | - |
| - |
| $ | - |
Preferred Stock - Series B |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year | - |
| $ | - |
| - |
| $ | - |
| - |
| $ | - |
| - |
| $ | - |
Issuance of stock | - |
|
| - |
| - |
|
| - |
| - |
|
| - |
| - |
|
| - |
Balance at end of period | - |
| $ | - |
| - |
| $ | - |
| - |
| $ | - |
| - |
| $ | - |
Preferred Stock - Series C |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year | - |
| $ | - |
| - |
| $ | - |
| - |
| $ | - |
| - |
| $ | - |
Issuance of stock | - |
|
| - |
| - |
|
| - |
| - |
|
| - |
| - |
|
| - |
Balance at end of period | - |
| $ | - |
| - |
| $ | - |
| - |
| $ | - |
| - |
| $ | - |
Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period | 7,621 |
| $ | 7,621 |
| 7,621 |
| $ | 7,621 |
| 7,621 |
| $ | 7,621 |
| 7,621 |
| $ | 7,621 |
Issuance of stock | - |
|
| - |
| - |
|
| - |
| - |
|
| - |
| - |
|
| - |
Balance at end of period | 7,621 |
| $ | 7,621 |
| 7,621 |
| $ | 7,621 |
| 7,621 |
| $ | 7,621 |
| 7,621 |
| $ | 7,621 |
Additional Paid-In Capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
|
| $ | 129,966 |
|
|
| $ | 125,174 |
|
|
| $ | 126,279 |
|
|
| $ | 125,525 |
Repurchase and acquisition of common stock |
|
|
| - |
|
|
|
| - |
|
|
|
| 67 |
|
|
|
| - |
Issuance of preferred stock |
|
|
| - |
|
|
|
| - |
|
|
|
| 3,869 |
|
|
|
| - |
Issuance of treasury stock |
|
|
| (7) |
|
|
|
| (50) |
|
|
|
| (54) |
|
|
|
| (127) |
Share-based payments |
|
|
| 87 |
|
|
|
| (15) |
|
|
|
| (115) |
|
|
|
| (289) |
Balance at end of period |
|
| $ | 130,046 |
|
|
| $ | 125,109 |
|
|
| $ | 130,046 |
|
|
| $ | 125,109 |
Retained Earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
|
| $ | 58,534 |
|
|
| $ | 59,424 |
|
|
| $ | 57,936 |
|
|
| $ | 58,753 |
Net income attributable to AT&T |
|
|
| 1,281 |
|
|
|
| 3,713 |
|
|
|
| 5,891 |
|
|
|
| 7,809 |
Preferred stock dividends |
|
|
| (36) |
|
|
|
| - |
|
|
|
| (68) |
|
|
|
| - |
Common stock dividends ( $0.52, $0.51, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$1.04, and $1.02 per share) |
|
|
| (3,734) |
|
|
|
| (3,748) |
|
|
|
| (7,421) |
|
|
|
| (7,489) |
Cumulative effect of accounting change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and other adjustments |
|
|
| - |
|
|
|
| - |
|
|
|
| (293) |
|
|
|
| 316 |
Balance at end of period |
|
| $ | 56,045 |
|
|
| $ | 59,389 |
|
|
| $ | 56,045 |
|
|
| $ | 59,389 |
See Notes to Consolidated Financial Statements. |
7
AT&T INC. |
|
|
|
|
|
|
|
|
|
| |||||||||
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY - continued | |||||||||||||||||||
Dollars and shares in millions except per share amounts |
|
|
|
|
|
|
|
|
|
| |||||||||
(Unaudited) |
|
|
|
|
|
|
|
|
|
| |||||||||
| Three months ended |
| Six months ended | ||||||||||||||||
| June 30, 2020 |
| June 30, 2019 |
| June 30, 2020 |
| June 30, 2019 | ||||||||||||
| Shares |
| Amount |
| Shares |
| Amount |
| Shares |
| Amount |
| Shares |
| Amount | ||||
Treasury Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period | (496) |
| $ | (17,957) |
| (324) |
| $ | (11,452) |
| (366) |
| $ | (13,085) |
| (339) |
| $ | (12,059) |
Repurchase and acquisition of common stock | - |
|
| (34) |
| (2) |
|
| (72) |
| (148) |
|
| (5,581) |
| (9) |
|
| (280) |
Issuance of treasury stock | 1 |
|
| 46 |
| 10 |
|
| 373 |
| 19 |
|
| 721 |
| 32 |
|
| 1,188 |
Balance at end of period | (495) |
| $ | (17,945) |
| (316) |
| $ | (11,151) |
| (495) |
| $ | (17,945) |
| (316) |
| $ | (11,151) |
Accumulated Other Comprehensive |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Income Attributable to AT&T, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
|
| $ | (385) |
|
|
| $ | 4,345 |
|
|
| $ | 5,470 |
|
|
| $ | 4,249 |
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
attributable to AT&T |
|
|
| 514 |
|
|
|
| (1,056) |
|
|
|
| (5,341) |
|
|
|
| (960) |
Balance at end of period |
|
| $ | 129 |
|
|
| $ | 3,289 |
|
|
| $ | 129 |
|
|
| $ | 3,289 |
Noncontrolling Interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
|
| $ | 17,670 |
|
|
| $ | 9,839 |
|
|
| $ | 17,713 |
|
|
| $ | 9,795 |
Net income attributable to |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
noncontrolling interest |
|
|
| 282 |
|
|
|
| 261 |
|
|
|
| 635 |
|
|
|
| 513 |
Interest acquired by noncontrolling owners |
|
|
| - |
|
|
|
| 1 |
|
|
|
| 1 |
|
|
|
| 10 |
Distributions |
|
|
| (387) |
|
|
|
| (279) |
|
|
|
| (726) |
|
|
|
| (525) |
Translation adjustments attributable to |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
noncontrolling interest, net of taxes |
|
|
| (8) |
|
|
|
| 2 |
|
|
|
| (59) |
|
|
|
| 2 |
Cumulative effect of accounting change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and other adjustments |
|
|
| - |
|
|
|
| - |
|
|
|
| (7) |
|
|
|
| 29 |
Balance at end of period |
|
| $ | 17,557 |
|
|
| $ | 9,824 |
|
|
| $ | 17,557 |
|
|
| $ | 9,824 |
Total Stockholders’ Equity at beginning |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of period |
|
| $ | 195,449 |
|
|
| $ | 194,951 |
|
|
| $ | 201,934 |
|
|
| $ | 193,884 |
Total Stockholders’ Equity at end |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of period |
|
| $ | 193,453 |
|
|
| $ | 194,081 |
|
|
| $ | 193,453 |
|
|
| $ | 194,081 |
See Notes to Consolidated Financial Statements. |
8
AT&T INC. | ||||||||||||||||
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | ||||||||||||||||
Dollars in millions | ||||||||||||||||
(Unaudited) | ||||||||||||||||
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Net income | $ | 3,123 | $ | 3,418 | $ | 10,711 | $ | 10,818 | ||||||||
Other comprehensive income (loss), net of tax: | ||||||||||||||||
Foreign currency: | ||||||||||||||||
Foreign currency translation adjustment (includes $10, $21, $6 and $21 attributable to noncontrolling interest), net of taxes of $74, $(91), $580 and $35 | 151 | (225 | ) | 490 | (51 | ) | ||||||||||
Available-for-sale securities: | ||||||||||||||||
Net unrealized gains (losses), net of taxes of $28, $28, $72 and $15 | 45 | 46 | 128 | 25 | ||||||||||||
Reclassification adjustment included in net income, net of taxes of $(50), $(3), $(54) and $(3) | (79 | ) | (5 | ) | (86 | ) | (5 | ) | ||||||||
Cash flow hedges: | ||||||||||||||||
Net unrealized gains (losses), net of taxes of $178, $240, $(94) and $99 | 330 | 446 | (174 | ) | 183 | |||||||||||
Reclassification adjustment included in net income, net of taxes of $5, $5, $15 and $15 | 10 | 10 | 29 | 29 | ||||||||||||
Defined benefit postretirement plans: | ||||||||||||||||
Net prior service credit arising during period, net of taxes of $0, $0, $594 and $0 | - | - | 969 | - | ||||||||||||
Amortization of net prior service credit included in net income, net of taxes of $(157), $(131), $(447) and $(393) | (256 | ) | (215 | ) | (731 | ) | (644 | ) | ||||||||
Other comprehensive income (loss) | 201 | 57 | 625 | (463 | ) | |||||||||||
Total comprehensive income | 3,324 | 3,475 | 11,336 | 10,355 | ||||||||||||
Less: Total comprehensive income attributable to noncontrolling interest | (104 | ) | (111 | ) | (304 | ) | (300 | ) | ||||||||
Total Comprehensive Income Attributable to AT&T | $ | 3,220 | $ | 3,364 | $ | 11,032 | $ | 10,055 | ||||||||
See Notes to Consolidated Financial Statements. |
AT&T INC. | ||||||||
CONSOLIDATED BALANCE SHEETS | ||||||||
Dollars in millions except per share amounts | ||||||||
September 30, | December 31, | |||||||
2017 | 2016 | |||||||
Assets | (Unaudited) | |||||||
Current Assets | ||||||||
Cash and cash equivalents | $ | 48,499 | $ | 5,788 | ||||
Accounts receivable - net of allowances for doubtful accounts of $741 and $661 | 15,876 | 16,794 | ||||||
Prepaid expenses | 1,258 | 1,555 | ||||||
Other current assets | 10,724 | 14,232 | ||||||
Total current assets | 76,357 | 38,369 | ||||||
Property, plant and equipment | 326,240 | 319,648 | ||||||
Less: accumulated depreciation and amortization | (199,778 | ) | (194,749 | ) | ||||
Property, Plant and Equipment – Net | 126,462 | 124,899 | ||||||
Goodwill | 105,668 | 105,207 | ||||||
Licenses | 96,071 | 94,176 | ||||||
Customer Lists and Relationships – Net | 11,573 | 14,243 | ||||||
Other Intangible Assets – Net | 7,775 | 8,441 | ||||||
Investments in Equity Affiliates | 1,627 | 1,674 | ||||||
Other Assets | 18,332 | 16,812 | ||||||
Total Assets | $ | 443,865 | $ | 403,821 | ||||
Liabilities and Stockholders' Equity | ||||||||
Current Liabilities | ||||||||
Debt maturing within one year | $ | 8,551 | $ | 9,832 | ||||
Accounts payable and accrued liabilities | 28,928 | 31,138 | ||||||
Advanced billing and customer deposits | 4,503 | 4,519 | ||||||
Accrued taxes | 2,703 | 2,079 | ||||||
Dividends payable | 3,008 | 3,008 | ||||||
Total current liabilities | 47,693 | 50,576 | ||||||
Long-Term Debt | 154,728 | 113,681 | ||||||
Deferred Credits and Other Noncurrent Liabilities | ||||||||
Deferred income taxes | 64,381 | 60,128 | ||||||
Postemployment benefit obligation | 31,231 | 33,578 | ||||||
Other noncurrent liabilities | 19,723 | 21,748 | ||||||
Total deferred credits and other noncurrent liabilities | 115,335 | 115,454 | ||||||
Stockholders' Equity | ||||||||
Common stock ($1 par value, $14,000,000,000 authorized at September 30, 2017 and December 31, 2016: issued 6,495,231,088 at September 30, 2017 and December 31, 2016) | 6,495 | 6,495 | ||||||
Additional paid-in capital | 89,527 | 89,604 | ||||||
Retained earnings | 36,074 | 34,734 | ||||||
Treasury stock (355,897,357 at September 30, 2017 and 356,237,141 at December 31, 2016, at cost) | (12,716 | ) | (12,659 | ) | ||||
Accumulated other comprehensive income | 5,580 | 4,961 | ||||||
Noncontrolling interest | 1,149 | 975 | ||||||
Total stockholders' equity | 126,109 | 124,110 | ||||||
Total Liabilities and Stockholders' Equity | $ | 443,865 | $ | 403,821 | ||||
See Notes to Consolidated Financial Statements. |
AT&T INC. | ||||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
Dollars in millions | ||||||||
(Unaudited) | ||||||||
Nine months ended | ||||||||
September 30, | ||||||||
2017 | 2016 | |||||||
Operating Activities | ||||||||
Net income | $ | 10,711 | $ | 10,818 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 18,316 | 19,718 | ||||||
Undistributed loss (earnings) from investments in equity affiliates | 171 | (22 | ) | |||||
Provision for uncollectible accounts | 1,216 | 1,036 | ||||||
Deferred income tax expense | 3,254 | 3,011 | ||||||
Net loss (gain) from sale of investments, net of impairments | (114 | ) | (88 | ) | ||||
Actuarial loss (gain) on pension and postretirement benefits | (259 | ) | - | |||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | (652 | ) | (1,108 | ) | ||||
Other current assets | (106 | ) | 1,805 | |||||
Accounts payable and other accrued liabilities | (1,437 | ) | (1,173 | ) | ||||
Equipment installment receivables and related sales | 1,116 | 207 | ||||||
Deferred fulfillment costs | (1,102 | ) | (1,883 | ) | ||||
Retirement benefit funding | (420 | ) | (770 | ) | ||||
Other - net | (1,420 | ) | (2,349 | ) | ||||
Total adjustments | 18,563 | 18,384 | ||||||
Net Cash Provided by Operating Activities | 29,274 | 29,202 | ||||||
Investing Activities | ||||||||
Capital expenditures: | ||||||||
Purchase of property and equipment | (15,756 | ) | (15,283 | ) | ||||
Interest during construction | (718 | ) | (669 | ) | ||||
Acquisitions, net of cash acquired | 1,154 | (2,922 | ) | |||||
Dispositions | 56 | 184 | ||||||
(Purchases) sales of securities, net | (2 | ) | 501 | |||||
Net Cash Used in Investing Activities | (15,266 | ) | (18,189 | ) | ||||
Financing Activities | ||||||||
Issuance of long-term debt | 46,761 | 10,140 | ||||||
Repayment of long-term debt | (10,309 | ) | (10,688 | ) | ||||
Purchase of treasury stock | (460 | ) | (444 | ) | ||||
Issuance of treasury stock | 26 | 137 | ||||||
Dividends paid | (9,030 | ) | (8,850 | ) | ||||
Other | 1,715 | (534 | ) | |||||
Net Cash Provided by (Used in) Financing Activities | 28,703 | (10,239 | ) | |||||
Net increase in cash and cash equivalents | 42,711 | 774 | ||||||
Cash and cash equivalents beginning of year | 5,788 | 5,121 | ||||||
Cash and Cash Equivalents End of Period | $ | 48,499 | $ | 5,895 | ||||
Cash paid during the nine months ended September 30 for: | ||||||||
Interest | $ | 5,031 | $ | 4,430 | ||||
Income taxes, net of refunds | $ | 1,861 | $ | 3,166 | ||||
See Notes to Consolidated Financial Statements. |
AT&T INC. | ||||||||
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY | ||||||||
Dollars and shares in millions except per share amounts | ||||||||
(Unaudited) | ||||||||
September 30, 2017 | ||||||||
Shares | Amount | |||||||
Common Stock | ||||||||
Balance at beginning of year | 6,495 | $ | 6,495 | |||||
Issuance of stock | - | - | ||||||
Balance at end of period | 6,495 | $ | 6,495 | |||||
Additional Paid-In Capital | ||||||||
Balance at beginning of year | $ | 89,604 | ||||||
Issuance of treasury stock | 4 | |||||||
Share-based payments | (81 | ) | ||||||
Balance at end of period | $ | 89,527 | ||||||
Retained Earnings | ||||||||
Balance at beginning of year | $ | 34,734 | ||||||
Net income attributable to AT&T ($1.69 per diluted share) | 10,413 | |||||||
Dividends to stockholders ($1.47 per share) | (9,075 | ) | ||||||
Other | 2 | |||||||
Balance at end of period | $ | 36,074 | ||||||
Treasury Stock | ||||||||
Balance at beginning of year | (356 | ) | $ | (12,659 | ) | |||
Repurchase and acquisition of common stock | (14 | ) | (530 | ) | ||||
Issuance of treasury stock | 14 | 473 | ||||||
Balance at end of period | (356 | ) | $ | (12,716 | ) | |||
Accumulated Other Comprehensive Income Attributable to AT&T, net of tax | ||||||||
Balance at beginning of year | $ | 4,961 | ||||||
Other comprehensive income attributable to AT&T | 619 | |||||||
Balance at end of period | $ | 5,580 | ||||||
Noncontrolling Interest | ||||||||
Balance at beginning of year | $ | 975 | ||||||
Net income attributable to noncontrolling interest | 298 | |||||||
Distributions | (270 | ) | ||||||
Acquisition of noncontrolling interest | 140 | |||||||
Translation adjustments attributable to noncontrolling interest, net of taxes | 6 | |||||||
Balance at end of period | $ | 1,149 | ||||||
Total Stockholders' Equity at beginning of year | $ | 124,110 | ||||||
Total Stockholders' Equity at end of period | $ | 126,109 | ||||||
See Notes to Consolidated Financial Statements. |
AT&T INC.
JUNE 30, 2017
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Dollars in millions except per share amounts
NOTE 1. PREPARATION OF INTERIM FINANCIAL STATEMENTS
Basis of Presentation
Throughout this document, AT&T Inc. is referred to as “we,” “AT&T” or the “Company.” The consolidated financial statements include the accounts of the Company and subsidiaries and affiliates which we control. AT&T is a holding company whose subsidiaries and affiliates operate worldwide in the telecommunications, media and technology industries. You should read this document in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2019. The results for the interim periods are not necessarily indicative of those for the full year.These consolidated financial statements include all adjustments that are necessary to present fairly the results for the presented interim periods, consisting of normal recurring accruals and other items.All significant intercompany transactions are eliminated in the consolidation process. Investments in unconsolidated subsidiaries and partnerships wherewhich we do not control but have significant influence are accounted for under the equity method. Earnings from certain investments accounted for using the equity method are included for periods ended within up to one quarter of our period end. We also record our proportionate share of our equity method investees'investees’ other comprehensive income (OCI) items, including cumulative translation adjustments.
The preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions, including potential impacts arising from the COVID-19 pandemic, that affect the amounts reported in the financial statements and accompanying notes, including estimates of probable losses and expenses.notes. Actual results could differ from those estimates.
In the tables throughout this document, percentage increases and decreases that are not considered meaningful are denoted with a dash.
Adopted and Pending Accounting Standards
Credit Losses As of January 1, 2017,2020, we adopted, through modified retrospective application, the Financial Accounting Standards Board’s (FASB) Accounting Standards Update (ASU) No. 2016-16, "Income Taxes2016-13, “Financial Instruments—Credit Losses (Topic 740)"326): Measurement of Credit Losses on Financial Instruments” (ASU 2016-16)2016-13, as amended), which replaces the incurred loss impairment methodology under prior GAAP with modified retrospective application, resulting inan expected credit loss model. ASU 2016-13 affects trade receivables, loans, contract assets, certain beneficial interests, off-balance-sheet credit exposures not accounted for as insurance and other financial assets that are not subject to fair value through net income, as defined by the standard. Under the expected credit loss model, we are required to consider future economic trends to estimate expected credit losses over the lifetime of the asset. Upon adoption, we recorded a $293 reduction to “Retained earnings,” $395 increase to “allowances for doubtful accounts” applicable to our recognitiontrade and loan receivables, $10 reduction of an immaterial adjustment to retained earnings. Under ASU 2016-16, we recognize thecontract assets, $105 reduction of net deferred income tax effectsliability and $7 reduction of intercompany sales or transfers“Noncontrolling interest” as an opening adjustment. Our adoption 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 toASU 2016-13 did not have a third party or recognition of depreciation or impairment.
Reference Rate ReformIn March 2017, the Financial Accounting Standards Board (FASB) issued ASU No. 2017-07, "Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost" (ASU 2017-07), which changes the presentation of periodic benefit cost components. Under ASU 2017-07, we will continue to present service costs within our operating expenses but present amortization of prior service credits and other components of our net periodic benefit cost in "other income (expense) – net" in our consolidated statements of income. ASU 2017-07 is effective for annual reporting periods beginning after December 15, 2017. See Note 5 for our components of net periodic benefit cost.
Intangible Assets Driven by significant and adverse economic and political environments in Latin America, including the standard using the "modified retrospective method." Under that method, we will apply the rules to all open contracts existing as of January 1, 2018, recognizing in beginning retained earnings an adjustment for the cumulative effectimpact of the changeCOVID-19 pandemic, we have experienced accelerated subscriber losses and providing additional disclosures comparing results to previous accounting standards.revenue decline in the region, as well as closure of our operations in Venezuela. When combining these business trends and higher weighted-average cost of capital resulting from the increase in country-risk premiums in the region, we concluded that it is more likely than not that the
9
AT&T INC.
JUNE 30, 2017
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- ContinuedDollars in millions except per share amounts
fair value of the Vrio reporting unit, estimated using discounted cash flow and market multiple approaches, is less than its carrying amount. We recorded a $2,212 goodwill impairment in the reporting unit, with $105 attributable to noncontrolling interest. The impairment is not deductible for tax purposes and resulted in an increase in our effective tax rate.
During the first quarter of 2020, we reassessed and changed the estimated economic lives of certain trade names in our Latin America business from indefinite to finite-lived and began amortizing them using the straight-line method over their average remaining economic life of 15 years. This change had an insignificant impact on our financial statements.
Also during the first quarter of 2020, in conjunction with the nationwide launch of AT&T TV and our customers’ continued shift from linear to streaming video services, we reassessed the estimated economic lives and renewal assumptions for our orbital slot licenses. As a result, we have changed the estimated lives of these licenses from indefinite to finite-lived, effective January 1, 2020, and began amortizing our orbital slot licenses using the sum-of-months-digits method over their average remaining economic life of 15 years. This change in accounting increased amortization expense $379, or $0.04 per diluted share available to common stock during the second quarter and $765, or $0.08, per diluted share available to common stock for the first six months of 2020.
NOTE 2. EARNINGS PER SHARE
A reconciliation of the numerators and denominators of basic and diluted earnings per share for the three months and ninesix months ended SeptemberJune 30, 20172020 and 2016,2019, is shown in the table below:
| Three months ended |
| Six months ended | ||||||||
| June 30, |
| June 30, | ||||||||
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Numerators |
|
|
|
|
|
|
|
|
|
|
|
Numerator for basic earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
Net Income | $ | 1,563 |
| $ | 3,974 |
| $ | 6,526 |
| $ | 8,322 |
Less: Net income attributable to noncontrolling interest |
| (282) |
|
| (261) |
|
| (635) |
|
| (513) |
Net Income attributable to AT&T |
| 1,281 |
|
| 3,713 |
|
| 5,891 |
|
| 7,809 |
Less: Preferred stock dividends |
| (52) |
|
| - |
|
| (84) |
|
| - |
Net income attributable to common stock |
| 1,229 |
|
| 3,713 |
|
| 5,807 |
|
| 7,809 |
Dilutive potential common shares: |
|
|
|
|
|
|
|
|
|
|
|
Share-based payment |
| 5 |
|
| 4 |
|
| 11 |
|
| 10 |
Numerator for diluted earnings per share | $ | 1,234 |
| $ | 3,717 |
| $ | 5,818 |
| $ | 7,819 |
Denominators (000,000) |
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding |
| 7,145 |
|
| 7,323 |
|
| 7,166 |
|
| 7,318 |
Dilutive potential common shares: |
|
|
|
|
|
|
|
|
|
|
|
Share-based payment (in shares) |
| 25 |
|
| 30 |
|
| 26 |
|
| 29 |
Denominator for diluted earnings per share |
| 7,170 |
|
| 7,353 |
|
| 7,192 |
|
| 7,347 |
Basic earnings per share attributable to Common Stock | $ | 0.17 |
| $ | 0.51 |
| $ | 0.81 |
| $ | 1.06 |
Diluted earnings per share attributable to Common Stock | $ | 0.17 |
| $ | 0.51 |
| $ | 0.81 |
| $ | 1.06 |
In the first quarter of 2020, we completed an accelerated share repurchase agreement with a third-party financial institution to repurchase AT&T common stock. Under the terms of the agreement, we paid the financial institution $4,000 and received 104.8 million shares.
10
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Numerators | ||||||||||||||||
Numerator for basic earnings per share: | ||||||||||||||||
Net Income | $ | 3,123 | $ | 3,418 | $ | 10,711 | $ | 10,818 | ||||||||
Less: Net income attributable to noncontrolling interest | (94 | ) | (90 | ) | (298 | ) | (279 | ) | ||||||||
Net Income attributable to AT&T | 3,029 | 3,328 | 10,413 | 10,539 | ||||||||||||
Dilutive potential common shares: | ||||||||||||||||
Share-based payment | 3 | 3 | 9 | 9 | ||||||||||||
Numerator for diluted earnings per share | $ | 3,032 | $ | 3,331 | $ | 10,422 | $ | 10,548 | ||||||||
Denominators (000,000) | ||||||||||||||||
Denominator for basic earnings per share: | ||||||||||||||||
Weighted average number of common shares outstanding | 6,162 | 6,168 | 6,164 | 6,171 | ||||||||||||
Dilutive potential common shares: | ||||||||||||||||
Share-based payment (in shares) | 20 | 21 | 20 | 20 | ||||||||||||
Denominator for diluted earnings per share | 6,182 | 6,189 | 6,184 | 6,191 | ||||||||||||
Basic earnings per share attributable to AT&T | $ | 0.49 | $ | 0.54 | $ | 1.69 | $ | 1.70 | ||||||||
Diluted earnings per share attributable to AT&T | $ | 0.49 | $ | 0.54 | $ | 1.69 | $ | 1.70 |
AT&T INC.
JUNE 30, 2017
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- ContinuedDollars in millions except per share amounts
NOTE 3. OTHER COMPREHENSIVE INCOME
Changes in the balances of each component included in accumulated other comprehensive income (accumulated OCI)OCI are presented below. All amounts are net of tax and exclude noncontrolling interest.
|
| Foreign Currency Translation Adjustment |
| Net Unrealized Gains (Losses) on Securities |
| Net Unrealized Gains (Losses) on Derivative Instruments |
| Defined Benefit Postretirement Plans |
| Accumulated Other Comprehensive Income | |||||
Balance as of December 31, 2019 | $ | (3,056) |
| $ | 48 |
| $ | (37) |
| $ | 8,515 |
| $ | 5,470 | |
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
(loss) before reclassifications |
| (1,490) |
|
| 80 |
|
| (3,026) |
|
| - |
|
| (4,436) | |
Amounts reclassified |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
from accumulated OCI |
| - | 1 |
| - | 1 |
| 17 | 2 |
| (922) | 3 |
| (905) | |
Net other comprehensive |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
income (loss) |
| (1,490) |
|
| 80 |
|
| (3,009) |
|
| (922) |
|
| (5,341) | |
Balance as of June 30, 2020 | $ | (4,546) |
| $ | 128 |
| $ | (3,046) |
| $ | 7,593 |
| $ | 129 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Foreign Currency Translation Adjustment |
| Net Unrealized Gains (Losses) on Securities |
| Net Unrealized Gains (Losses) on Derivative Instruments |
| Defined Benefit Postretirement Plans |
| Accumulated Other Comprehensive Income | |||||
Balance as of December 31, 2018 | $ | (3,084) |
| $ | (2) |
| $ | 818 |
| $ | 6,517 |
| $ | 4,249 | |
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
(loss) before reclassifications |
| 159 |
|
| 42 |
|
| (490) |
|
| - |
|
| (289) | |
Amounts reclassified |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
from accumulated OCI |
| - | 1 |
| - | 1 |
| 17 | 2 |
| (688) | 3 |
| (671) | |
Net other comprehensive |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
income (loss) |
| 159 |
|
| 42 |
|
| (473) |
|
| (688) |
|
| (960) | |
Balance as of June 30, 2019 | $ | (2,925) |
| $ | 40 |
| $ | 345 |
| $ | 5,829 |
| $ | 3,289 | |
1 | (Gains) losses are included in "Other income (expense) - net" in the consolidated statements of income. | ||||||||||||||
2 | (Gains) losses are included in "Interest expense" in the consolidated statements of income (see Note 7). | ||||||||||||||
3 | The amortization of prior service credits associated with postretirement benefits are included in "Other income (expense) - net" in the | ||||||||||||||
| consolidated statements of income (see Note 6). |
11
Foreign Currency Translation Adjustment | Net Unrealized Gains (Losses) on Available-for-Sale Securities | Net Unrealized Gains (Losses) on Cash Flow Hedges | Defined Benefit Postretirement Plans | Accumulated Other Comprehensive Income | |||||||||||
Balance as of December 31, 2016 | $ | (1,995) | $ | 541 | $ | 744 | $ | 5,671 | $ | 4,961 | |||||
Other comprehensive income (loss) before reclassifications | 484 | 128 | (174) | 969 | 1,407 | ||||||||||
Amounts reclassified from accumulated OCI | - | 1 | (86) | 1 | 29 | 2 | (731) | 3 | (788) | ||||||
Net other comprehensive income (loss) | 484 | 42 | (145) | 238 | 619 | ||||||||||
Balance as of September 30, 2017 | $ | (1,511) | $ | 583 | $ | 599 | $ | 5,909 | $ | 5,580 | |||||
Foreign Currency Translation Adjustment | Net Unrealized Gains (Losses) on Available-for-Sale Securities | Net Unrealized Gains (Losses) on Cash Flow Hedges | Defined Benefit Postretirement Plans | Accumulated Other Comprehensive Income | |||||||||||
Balance as of December 31, 2015 | $ | (1,198) | $ | 484 | $ | 16 | $ | 6,032 | $ | 5,334 | |||||
Other comprehensive income (loss) before reclassifications | (72) | 25 | 183 | - | 136 | ||||||||||
Amounts reclassified from accumulated OCI | - | 1 | (5) | 1 | 29 | 2 | (644) | 3 | (620) | ||||||
Net other comprehensive income (loss) | (72) | 20 | 212 | (644) | (484) | ||||||||||
Balance as of September 30, 2016 | $ | (1,270) | $ | 504 | $ | 228 | $ | 5,388 | $ | 4,850 | |||||
1 | (Gains) losses are included in Other income (expense) - net in the consolidated statements of income. | ||||||||||||||
2 | (Gains) losses are included in Interest expense in the consolidated statements of income (see Note 6). | ||||||||||||||
3 | The amortization of prior service credits associated with postretirement benefits, net of amounts capitalized as part of construction labor, are included in Cost of services and sales and Selling, general and administrative in the consolidated statements of income (see Note 5). |
AT&T INC.
JUNE 30, 2020
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
NOTE 4. SEGMENT INFORMATION
Our segments are strategic business units that offer products and services to different customer segments over various technology platforms and/or in different geographies that are managed accordingly. We analyze our segments based on Segment Contribution,segment operating contribution, which consists of operating income, excluding acquisition-related costs and other significant items (as discussed below), and equity in net income (loss) of affiliates for investments managed within each segment. We have four3 reportable segments: (1) Business Solutions,Communications, (2) Entertainment Group,WarnerMedia and (3) Consumer Mobility and (4) International.
We have recast our segment results for all prior periods to include our prior Xandr segment within our WarnerMedia segment.
We also evaluate segment and business unit performance based on EBITDA and/or EBITDA margin, which is defined as Segment Contributionoperating contribution excluding equity in net income (loss) of affiliates and depreciation and amortization. We believe EBITDA to be a relevant and useful measurement to our investors as it is part of our internal management reporting and planning processes and it is an important metric that management uses to evaluate segment operating performance. EBITDA does not give effect
The Business SolutionsCommunications segment provides wireless and wireline telecom, video and broadband services to consumers located in the U.S. and businesses globally. This segment contains the following business customers,units:
Mobility provides nationwide wireless service and equipment.
Entertainment Group provides video, including multinational companies; governmentalover-the-top (OTT) services, broadband and wholesale customers; and individual subscribers who purchase wirelessvoice communications services through employer-sponsored plans. We provideprimarily to residential customers. This segment also sells advertising on distribution platforms.
Business Wireline provides advanced IP-based services, including Virtual Private Networks (VPN); Ethernet-related products and broadband, collectively referred to as fixed strategic services; as well as traditional data and voice products. We utilize our wireless and wired networks to provide a complete communications solution to our business customers.
The WarnerMedia segment develops, produces and distributes feature films, television, gaming and other content in various physical and digital formats globally. Historical financial results from Xandr, previously a separate reportable segment, have been combined with the WarnerMedia segment within Eliminations and other. This segment contains the following business units:
Turner primarily operates multichannel basic television networks and digital properties. Turner also sells advertising on its networks and digital properties.
Home Box Office consists of premium pay television and OTT and streaming services domestically and premium pay, basic tier television and OTT services internationally, as well as content licensing and home monitoring services over wireless devices.
Warner Bros. primarily consists of the production, distribution and licensing of television programming and feature films, the distribution of home entertainment products and the production and distribution of games.
The InternationalLatin America segment provides entertainment and wireless services outside of the U.S. This segment contains the following business units:
Vrio provides video services primarily to residential customers using satellite technology in Latin America and the Caribbean.
Mexico provides wireless servicesservice and equipment to customers in Mexico. Video entertainment services are provided to primarily residential customers using satellite technology. We utilize
Corporate and Other reconciles our regional and national networks in Mexico to provide consumer and business customers with wireless data and voice communication services. Our international subsidiaries conduct business in their local currency, and operatingsegment results are converted to U.S. dollars using official exchange rates.
Corporate, which consists of: (1) operations that are not considered reportable segments and that arebusinesses no longer integral to our operations or which we no longer actively market, and (2) corporate support functions, (3) impacts of corporate-wide decisions for which the individual operating segments are not being evaluated, including interest costs and expected return on plan assets for our pension and postretirement benefit plans.
Acquisition-related items which consists of items associated with the merger and integration of acquired businesses, including amortization of intangible assets.
12
AT&T INC.
JUNE 30, 2020
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
Certain significant items includes (1) employee separation charges associated with voluntary and/or strategic offers, (2) losses resulting from abandonment of network assets and impairments and (3) other items for which the segments are not being evaluated.
Eliminations and consolidations, which (1) removes transactions involving dealings between our segments, including content licensing between WarnerMedia and Communications, and (2) includes adjustments for our reporting of the advertising business.
“Interest expense” and “Other income (expense) – net,” are managed only on a total company basis and are, accordingly, reflected only in consolidated results.
13
AT&T INC.
JUNE 30, 2017
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- ContinuedDollars in millions except per share amounts
For the three months ended September 30, 2017 | ||||||||||||||||||||||||||||
Revenues | Operations and Support Expenses | EBITDA | Depreciation and Amortization | Operating Income (Loss) | Equity in Net Income (Loss) of Affiliates | Segment Contribution | ||||||||||||||||||||||
Business Solutions | $ | 17,061 | $ | 10,233 | $ | 6,828 | $ | 2,325 | $ | 4,503 | $ | - | $ | 4,503 | ||||||||||||||
Entertainment Group | 12,648 | 9,953 | 2,695 | 1,379 | 1,316 | (6 | ) | 1,310 | ||||||||||||||||||||
Consumer Mobility | 7,748 | 4,551 | 3,197 | 877 | 2,320 | - | 2,320 | |||||||||||||||||||||
International | 2,099 | 1,937 | 162 | 304 | (142 | ) | 17 | (125 | ) | |||||||||||||||||||
Segment Total | 39,556 | 26,674 | 12,882 | 4,885 | 7,997 | $ | 11 | $ | 8,008 | |||||||||||||||||||
Corporate and Other | 201 | 89 | 112 | 21 | 91 | |||||||||||||||||||||||
Acquisition-related items | - | 134 | (134 | ) | 1,136 | (1,270 | ) | |||||||||||||||||||||
Certain significant items | (89 | ) | 326 | (415 | ) | - | (415 | ) | ||||||||||||||||||||
AT&T Inc. | $ | 39,668 | $ | 27,223 | $ | 12,445 | $ | 6,042 | $ | 6,403 |
For the nine months ended September 30, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||
For the three months ended June 30, 2020 | For the three months ended June 30, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||
Revenues | Operations and Support Expenses | EBITDA | Depreciation and Amortization | Operating Income (Loss) | Equity in Net Income (Loss) of Affiliates | Segment Contribution |
| Revenues |
| Operations and Support Expenses |
| EBITDA |
| Depreciation and Amortization |
| Operating Income (Loss) |
| Equity in Net Income (Loss) of Affiliates |
| Segment Contribution | ||||||||||||||||||||||||||||
Business Solutions | $ | 51,016 | $ | 30,722 | $ | 20,294 | $ | 6,972 | $ | 13,322 | $ | - | $ | 13,322 | ||||||||||||||||||||||||||||||||||
Communications |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||
Mobility | $ | 17,149 |
| $ | 9,332 |
| $ | 7,817 |
| $ | 2,012 |
| $ | 5,805 |
| $ | - |
| $ | 5,805 | ||||||||||||||||||||||||||||
Entertainment Group | 37,953 | 29,112 | 8,841 | 4,256 | 4,585 | (23 | ) | 4,562 |
| 10,069 |
|
| 7,730 |
|
| 2,339 |
|
| 1,309 |
|
| 1,030 |
|
| - |
|
| 1,030 | ||||||||||||||||||||
Consumer Mobility | 23,279 | 13,599 | 9,680 | 2,621 | 7,059 | - | 7,059 | |||||||||||||||||||||||||||||||||||||||||
International | 6,054 | 5,468 | 586 | 905 | (319 | ) | 62 | (257 | ) | |||||||||||||||||||||||||||||||||||||||
Business Wireline |
| 6,374 |
|
| 3,779 |
|
| 2,595 |
|
| 1,318 |
|
| 1,277 |
|
| - |
|
| 1,277 | ||||||||||||||||||||||||||||
Total Communications |
| 33,592 |
| 20,841 |
| 12,751 |
| 4,639 |
| 8,112 |
| - |
| 8,112 | ||||||||||||||||||||||||||||||||||
WarnerMedia |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||
Turner |
| 2,988 |
|
| 1,347 |
|
| 1,641 |
|
| 69 |
|
| 1,572 |
|
| - |
|
| 1,572 | ||||||||||||||||||||||||||||
Home Box Office |
| 1,627 |
|
| 1,489 |
|
| 138 |
|
| 25 |
|
| 113 |
|
| (5) |
|
| 108 | ||||||||||||||||||||||||||||
Warner Bros. |
| 3,256 |
|
| 2,583 |
|
| 673 |
|
| 40 |
|
| 633 |
|
| (19) |
|
| 614 | ||||||||||||||||||||||||||||
Eliminations and other |
| (1,057) |
|
| (685) |
|
| (372) |
| 33 |
| (405) |
| 28 |
| (377) | ||||||||||||||||||||||||||||||||
Total WarnerMedia |
| 6,814 |
|
| 4,734 |
|
| 2,080 |
| 167 |
| 1,913 |
| 4 |
| 1,917 | ||||||||||||||||||||||||||||||||
Latin America |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||
Vrio |
| 752 |
|
| 661 |
|
| 91 |
| 127 |
| (36) |
| 8 |
| (28) | ||||||||||||||||||||||||||||||||
Mexico |
| 480 |
|
| 538 |
|
| (58) |
| 115 |
| (173) |
| - |
| (173) | ||||||||||||||||||||||||||||||||
Total Latin America |
| 1,232 |
|
| 1,199 |
|
| 33 |
| 242 |
| (209) |
| 8 |
| (201) | ||||||||||||||||||||||||||||||||
Segment Total | 118,302 | 78,901 | 39,401 | 14,754 | 24,647 | $ | 39 | $ | 24,686 |
| 41,638 |
|
| 26,774 |
|
| 14,864 |
| 5,048 |
| 9,816 |
| $ | 12 |
| $ | 9,828 | |||||||||||||||||||||
Corporate and Other | 657 | 397 | 260 | 54 | 206 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Corporate |
| 437 |
|
| 933 |
|
| (496) |
| 93 |
| (589) |
|
|
|
| ||||||||||||||||||||||||||||||||
Acquisition-related items | - | 622 | (622 | ) | 3,508 | (4,130 | ) |
| - |
|
| 211 |
|
| (211) |
| 2,145 |
| (2,356) |
|
|
|
| |||||||||||||||||||||||||
Certain significant items | (89 | ) | 44 | (133 | ) | - | (133 | ) |
| - |
|
| 3,084 |
|
| (3,084) |
| - |
| (3,084) |
|
|
|
| ||||||||||||||||||||||||
Eliminations and consolidations |
| (1,125) |
|
| (869) |
|
| (256) |
| (1) |
| (255) |
|
|
|
| ||||||||||||||||||||||||||||||||
AT&T Inc. | $ | 118,870 | $ | 79,964 | $ | 38,906 | $ | 18,316 | $ | 20,590 | $ | 40,950 |
| $ | 30,133 |
| $ | 10,817 |
| $ | 7,285 |
| $ | 3,532 |
|
|
|
|
14
AT&T INC.
JUNE 30, 2017
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- ContinuedDollars in millions except per share amounts
For the three months ended September 30, 2016 | ||||||||||||||||||||||||||||
Revenues | Operations and Support Expenses | EBITDA | Depreciation and Amortization | Operating Income (Loss) | Equity in Net Income (Loss) of Affiliates | Segment Contribution | ||||||||||||||||||||||
Business Solutions | $ | 17,767 | $ | 10,925 | $ | 6,842 | $ | 2,539 | $ | 4,303 | $ | - | $ | 4,303 | ||||||||||||||
Entertainment Group | 12,720 | 9,728 | 2,992 | 1,504 | 1,488 | - | 1,488 | |||||||||||||||||||||
Consumer Mobility | 8,267 | 4,751 | 3,516 | 944 | 2,572 | - | 2,572 | |||||||||||||||||||||
International | 1,879 | 1,640 | 239 | 293 | (54 | ) | 1 | (53 | ) | |||||||||||||||||||
Segment Total | 40,633 | 27,044 | 13,589 | 5,280 | 8,309 | $ | 1 | $ | 8,310 | |||||||||||||||||||
Corporate and Other | 270 | 270 | - | 17 | (17 | ) | ||||||||||||||||||||||
Acquisition-related items | - | 290 | (290 | ) | 1,282 | (1,572 | ) | |||||||||||||||||||||
Certain significant items | (13 | ) | 299 | (312 | ) | - | (312 | ) | ||||||||||||||||||||
AT&T Inc. | $ | 40,890 | $ | 27,903 | $ | 12,987 | $ | 6,579 | $ | 6,408 |
For the nine months ended September 30, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||
For the three months ended June 30, 2019 | For the three months ended June 30, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||
Revenues | Operations and Support Expenses | EBITDA | Depreciation and Amortization | Operating Income (Loss) | Equity in Net Income (Loss) of Affiliates | Segment Contribution |
| Revenues |
| Operations and Support Expenses |
| EBITDA |
| Depreciation and Amortization |
| Operating Income (Loss) |
| Equity in Net Income (Loss) of Affiliates |
| Segment Contribution | ||||||||||||||||||||||||||||
Business Solutions | $ | 52,955 | $ | 32,584 | $ | 20,371 | $ | 7,568 | $ | 12,803 | $ | - | $ | 12,803 | ||||||||||||||||||||||||||||||||||
Communications |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||
Mobility | $ | 17,292 |
| $ | 9,522 |
| $ | 7,770 |
| $ | 2,003 |
| $ | 5,767 |
| $ | - |
| $ | 5,767 | ||||||||||||||||||||||||||||
Entertainment Group | 38,089 | 28,875 | 9,214 | 4,481 | 4,733 | 1 | 4,734 |
| 11,368 |
| 8,515 |
| 2,853 |
| 1,339 |
| 1,514 |
| - |
| 1,514 | |||||||||||||||||||||||||||
Consumer Mobility | 24,781 | 14,343 | 10,438 | 2,798 | 7,640 | - | 7,640 | |||||||||||||||||||||||||||||||||||||||||
International | 5,374 | 4,951 | 423 | 868 | (445 | ) | 24 | (421 | ) | |||||||||||||||||||||||||||||||||||||||
Business Wireline |
| 6,607 |
| 3,975 |
| 2,632 |
|
| 1,242 |
|
| 1,390 |
|
| - |
|
| 1,390 | ||||||||||||||||||||||||||||||
Total Communications |
| 35,267 |
| 22,012 |
| 13,255 |
| 4,584 |
| 8,671 |
| - |
| 8,671 | ||||||||||||||||||||||||||||||||||
WarnerMedia |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||
Turner |
| 3,410 |
| 2,217 |
| 1,193 |
| 39 |
| 1,154 |
| 11 |
| 1,165 | ||||||||||||||||||||||||||||||||||
Home Box Office |
| 1,716 |
| 1,131 |
| 585 |
| 12 |
| 573 |
| 15 |
| 588 | ||||||||||||||||||||||||||||||||||
Warner Bros. |
| 3,389 |
| 2,918 |
| 471 |
| 31 |
| 440 |
| - |
| 440 | ||||||||||||||||||||||||||||||||||
Eliminations and other |
| 320 |
| 170 |
| 150 |
| 22 |
| 128 |
| 29 |
| 157 | ||||||||||||||||||||||||||||||||||
Total WarnerMedia |
| 8,835 |
| 6,436 |
| 2,399 |
| 104 |
| 2,295 |
| 55 |
| 2,350 | ||||||||||||||||||||||||||||||||||
Latin America |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||
Vrio |
| 1,032 |
| 881 |
| 151 |
| 165 |
| (14) |
| 12 |
| (2) | ||||||||||||||||||||||||||||||||||
Mexico |
| 725 |
| 813 |
| (88) |
| 119 |
| (207) |
| - |
| (207) | ||||||||||||||||||||||||||||||||||
Total Latin America |
| 1,757 |
| 1,694 |
| 63 |
| 284 |
| (221) |
| 12 |
| (209) | ||||||||||||||||||||||||||||||||||
Segment Total | 121,199 | 80,753 | 40,446 | 15,715 | 24,731 | $ | 25 | $ | 24,756 |
| 45,859 |
|
| 30,142 |
|
| 15,717 |
| 4,972 |
| 10,745 |
| $ | 67 |
| $ | 10,812 | |||||||||||||||||||||
Corporate and Other | 759 | 940 | (181 | ) | 54 | (235 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Corporate |
| 450 |
|
| 765 |
|
| (315) |
| 170 |
| (485) |
|
|
|
| ||||||||||||||||||||||||||||||||
Acquisition-related items | - | 818 | (818 | ) | 3,949 | (4,767 | ) |
| (30) |
|
| 316 |
|
| (346) |
| 1,960 |
| (2,306) |
|
|
|
| |||||||||||||||||||||||||
Certain significant items | (13 | ) | (383 | ) | 370 | - | 370 |
| - |
|
| 94 |
|
| (94) |
| - |
| (94) |
|
|
|
| |||||||||||||||||||||||||
Eliminations and consolidations |
| (1,322) |
|
| (961) |
|
| (361) |
| (1) |
| (360) |
|
|
|
| ||||||||||||||||||||||||||||||||
AT&T Inc. | $ | 121,945 | $ | 82,128 | $ | 39,817 | $ | 19,718 | $ | 20,099 | $ | 44,957 |
| $ | 30,356 |
| $ | 14,601 |
| $ | 7,101 |
| $ | 7,500 |
|
|
|
|
15
AT&T INC.
JUNE 30, 2017
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- ContinuedDollars in millions except per share amounts
For the six months ended June 30, 2020 | ||||||||||||||||||||
|
| Revenues |
|
| Operations and Support Expenses |
|
| EBITDA |
|
| Depreciation and Amortization |
|
| Operating Income (Loss) |
|
| Equity in Net Income (Loss) of Affiliates |
|
| Segment Contribution |
Communications |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobility | $ | 34,551 |
| $ | 18,901 |
| $ | 15,650 |
| $ | 4,057 |
| $ | 11,593 |
| $ | - |
| $ | 11,593 |
Entertainment Group |
| 20,584 |
|
| 15,621 |
|
| 4,963 |
|
| 2,598 |
|
| 2,365 |
|
| - |
|
| 2,365 |
Business Wireline |
| 12,706 |
|
| 7,730 |
|
| 4,976 |
|
| 2,619 |
|
| 2,357 |
|
| - |
|
| 2,357 |
Total Communications |
| 67,841 |
|
| 42,252 |
|
| 25,589 |
|
| 9,274 |
|
| 16,315 |
|
| - |
|
| 16,315 |
WarnerMedia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Turner |
| 6,150 |
|
| 3,057 |
|
| 3,093 |
|
| 138 |
|
| 2,955 |
|
| 6 |
|
| 2,961 |
Home Box Office |
| 3,124 |
|
| 2,542 |
|
| 582 |
|
| 46 |
|
| 536 |
|
| 15 |
|
| 551 |
Warner Bros. |
| 6,496 |
|
| 5,533 |
|
| 963 |
|
| 81 |
|
| 882 |
|
| (27) |
|
| 855 |
Eliminations and other |
| (1,108) |
|
| (711) |
|
| (397) |
|
| 65 |
|
| (462) |
|
| 25 |
|
| (437) |
Total WarnerMedia |
| 14,662 |
|
| 10,421 |
|
| 4,241 |
|
| 330 |
|
| 3,911 |
|
| 19 |
|
| 3,930 |
Latin America |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vrio |
| 1,639 |
|
| 1,444 |
|
| 195 |
|
| 274 |
|
| (79) |
|
| 12 |
|
| (67) |
Mexico |
| 1,183 |
|
| 1,252 |
|
| (69) |
|
| 249 |
|
| (318) |
|
| - |
|
| (318) |
Total Latin America |
| 2,822 |
|
| 2,696 |
|
| 126 |
|
| 523 |
|
| (397) |
|
| 12 |
|
| (385) |
Segment Total |
| 85,325 |
|
| 55,369 |
|
| 29,956 |
|
| 10,127 |
|
| 19,829 |
| $ | 31 |
| $ | 19,860 |
Corporate and Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate |
| 825 |
|
| 1,807 |
|
| (982) |
|
| 180 |
|
| (1,162) |
|
|
|
|
|
|
Acquisition-related items |
| - |
|
| 393 |
|
| (393) |
|
| 4,201 |
|
| (4,594) |
|
|
|
|
|
|
Certain significant items |
| - |
|
| 2,426 |
|
| (2,426) |
|
| - |
|
| (2,426) |
|
|
|
|
|
|
Eliminations and consolidations |
| (2,421) |
|
| (1,791) |
|
| (630) |
|
| (1) |
|
| (629) |
|
|
|
|
|
|
AT&T Inc. | $ | 83,729 |
| $ | 58,204 |
| $ | 25,525 |
| $ | 14,507 |
| $ | 11,018 |
|
|
|
|
|
|
The following table is a reconciliation of Segment Contribution to "Income Before Income Taxes" reported on our consolidated statements of income. | ||||||||||||||||
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Business Solutions | $ | 4,503 | $ | 4,303 | $ | 13,322 | $ | 12,803 | ||||||||
Entertainment Group | 1,310 | 1,488 | 4,562 | 4,734 | ||||||||||||
Consumer Mobility | 2,320 | 2,572 | 7,059 | 7,640 | ||||||||||||
International | (125 | ) | (53 | ) | (257 | ) | (421 | ) | ||||||||
Segment Contribution | 8,008 | 8,310 | 24,686 | 24,756 | ||||||||||||
Reconciling Items: | ||||||||||||||||
Corporate and Other | 91 | (17 | ) | 206 | (235 | ) | ||||||||||
Merger and integration charges | (134 | ) | (290 | ) | (622 | ) | (818 | ) | ||||||||
Amortization of intangibles acquired | (1,136 | ) | (1,282 | ) | (3,508 | ) | (3,949 | ) | ||||||||
Actuarial gain (loss) | - | - | 259 | - | ||||||||||||
Employee separation costs | (208 | ) | (260 | ) | (268 | ) | (314 | ) | ||||||||
Gain (loss) on wireless spectrum transactions | - | (22 | ) | 181 | 714 | |||||||||||
Natural disaster costs and revenue credits | (207 | ) | (30 | ) | (207 | ) | (30 | ) | ||||||||
Venezuela devaluation | - | - | (98 | ) | - | |||||||||||
Segment equity in net (income) loss of affiliates | (11 | ) | (1 | ) | (39 | ) | (25 | ) | ||||||||
AT&T Operating Income | 6,403 | 6,408 | 20,590 | 20,099 | ||||||||||||
Interest expense | 1,686 | 1,224 | 4,374 | 3,689 | ||||||||||||
Equity in net income (loss) of affiliates | 11 | 16 | (148 | ) | 57 | |||||||||||
Other income (expense) - net | 246 | (7 | ) | 354 | 154 | |||||||||||
Income Before Income Taxes | $ | 4,974 | $ | 5,193 | $ | 16,422 | $ | 16,621 |
16
AT&T INC.
JUNE 30, 2020
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
For the six months ended June 30, 2019 | ||||||||||||||||||||
|
| Revenues |
|
| Operations and Support Expenses |
|
| EBITDA |
|
| Depreciation and Amortization |
|
| Operating Income (Loss) |
|
| Equity in Net Income (Loss) of Affiliates |
|
| Segment Contribution |
Communications |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobility | $ | 34,655 |
| $ | 19,563 |
| $ | 15,092 |
| $ | 4,016 |
| $ | 11,076 |
| $ | - |
| $ | 11,076 |
Entertainment Group |
| 22,696 |
|
| 17,042 |
|
| 5,654 |
|
| 2,662 |
|
| 2,992 |
|
| - |
|
| 2,992 |
Business Wireline |
| 13,085 |
|
| 8,007 |
|
| 5,078 |
|
| 2,464 |
|
| 2,614 |
|
| - |
|
| 2,614 |
Total Communications |
| 70,436 |
|
| 44,612 |
|
| 25,824 |
|
| 9,142 |
|
| 16,682 |
|
| - |
|
| 16,682 |
WarnerMedia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Turner |
| 6,853 |
|
| 4,353 |
|
| 2,500 |
|
| 99 |
|
| 2,401 |
|
| 36 |
|
| 2,437 |
Home Box Office |
| 3,226 |
|
| 2,052 |
|
| 1,174 |
|
| 34 |
|
| 1,140 |
|
| 30 |
|
| 1,170 |
Warner Bros. |
| 6,907 |
|
| 5,837 |
|
| 1,070 |
|
| 83 |
|
| 987 |
|
| 6 |
|
| 993 |
Eliminations and other |
| 654 |
|
| 347 |
|
| 307 |
|
| 44 |
|
| 263 |
|
| 50 |
|
| 313 |
Total WarnerMedia |
| 17,640 |
|
| 12,589 |
|
| 5,051 |
|
| 260 |
|
| 4,791 |
|
| 122 |
|
| 4,913 |
Latin America |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vrio |
| 2,099 |
|
| 1,747 |
|
| 352 |
|
| 334 |
|
| 18 |
|
| 12 |
|
| 30 |
Mexico |
| 1,376 |
|
| 1,538 |
|
| (162) |
|
| 250 |
|
| (412) |
|
| - |
|
| (412) |
Total Latin America |
| 3,475 |
|
| 3,285 |
|
| 190 |
|
| 584 |
|
| (394) |
|
| 12 |
|
| (382) |
Segment Total |
| 91,551 |
|
| 60,486 |
|
| 31,065 |
|
| 9,986 |
|
| 21,079 |
| $ | 134 |
| $ | 21,213 |
Corporate and Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate |
| 883 |
|
| 1,426 |
|
| (543) |
|
| 374 |
|
| (917) |
|
|
|
|
|
|
Acquisition-related items |
| (72) |
|
| 389 |
|
| (461) |
|
| 3,948 |
|
| (4,409) |
|
|
|
|
|
|
Certain significant items |
| - |
|
| 342 |
|
| (342) |
|
| - |
|
| (342) |
|
|
|
|
|
|
Eliminations and consolidations |
| (2,578) |
|
| (1,899) |
|
| (679) |
|
| (1) |
|
| (678) |
|
|
|
|
|
|
AT&T Inc. | $ | 89,784 |
| $ | 60,744 |
| $ | 29,040 |
| $ | 14,307 |
| $ | 14,733 |
|
|
|
|
|
|
17
AT&T INC.
JUNE 30, 2020
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
The following table is a reconciliation of Segment Contributions to “Income Before Income Taxes” reported on our consolidated statements of income:
|
| Three months ended June 30, |
|
| Six months ended June 30, | |||||||
|
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
Communications | $ | 8,112 |
| $ | 8,671 |
| $ | 16,315 |
| $ | 16,682 | |
WarnerMedia |
| 1,917 |
|
| 2,350 |
|
| 3,930 |
|
| 4,913 | |
Latin America |
| (201) |
|
| (209) |
|
| (385) |
|
| (382) | |
Segment Contribution |
| 9,828 |
|
| 10,812 |
|
| 19,860 |
|
| 21,213 | |
Reconciling Items: |
|
|
|
|
|
|
|
|
|
|
| |
Corporate and Other |
| (589) |
|
| (485) |
|
| (1,162) |
|
| (917) | |
Merger and integration items |
| (211) |
|
| (346) |
|
| (393) |
|
| (461) | |
Amortization of intangibles acquired |
| (2,145) |
|
| (1,960) |
|
| (4,201) |
|
| (3,948) | |
Impairments |
| (2,319) |
|
| - |
|
| (2,442) |
|
| - | |
Gain on spectrum transaction1 |
| - |
|
| - |
|
| 900 |
|
| - | |
Employee separation costs and benefit-related losses |
| (765) |
|
| (94) |
|
| (884) |
|
| (342) | |
Segment equity in net income of affiliates |
| (12) |
|
| (67) |
|
| (31) |
|
| (134) | |
Eliminations and consolidations |
| (255) |
|
| (360) |
|
| (629) |
|
| (678) | |
AT&T Operating Income |
| 3,532 |
|
| 7,500 |
|
| 11,018 |
|
| 14,733 | |
Interest Expense |
| 2,041 |
|
| 2,149 |
|
| 4,059 |
|
| 4,290 | |
Equity in net income (loss) of affiliates |
| (10) |
|
| 40 |
|
| (16) |
|
| 33 | |
Other income (expense) - net |
| 1,017 |
|
| (318) |
|
| 1,820 |
|
| (32) | |
Income Before Income Taxes | $ | 2,498 |
| $ | 5,073 |
| $ | 8,763 |
| $ | 10,444 | |
1 | Included as a reduction of "Selling, general and administrative expenses" in the consolidated statement of income. | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents intersegment revenues by segment:
Intersegment Reconciliation |
|
|
|
|
|
|
|
|
|
|
| Three months ended June 30, | Six months ended June 30, | ||||||||
| 2020 |
| 2019 | 2020 |
|
| 2019 | |||
Intersegment Revenues |
|
|
|
|
|
|
|
|
|
|
Communications | $ | 2 |
| $ | 8 | $ | 4 |
| $ | 8 |
WarnerMedia |
| 774 |
|
| 861 |
| 1,591 |
|
| 1,719 |
Latin America |
| - |
|
| - |
| - |
|
| - |
Total Intersegment Revenues |
| 776 |
|
| 869 |
| 1,595 |
|
| 1,727 |
Consolidations |
| 349 |
|
| 453 |
| 826 |
|
| 851 |
Eliminations and consolidations | $ | 1,125 |
| $ | 1,322 | $ | 2,421 |
| $ | 2,578 |
18
AT&T INC.
JUNE 30, 2020
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
NOTE 5. REVENUE RECOGNITION
Revenue Categories | ||||||||||||||||||||||||||
The following tables set forth reported revenue by category and by business unit: | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended June 30, 2020 | ||||||||||||||||||||||||||
| Service Revenues |
|
|
|
|
|
| |||||||||||||||||||
|
| Wireless |
|
| Advanced Data |
|
| Legacy Voice & Data |
|
| Subscription |
|
| Content |
|
| Advertising |
|
| Other |
|
| Equipment |
|
| Total |
Communications |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobility | $ | 13,611 |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | 58 |
| $ | - |
| $ | 3,480 |
| $ | 17,149 |
Entertainment Group |
| - |
|
| 2,092 |
|
| 560 |
|
| 6,682 |
|
| - |
|
| 294 |
|
| 397 |
|
| 44 |
|
| 10,069 |
Business Wireline |
| - |
|
| 3,320 |
|
| 2,067 |
|
| - |
|
| - |
|
| - |
|
| 782 |
|
| 205 |
|
| 6,374 |
WarnerMedia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Turner |
| - |
|
| - |
|
| - |
|
| 1,804 |
|
| 334 |
|
| 796 |
|
| 54 |
|
| - |
|
| 2,988 |
Home Box Office |
| - |
|
| - |
|
| - |
|
| 1,441 |
|
| 181 |
|
| - |
|
| 5 |
|
| - |
|
| 1,627 |
Warner Bros. |
| - |
|
| - |
|
| - |
|
| 16 |
|
| 3,179 |
|
| 1 |
|
| 60 |
|
| - |
|
| 3,256 |
Eliminations and other |
| - |
|
| - |
|
| - |
|
| 71 |
|
| (1,516) |
|
| 378 |
|
| 10 |
|
| - |
|
| (1,057) |
Latin America |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vrio |
| - |
|
| - |
|
| - |
|
| 752 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 752 |
Mexico |
| 345 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 135 |
|
| 480 |
Corporate and Other |
| 178 |
|
| 10 |
|
| 152 |
|
| - |
|
| - |
|
| - |
|
| 62 |
|
| 35 |
|
| 437 |
Eliminations and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
consolidations |
| - |
|
| - |
|
| - |
|
| - |
|
| (765) |
|
| (294) |
|
| (66) |
|
| - |
|
| (1,125) |
Total Operating Revenues | $ | 14,134 |
| $ | 5,422 |
| $ | 2,779 |
| $ | 10,766 |
| $ | 1,413 |
| $ | 1,233 |
| $ | 1,304 |
| $ | 3,899 |
| $ | 40,950 |
19
AT&T INC.
JUNE 30, 2020
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
For the three months ended June 30, 2019 | ||||||||||||||||||||||||||
| Service Revenues |
|
|
|
|
|
| |||||||||||||||||||
|
| Wireless |
|
| Advanced Data |
|
| Legacy Voice & Data |
|
| Subscription |
|
| Content |
|
| Advertising |
|
| Other |
|
| Equipment |
|
| Total |
Communications |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobility | $ | 13,753 |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | 71 |
| $ | - |
| $ | 3,468 |
| $ | 17,292 |
Entertainment Group |
| - |
|
| 2,109 |
|
| 658 |
|
| 7,636 |
|
| - |
|
| 399 |
|
| 563 |
|
| 3 |
|
| 11,368 |
Business Wireline |
| - |
|
| 3,208 |
|
| 2,324 |
|
| - |
|
| - |
|
| - |
|
| 897 |
|
| 178 |
|
| 6,607 |
WarnerMedia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Turner |
| - |
|
| - |
|
| - |
|
| 1,943 |
|
| 111 |
|
| 1,266 |
|
| 90 |
|
| - |
|
| 3,410 |
Home Box Office |
| - |
|
| - |
|
| - |
|
| 1,516 |
|
| 198 |
|
| - |
|
| 2 |
|
| - |
|
| 1,716 |
Warner Bros. |
| - |
|
| - |
|
| - |
|
| 23 |
|
| 3,175 |
|
| 10 |
|
| 181 |
|
| - |
|
| 3,389 |
Eliminations and other |
| - |
|
| - |
|
| - |
|
| 54 |
|
| (237) |
|
| 494 |
|
| 9 |
|
| - |
|
| 320 |
Latin America |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vrio |
| - |
|
| - |
|
| - |
|
| 1,032 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 1,032 |
Mexico |
| 479 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 246 |
|
| 725 |
Corporate and Other |
| 150 |
|
| 14 |
|
| 7 |
|
| - |
|
| - |
|
| - |
|
| 210 |
|
| 39 |
|
| 420 |
Eliminations and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
consolidations |
| - |
|
| - |
|
| - |
|
| - |
|
| (840) |
|
| (399) |
|
| (83) |
|
| - |
|
| (1,322) |
Total Operating Revenues | $ | 14,382 |
| $ | 5,331 |
| $ | 2,989 |
| $ | 12,204 |
| $ | 2,407 |
| $ | 1,841 |
| $ | 1,869 |
| $ | 3,934 |
| $ | 44,957 |
20
AT&T INC.
JUNE 30, 2020
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
For the six months ended June 30, 2020 | ||||||||||||||||||||||||||
| Service Revenues |
|
|
|
|
|
| |||||||||||||||||||
|
| Wireless |
|
| Advanced Data |
|
| Legacy Voice & Data |
|
| Subscription |
|
| Content |
|
| Advertising |
|
| Other |
|
| Equipment |
|
| Total |
Communications |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobility | $ | 27,503 |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | 134 |
| $ | - |
| $ | 6,914 |
| $ | 34,551 |
Entertainment Group |
| - |
|
| 4,201 |
|
| 1,141 |
|
| 13,664 |
|
| - |
|
| 707 |
|
| 816 |
|
| 55 |
|
| 20,584 |
Business Wireline |
| - |
|
| 6,595 |
|
| 4,196 |
|
| - |
|
| - |
|
| - |
|
| 1,535 |
|
| 380 |
|
| 12,706 |
WarnerMedia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Turner |
| - |
|
| - |
|
| - |
|
| 3,853 |
|
| 420 |
|
| 1,753 |
|
| 124 |
|
| - |
|
| 6,150 |
Home Box Office |
| - |
|
| - |
|
| - |
|
| 2,779 |
|
| 338 |
|
| - |
|
| 7 |
|
| - |
|
| 3,124 |
Warner Bros. |
| - |
|
| - |
|
| - |
|
| 26 |
|
| 6,239 |
|
| 3 |
|
| 228 |
|
| - |
|
| 6,496 |
Eliminations and other |
| - |
|
| - |
|
| - |
|
| 134 |
|
| (2,162) |
|
| 887 |
|
| 33 |
|
| - |
|
| (1,108) |
Latin America |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vrio |
| - |
|
| - |
|
| - |
|
| 1,639 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 1,639 |
Mexico |
| 812 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 371 |
|
| 1,183 |
Corporate and Other |
| 295 |
|
| 24 |
|
| 286 |
|
| - |
|
| - |
|
| - |
|
| 145 |
|
| 75 |
|
| 825 |
Eliminations and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
consolidations |
| - |
|
| - |
|
| - |
|
| - |
|
| (1,559) |
|
| (707) |
|
| (155) |
|
| - |
|
| (2,421) |
Total Operating Revenues | $ | 28,610 |
| $ | 10,820 |
| $ | 5,623 |
| $ | 22,095 |
| $ | 3,276 |
| $ | 2,777 |
| $ | 2,733 |
| $ | 7,795 |
| $ | 83,729 |
21
AT&T INC.
JUNE 30, 2020
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
For the six months ended June 30, 2019 | ||||||||||||||||||||||||||
| Service Revenues |
|
|
|
|
|
| |||||||||||||||||||
|
| Wireless |
|
| Advanced Data |
|
| Legacy Voice & Data |
|
| Subscription |
|
| Content |
|
| Advertising |
|
| Other |
|
| Equipment |
|
| Total |
Communications |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobility | $ | 27,315 |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | 138 |
| $ | - |
| $ | 7,202 |
| $ | 34,655 |
Entertainment Group |
| - |
|
| 4,179 |
|
| 1,341 |
|
| 15,360 |
|
| - |
|
| 749 |
|
| 1,063 |
|
| 4 |
|
| 22,696 |
Business Wireline |
| - |
|
| 6,380 |
|
| 4,721 |
|
| - |
|
| - |
|
| - |
|
| 1,647 |
|
| 337 |
|
| 13,085 |
WarnerMedia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Turner |
| - |
|
| - |
|
| - |
|
| 3,908 |
|
| 246 |
|
| 2,527 |
|
| 172 |
|
| - |
|
| 6,853 |
Home Box Office |
| - |
|
| - |
|
| - |
|
| 2,850 |
|
| 371 |
|
| - |
|
| 5 |
|
| - |
|
| 3,226 |
Warner Bros. |
| - |
|
| - |
|
| - |
|
| 44 |
|
| 6,507 |
|
| 20 |
|
| 336 |
|
| - |
|
| 6,907 |
Eliminations and other |
| - |
|
| - |
|
| - |
|
| 103 |
|
| (389) |
|
| 928 |
|
| 12 |
|
| - |
|
| 654 |
Latin America |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vrio |
| - |
|
| - |
|
| - |
|
| 2,099 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 2,099 |
Mexico |
| 921 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 455 |
|
| 1,376 |
Corporate and Other |
| 272 |
|
| 27 |
|
| 14 |
|
| - |
|
| - |
|
| - |
|
| 419 |
|
| 79 |
|
| 811 |
Eliminations and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
consolidations |
| - |
|
| - |
|
| - |
|
| - |
|
| (1,677) |
|
| (749) |
|
| (152) |
|
| - |
|
| (2,578) |
Total Operating Revenues | $ | 28,508 |
| $ | 10,586 |
| $ | 6,076 |
| $ | 24,364 |
| $ | 5,058 |
| $ | 3,613 |
| $ | 3,502 |
| $ | 8,077 |
| $ | 89,784 |
22
AT&T INC.
JUNE 30, 2020
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
Deferred Customer Contract Acquisition and Fulfillment Costs
Costs to acquire and fulfill customer contracts, including commissions on service activations, for our wireless, business wireline and video entertainment services, are deferred and amortized over the contract period or expected customer relationship life, which typically ranges from three years to five years. For contracts with an estimated amortization period of less than one year, we expense incremental costs immediately.
The following table presents the deferred customer contract acquisition and fulfillment costs included on our consolidated balance sheets:
|
| June 30, |
|
| December 31, |
Consolidated Balance Sheets |
| 2020 |
|
| 2019 |
Deferred Acquisition Costs |
|
|
|
|
|
Other current assets | $ | 2,630 |
| $ | 2,462 |
Other Assets |
| 3,117 |
|
| 2,991 |
Total deferred customer contract acquisition costs | $ | 5,747 |
| $ | 5,453 |
|
|
|
|
|
|
Deferred Fulfillment Costs |
|
|
|
|
|
Other current assets | $ | 4,362 |
| $ | 4,519 |
Other Assets |
| 5,980 |
|
| 6,439 |
Total deferred customer contract fulfillment costs | $ | 10,342 |
| $ | 10,958 |
The following table presents deferred customer contract acquisition and fulfillment cost amortization included in “Other cost of revenue” for the six months ended:
|
| June 30, |
|
| June 30, |
Consolidated Statements of Income |
| 2020 |
|
| 2019 |
Deferred acquisition cost amortization | $ | 1,278 |
| $ | 1,026 |
Deferred fulfillment cost amortization |
| 2,636 |
|
| 2,381 |
Contract Assets and Liabilities
A contract asset is recorded when revenue is recognized in advance of our right to bill and receive consideration. The contract asset will decrease as services are provided and billed. For example, when installment sales include promotional discounts (e.g., “buy one get one free”) the difference between revenue recognized and consideration received is recorded as a contract asset to be amortized over the contract term.
When consideration is received in advance of the delivery of goods or services, a contract liability is recorded for deferred revenue. Reductions in the contract liability will be recorded as we satisfy the performance obligations.
The following table presents contract assets and liabilities on our consolidated balance sheets:
|
|
| June 30, |
|
| December 31, |
Consolidated Balance Sheets |
|
| 2020 |
|
| 2019 |
|
|
|
|
|
|
|
Contract asset |
| $ | 2,546 |
| $ | 2,472 |
Contract liability |
|
| 6,533 |
|
| 6,999 |
Our beginning of period contract liability recorded as customer contract revenue during 2020 was $5,004.
23
AT&T INC.
JUNE 30, 2020
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
Our consolidated balance sheets at June 30, 2020 and December 31, 2019 included approximately $1,638 and $1,611, respectively, for the current portion of our contract asset in “Other current assets” and $5,616 and $5,939, respectively, for the current portion of our contract liability in “Advanced billings and customer deposits.”
Remaining Performance Obligations
Remaining performance obligations represent services we are required to provide to customers under bundled or discounted arrangements, which are satisfied as services are provided over the contract term. In determining the transaction price allocated, we do not include non-recurring charges and estimates for usage, nor do we consider arrangements with an original expected duration of less than one year, which are primarily prepaid wireless, video and residential internet agreements.
Remaining performance obligations associated with business contracts reflect recurring charges billed, adjusted to reflect estimates for sales incentives and revenue adjustments. Performance obligations associated with wireless contracts are estimated using a portfolio approach in which we review all relevant promotional activities, calculating the remaining performance obligation using the average service component for the portfolio and the average device price. As of June 30, 2020, the aggregate amount of the transaction price allocated to remaining performance obligations was $36,362, of which we expect to recognize approximately 82% by the end of 2021, with the balance recognized thereafter.
NOTE 5.6. PENSION AND POSTRETIREMENT BENEFITS
Many of our employees are covered by one of our noncontributory pension plans. We also provide certain medical, dental, life insurance and death benefits to certain retired employees under various plans and accrue actuarially determined postretirement benefit costs. Our objective in funding these plans, in combination with the standards of the Employee Retirement Income Security Act of 1974, as amended (ERISA), is to accumulate assets sufficient to provide benefits described in the plans to employees upon their retirement.
We recognize actuarial gains and losses on pension and postretirement plan assets in our operatingconsolidated results as a component of “Other income (expense) – net” at our annual measurement date of December 31, unless earlier remeasurements are required. During the second quarter of 2017, a substantive plan change involving the frequency of considering potential health reimbursement account credit increases was communicated to our retirees. This plan change triggered a remeasurement of our postretirement obligations and resulted in additional prior service credits recognized in other comprehensive income, reducing our liability by $1,563. Such credits amortize through earnings over a period approximating the average service period to full eligibility. Upon our adoption of ASU 2017-07, the amortization of these prior service credits will be recorded in other income (expense) – net.
The following table details pension and postretirement benefit costs included in operating expenses in the accompanying consolidated statements of income. A portionThe service cost component of thesenet periodic pension cost (benefit) is recorded in operating expenses is capitalized as part of internal construction projects, providing a small reduction in the net expense recorded. Service costs and prior service creditsconsolidated statements of income while the remaining components are reportedrecorded in our segment results while interest costs and expected return on plan assets are included with Corporate and Other (see Note 4).“Other income (expense) – net.”
24
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Pension cost: | ||||||||||||||||
Service cost – benefits earned during the period | $ | 282 | $ | 278 | $ | 846 | $ | 834 | ||||||||
Interest cost on projected benefit obligation | 484 | 495 | 1,452 | 1,485 | ||||||||||||
Expected return on assets | (783 | ) | (778 | ) | (2,350 | ) | (2,336 | ) | ||||||||
Amortization of prior service credit | (31 | ) | (26 | ) | (93 | ) | (77 | ) | ||||||||
Net pension (credit) cost | $ | (48 | ) | $ | (31 | ) | $ | (145 | ) | $ | (94 | ) | ||||
Postretirement cost: | ||||||||||||||||
Service cost – benefits earned during the period | $ | 32 | $ | 48 | $ | 107 | $ | 144 | ||||||||
Interest cost on accumulated postretirement benefit obligation | 193 | 243 | 617 | 729 | ||||||||||||
Expected return on assets | (81 | ) | (88 | ) | (240 | ) | (266 | ) | ||||||||
Amortization of prior service credit | (382 | ) | (320 | ) | (1,084 | ) | (958 | ) | ||||||||
Actuarial (gain) loss | - | - | (259 | ) | - | |||||||||||
Net postretirement (credit) cost | $ | (238 | ) | $ | (117 | ) | $ | (859 | ) | $ | (351 | ) | ||||
Combined net pension and postretirement (credit) cost | $ | (286 | ) | $ | (148 | ) | $ | (1,004 | ) | $ | (445 | ) |
AT&T INC.
JUNE 30, 2020
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
| Three months ended |
| Six months ended | ||||||||
| June 30, |
| June 30, | ||||||||
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Pension cost: |
|
|
|
|
|
|
|
|
|
|
|
Service cost – benefits earned during the period | $ | 258 |
| $ | 243 |
| $ | 515 |
| $ | 483 |
Interest cost on projected benefit obligation |
| 422 |
|
| 508 |
|
| 844 |
|
| 1,057 |
Expected return on assets |
| (890) |
|
| (880) |
|
| (1,779) |
|
| (1,731) |
Amortization of prior service credit |
| (29) |
|
| (24) |
|
| (57) |
|
| (57) |
Actuarial (gain) loss |
| - |
|
| 1,699 |
|
| - |
|
| 2,131 |
Net pension (credit) cost | $ | (239) |
| $ | 1,546 |
| $ | (477) |
| $ | 1,883 |
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement cost: |
|
|
|
|
|
|
|
|
|
|
|
Service cost – benefits earned during the period | $ | 13 |
| $ | 18 |
| $ | 26 |
| $ | 36 |
Interest cost on accumulated postretirement benefit obligation |
| 104 |
|
| 186 |
|
| 208 |
|
| 372 |
Expected return on assets |
| (45) |
|
| (56) |
|
| (89) |
|
| (112) |
Amortization of prior service credit |
| (582) |
|
| (426) |
|
| (1,164) |
|
| (852) |
Net postretirement (credit) cost | $ | (510) |
| $ | (278) |
| $ | (1,019) |
| $ | (556) |
|
|
|
|
|
|
|
|
|
|
|
|
Combined net pension and postretirement (credit) cost | $ | (749) |
| $ | 1,268 |
| $ | (1,496) |
| $ | 1,327 |
We also provide senior- and middle-management employees with nonqualified, unfunded supplemental retirement and savings plans. For the third quarter ended 2017 and 2016, netNet supplemental pension benefits costs not included in the table above were $22$19 and $23. For$25 in the second quarter and $38 and $50 for the first ninesix months of 20172020 and 2016, net supplemental pension benefit costs were $67 and $70.
NOTE 6.7. FAIR VALUE MEASUREMENTS AND DISCLOSURE
The Fair Value Measurement and Disclosure framework in ASC 820, “Fair Value Measurement,” provides a three-tiered fair value hierarchy that gives highest prioritybased on the reliability of the inputs used to unadjusteddetermine fair value. Level 1 refers to fair values determined based on quoted prices in active markets for identical assets or liabilities (Level 1 measurements)assets. Level 2 refers to fair values estimated using significant other observable inputs and the lowest priority toLevel 3 includes fair values estimated using significant unobservable inputs (Level 3 measurements). inputs.
The three levels of the fair value hierarchy are described below:
The valuation methodologies described above may produce a fair value calculation that may not be indicative of future net realizable value or reflective of future fair values. We believe our valuation methods are appropriate and consistent with other market participants. The use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date. There have been no changes in the methodologies used since December 31, 2016.2019.
25
AT&T INC.
JUNE 30, 2020
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
Long-Term Debt and Other Financial Instruments
The carrying amounts and estimated fair values of our long-term debt, including current maturities, and other financial instruments, are summarized as follows:
September 30, 2017 | December 31, 2016 | |||||||||||||||
Carrying | Fair | Carrying | Fair | |||||||||||||
Amount | Value | Amount | Value | |||||||||||||
Notes and debentures 1 | $ | 162,450 | $ | 171,025 | $ | 122,381 | $ | 128,726 | ||||||||
Bank borrowings | 2 | 2 | 4 | 4 | ||||||||||||
Investment securities | 2,565 | 2,565 | 2,587 | 2,587 | ||||||||||||
1 Includes credit agreement borrowings. |
|
| June 30, 2020 |
| December 31, 2019 | ||||||||
|
| Carrying |
| Fair |
| Carrying |
| Fair | ||||
|
| Amount |
| Value |
| Amount |
| Value | ||||
Notes and debentures1 | $ | 164,099 |
| $ | 190,284 |
| $ | 161,109 |
| $ | 182,124 | |
Commercial paper |
| 3,001 |
|
| 3,001 |
|
| - |
|
| - | |
Bank borrowings |
| - |
|
| - |
|
| 4 |
|
| 4 | |
Investment securities2 |
| 3,632 |
|
| 3,632 |
|
| 3,723 |
|
| 3,723 | |
1 | Includes credit agreement borrowings. | |||||||||||
2 | Excludes investments accounted for under the equity method. |
The carrying amount of debt with an original maturity of less than one year approximates marketfair value. The fair value measurements used for notes and debentures are considered Level 2 and are determined using various methods, including quoted prices for identical or similar securities in both active and inactive markets.
Following is the fair value leveling for available-for-saleinvestment securities that are measured at fair value and derivatives as of SeptemberJune 30, 20172020 and December 31, 2016:2019. Derivatives designated as hedging instruments are reflected as “Other assets,” “Other noncurrent liabilities,” “Other current assets” and “Accounts payable and accrued liabilities” on our consolidated balance sheets.
|
| June 30, 2020 | ||||||||||
|
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||
Equity Securities |
|
|
|
|
|
|
|
|
|
|
| |
Domestic equities | $ | 832 |
| $ | - |
| $ | - |
| $ | 832 | |
International equities |
| 141 |
|
| - |
|
| - |
|
| 141 | |
Fixed income equities |
| 230 |
|
| - |
|
| - |
|
| 230 | |
Available-for-Sale Debt Securities |
| - |
|
| 1,522 |
|
| - |
|
| 1,522 | |
Asset Derivatives |
|
|
|
|
|
|
|
|
|
|
| |
Cross-currency swaps |
| - |
|
| 67 |
|
| - |
|
| 67 | |
Foreign exchange contracts |
| - |
|
| 14 |
|
| - |
|
| 14 | |
Liability Derivatives |
|
|
|
|
|
|
|
|
|
|
| |
Interest rate swaps |
| - |
|
| (3) |
|
| - |
|
| (3) | |
Cross-currency swaps |
| - |
|
| (6,767) |
|
| - |
|
| (6,767) | |
Foreign exchange contracts |
| - |
|
| (10) |
|
| - |
|
| (10) |
26
September 30, 2017 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Available-for-Sale Securities | ||||||||||||||||
Domestic equities | $ | 1,274 | $ | - | $ | - | $ | 1,274 | ||||||||
International equities | 380 | - | - | 380 | ||||||||||||
Fixed income bonds | - | 659 | - | 659 | ||||||||||||
Asset Derivatives 1 | ||||||||||||||||
Interest rate swaps | - | 45 | - | 45 | ||||||||||||
Cross-currency swaps | - | 967 | - | 967 | ||||||||||||
Liability Derivatives 1 | ||||||||||||||||
Interest rate swaps | - | (34 | ) | - | (34 | ) | ||||||||||
Cross-currency swaps | - | (1,809 | ) | - | (1,809 | ) | ||||||||||
1 Derivatives designated as hedging instruments are reflected as "Other assets," "Other noncurrent liabilities" and, for a portion of | ||||||||||||||||
interest rate swaps, "Other current assets" in our consolidated balance sheets. |
December 31, 2016 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Available-for-Sale Securities | ||||||||||||||||
Domestic equities | $ | 1,215 | $ | - | $ | - | $ | 1,215 | ||||||||
International equities | 594 | - | - | 594 | ||||||||||||
Fixed income bonds | - | 508 | - | 508 | ||||||||||||
Asset Derivatives 1 | ||||||||||||||||
Interest rate swaps | - | 79 | - | 79 | ||||||||||||
Cross-currency swaps | - | 89 | - | 89 | ||||||||||||
Liability Derivatives 1 | ||||||||||||||||
Interest rate swaps | - | (14 | ) | - | (14 | ) | ||||||||||
Cross-currency swaps | - | (3,867 | ) | - | (3,867 | ) | ||||||||||
1 Derivatives designated as hedging instruments are reflected as "Other assets," "Other noncurrent liabilities" and, for a portion of | ||||||||||||||||
interest rate swaps, "Other current assets" in our consolidated balance sheets. |
AT&T INC.
JUNE 30, 2020
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
|
| December 31, 2019 | ||||||||||
|
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||
Equity Securities |
|
|
|
|
|
|
|
|
|
|
| |
Domestic equities | $ | 844 |
| $ | - |
| $ | - |
| $ | 844 | |
International equities |
| 183 |
|
| - |
|
| - |
|
| 183 | |
Fixed income equities |
| 229 |
|
| - |
|
| - |
|
| 229 | |
Available-for-Sale Debt Securities |
| - |
|
| 1,444 |
|
| - |
|
| 1,444 | |
Asset Derivatives |
|
|
|
|
|
|
|
|
|
|
| |
Interest rate swaps |
| - |
|
| 2 |
|
| - |
|
| 2 | |
Cross-currency swaps |
| - |
|
| 172 |
|
| - |
|
| 172 | |
Interest rate locks |
| - |
|
| 11 |
|
| - |
|
| 11 | |
Foreign exchange contracts |
| - |
|
| 89 |
|
| - |
|
| 89 | |
Liability Derivatives |
|
|
|
|
|
|
|
|
|
|
| |
Cross-currency swaps |
| - |
|
| (3,187) |
|
| - |
|
| (3,187) | |
Interest rate locks |
| - |
|
| (95) |
|
| - |
|
| (95) |
Investment Securities
Our investment securities include equities, fixed income bondsboth equity and other securities.debt securities that are measured at fair value, as well as equity securities without readily determinable fair values. A substantial portion of the fair values of our available-for-saleinvestment securities wasis estimated based on quoted market prices. Investments in equity securities not traded on a national securities exchange are valued at cost, less any impairment, and adjusted for changes resulting from observable, orderly transactions for identical or similar securities. Investments in debt securities not traded on a national securities exchange are valued using pricing models, quoted prices of securities with similar characteristics or discounted cash flows. Realized
The components comprising total gains and losses in the period on equity securities are included in "Other income (expense) – net" in the consolidated statements of income using the specific identification method. Unrealized gains and losses, net of tax, onas follows:
| Three months ended |
| Six months ended | ||||||||
| June 30, |
| June 30, | ||||||||
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Total gains (losses) recognized on equity securities | $ | 161 |
| $ | 50 |
| $ | (42) |
| $ | 210 |
Gains (Losses) recognized on equity securities sold |
| 9 |
|
| 9 |
|
| (24) |
|
| 27 |
Unrealized gains (losses) recognized on equity securities |
|
|
|
|
|
|
|
|
|
|
|
held at end of period |
| 152 |
|
| 41 |
|
| (18) |
|
| 183 |
At June 30, 2020, available-for-sale debt securities are recorded in accumulated OCI. Unrealized losses that are considered other than temporary are recorded in "Other income (expense) – net" with the corresponding reduction to the carrying basis of the investment. Fixed income investments of $509totaling $1,522 have maturities ofas follows - less than one year, $33 withinyear: $64; one to three years, $32 withinyears: $175; three to five years and $85 foryears: $156; five or more years.
Our cash equivalents (money market securities), short-term investments (certificate and time deposits) and nonrefundable customer deposits are recorded at amortized cost, and the respective carrying amounts approximate fair values. Short-term investments and nonrefundable customer deposits are recorded in "Other“Other current assets"assets” and our investment securities are recorded in "Other Assets"“Other Assets” on the consolidated balance sheets.
Derivative Financial Instruments
We enter into derivative transactions to manage certain market risks, primarily interest rate risk and foreign currency exchange risk. This includes the use of interest rate swaps, interest rate locks, foreign exchange forward contracts and combined interest rate foreign exchange contracts (cross-currency swaps). We do not use derivatives for trading or speculative purposes. We record derivatives on our consolidated balance sheets at fair value that is derived from observable market data, including yield curves and foreign exchange rates (all of our derivatives are Level 2). Cash flows associated with derivative instruments are presented in the same category on the consolidated statements of cash flows as the item being hedged.
27
AT&T INC.
JUNE 30, 2020
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
Fair Value Hedging
We also designate some of our foreign exchange contracts as fair value hedges. The purpose of these contracts is to hedge currency risk associated with foreign-currency-denominated operating assets and liabilities.
Accrued and realized gains or losses from interest rate swapsfair value hedges impact interest expense inthe same category on the consolidated statements of income.income as the item being hedged. Unrealized gains on interest rate swapsfair value hedges are recorded at fair market value as assets, and unrealized losses on interest rate swaps are recorded at fair market value as liabilities. Changes in the fair valuesvalue of derivative instruments designated as fair value hedges are offset against the interest rate swaps are exactly offset by changeschange in the fair value of the underlying debt. Gainshedged assets or losses realized upon early termination of our fair value hedges are recognized in interest expense.liabilities through earnings. In the ninesix months ended SeptemberJune 30, 20172020 and September 30, 2016,2019, no ineffectiveness was measured on interest rate swaps designated as fair value hedges.
Cash Flow Hedging
We designate our cross-currency swaps as cash flow hedges. We have entered into multiple cross-currency swaps to hedge our exposure to variability in expected future cash flows that are attributable to foreign currency risk generated from the issuance of ourWe also designate some of our foreign exchange contracts as cash flow hedges. The purpose of these contracts is to hedge certain film production costs denominated in foreign currencies.
Unrealized gains on derivatives designated as cash flow hedges are recorded at fair value as assets, and unrealized losses on derivatives designated as cash flow hedges are recorded at fair value as liabilities. For derivative instruments designated as cash flow hedges, the effective portion ischanges in fair value are reported as a component of accumulated OCI untiland are reclassified into interest expensethe consolidated statements of income in the same period the hedged transaction affects earnings. The gain or loss on the ineffective portion is recognized as "Other income (expense) – net" in the consolidated statements of income in each period. We evaluate the effectiveness of our cross-currency swaps each quarter. In the nine months ended September 30, 2017 and September 30, 2016, no ineffectiveness was measured on cross-currency swaps designated as cash flow hedges.
Periodically, we enter into and designate interest rate locks to partially hedge the risk of changes in interest payments attributable to increases in the benchmark interest rate during the period leading up to the probable issuance of fixed-rate debt. We designate our interest rate locks as cash flow hedges. Gains and losses when we settle our interest rate locks are amortized into income over the life of the related debt, except where a material amount is deemed to be ineffective, which would be immediately reclassified to "Other income (expense) – net" in the consolidated statements of income.debt. Over the next 12 months, we expect to reclassify $59$98 from accumulated OCI to interest expense“Interest expense” due to the amortization of net losses on historical interest rate locks.
We hedge a portionsettled all interest rate locks in May 2020 in conjunction with issuance of fixed rate debt obligations that the exchange risk involved in anticipationinterest rate locks were hedging. We paid $731 that was largely offset by the return of highly probable foreign currency-denominated transactions. In anticipation of these transactions, we often enter into foreign exchange contracts to provide currency at a fixed rate. Gains and lossescollateral at the time we settleof settlement. Cash flows from the interest rate lock settlements and return of collateral were reported as Financing Activities in our Statement of Cash Flows, consistent with our accounting policy for these instruments.
Net Investment Hedging We have designated €1,450 million aggregate principal amount of debt as a hedge of the variability of some of the Euro-denominated net investments of our subsidiaries. The gain or take deliveryloss on ourthe debt that is designated as, and is effective as, an economic hedge of the net investment in a foreign exchange contracts are amortized into incomeoperation is recorded as a currency translation adjustment within accumulated OCI, net on the consolidated balance sheet. Net losses on net investment hedges recognized in accumulated OCI in the same periodsecond quarter were $30 and for the hedged transaction affects earnings, except where an amount is deemed to be ineffective, which would be immediately reclassified to "Other income (expense) – net" in the consolidated statementsfirst six months of income. In the nine months ended September 30, 2017 and September 30, 2016, no ineffectiveness was measured on foreign exchange contracts designated as cash flow hedges.
Collateral and Credit-Risk Contingency
We have entered into agreements with our derivative counterparties establishing collateral thresholds based on respective credit ratings and netting agreements. At28
AT&T INC.
JUNE 30, 2020
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
Holdings LLC’s credit rating had been downgraded below BBB- by S&P, we would have been required to post additional collateral of $321. At December 31, 2016,2019, we had posted collateral of $3,242$204 (a deposit asset) and held no collateral.collateral of $44 (a receipt liability). We do not offset the fair value of collateral, whether the right to reclaim cash collateral (a receivable) or the obligation to return cash collateral (a payable) exists, against the fair value of the derivative instruments.
Following are the notional amounts of our outstanding derivative positions:
September 30, | December 31, | |||||||
2017 | 2016 | |||||||
Interest rate swaps | $ | 10,775 | $ | 9,650 | ||||
Cross-currency swaps | 38,694 | 29,642 | ||||||
Total | $ | 49,469 | $ | 39,292 |
Following are the related hedged items affecting our financial position and performance: | ||||||||||||||||
Effect of Derivatives on the Consolidated Statements of Income | ||||||||||||||||
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
Fair Value Hedging Relationships | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Interest rate swaps (Interest expense): | ||||||||||||||||
Gain (Loss) on interest rate swaps | $ | (3 | ) | $ | (54 | ) | $ | (51 | ) | $ | 17 | |||||
Gain (Loss) on long-term debt | 3 | 54 | 51 | (17 | ) |
|
| June 30, |
| December 31, | ||
| 2020 |
| 2019 | |||
Interest rate swaps | $ | 21 |
| $ | 853 | |
Cross-currency swaps |
| 45,606 |
|
| 42,325 | |
Interest rate locks |
| - |
|
| 3,500 | |
Foreign exchange contracts |
| 298 |
|
| 269 | |
Total | $ | 45,925 |
| $ | 46,947 |
Following are the related hedged items affecting our financial position and performance:
Effect of Derivatives on the Consolidated Statements of Income |
|
|
|
|
|
|
|
| |||
| Three months ended |
| Six months ended | ||||||||
| June 30, |
| June 30, | ||||||||
Fair Value Hedging Relationships | 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Interest rate swaps (Interest expense): |
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss) on interest rate swaps | $ | (14) |
| $ | 35 |
| $ | (4) |
| $ | 59 |
Gain (Loss) on long-term debt |
| 14 |
|
| (35) |
|
| 4 |
|
| (59) |
In addition, the net swap settlements that accrued and settled in the quarterquarters ended SeptemberJune 30, 2020 and 2019 were offset against interest expense.
The following table presents information for our cash flow hedging relationships:
| Three months ended |
| Six months ended | ||||||||
| June 30, |
| June 30, | ||||||||
Cash Flow Hedging Relationships | 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Cross-currency swaps: |
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss) recognized in accumulated OCI | $ | 809 |
| $ | (763) |
| $ | (3,170) |
| $ | (595) |
Foreign exchange contracts: |
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss) recognized in accumulated OCI |
| 2 |
|
| 4 |
|
| (11) |
|
| (3) |
Other income (expense) - net reclassified from |
|
|
|
|
|
|
|
|
|
|
|
accumulated OCI into income |
| (3) |
|
| 7 |
|
| 13 |
|
| 10 |
Interest rate locks: |
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss) recognized in accumulated OCI |
| (12) |
|
| (23) |
|
| (648) |
|
| (23) |
Interest income (expense) reclassified from |
|
|
|
|
|
|
|
|
|
|
|
accumulated OCI into income |
| (18) |
|
| (16) |
|
| (34) |
|
| (32) |
29
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
Cash Flow Hedging Relationships | 2017 | 2016 | 2017 | 2016 | ||||||||||||
Cross-currency swaps: | ||||||||||||||||
Gain (Loss) recognized in accumulated OCI | $ | 429 | $ | 686 | $ | (268 | ) | $ | 282 | |||||||
Interest rate locks: | ||||||||||||||||
Gain (Loss) recognized in accumulated OCI | 79 | - | - | - | ||||||||||||
Interest income (expense) reclassified from accumulated OCI into income | (15 | ) | (15 | ) | (44 | ) | (44 | ) |
AT&T INC.
JUNE 30, 2020
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
NOTE 7.8. ACQUISITIONS, DISPOSITIONS AND OTHER ADJUSTMENTS
Acquisitions
HBO Latin America Group (HBO LAG) In May 2020, we acquired the remaining interest in HBO LAG for $141, net of cash acquired. At acquisition, we remeasured the fair value of the total business, which exceeded the carrying amount of our equity method investment and resulted in a pre-tax gain of $68. We consolidated that business upon close and recorded those assets at fair value, including $640 of trade names, $271 of distribution networks and $343 of goodwill that is reported in the WarnerMedia segment. These estimates are preliminary in nature and subject to adjustments, which will be finalized within one year from the date of acquisition.
Spectrum Auctions In June 2020, we completed the acquisition of $2,379 of 37/39 GHz spectrum in a Federal Communications Commission (FCC) announcedauction. Prior to the auction, we exchanged the 39 GHz licenses with a book value of approximately $300 that we were previously acquired through FiberTower Corporation for vouchers to be applied against the successful bidder for $910winning bids and recorded a $900 gain in the first quarter of spectrum in 18 markets. We provided the FCC an initial deposit2020. These vouchers yielded a value of $2,348 in July 2016 and received a refund of $1,438 in April 2017,approximately $1,200, which was recordedapplied toward our gross bids. In the second quarter of 2020, we made the final cash payment of $949, bringing the total cash payment to $1,186.
NOTE 9. SALES OF RECEIVABLES
We have agreements with various third-party financial institutions pertaining to the sales of certain types of our accounts receivable. The most significant of these programs are discussed in detail below and generally consist of (1) receivables arising from equipment installment plans, which are sold for cash and a deferred purchase price, and (2) revolving service and trade receivables. Under these programs, we transfer receivables to purchasers in exchange for cash and additional consideration upon settlement of the receivables, where applicable. Under the terms of our agreements for these programs, we continue to bill and collect the payments from our customers on behalf of the financial institutions.
The sales of receivables did not have a material impact on our consolidated statements of income or to “Total Assets” reported on our consolidated balance sheets. We reflect cash receipts on sold receivables as cash flows from investing activities onoperations in our consolidated statements of cash flows.
Cash receipts on the deferred purchase price are classified as cash flows from investing activities.
Our equipment installment and revolving receivable programs are discussed in detail below. The following table sets forth a summary of the receivables and accounts being serviced:
|
| June 30, 2020 |
| December 31, 2019 | ||||||||
|
| Equipment |
|
|
|
| Equipment |
|
|
| ||
|
| Installment |
| Revolving |
| Installment |
| Revolving | ||||
Gross receivables: | $ | 3,931 |
| $ | 3,745 |
| $ | 4,576 |
| $ | 3,324 | |
Balance sheet classification |
|
|
|
|
|
|
|
|
|
|
| |
Accounts receivable |
|
|
|
|
|
|
|
|
|
|
| |
Notes receivable |
| 2,056 |
|
| - |
|
| 2,467 |
|
| - | |
Trade receivables |
| 496 |
|
| 3,547 |
|
| 477 |
|
| 2,809 | |
Other Assets |
|
|
|
|
|
|
|
|
|
|
| |
Noncurrent notes and trade receivables |
| 1,379 |
|
| 198 |
|
| 1,632 |
|
| 515 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding portfolio of receivables derecognized from |
|
|
|
|
|
|
|
|
|
|
| |
our consolidated balance sheets |
| 8,917 |
|
| 5,300 |
|
| 9,713 |
|
| 4,300 | |
Cash proceeds received, net of remittances1 |
| 6,429 |
|
| 5,300 |
|
| 7,211 |
|
| 4,300 | |
1 | Represents amounts to which financial institutions remain entitled, excluding the deferred purchase price. |
30
AT&T INC.
JUNE 30, 2017
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- ContinuedDollars in millions except per share amounts
Equipment Installment Receivables Program
We offer our customers the option to purchase certain wireless devices in installments over a specified period of up to 30 monthstime and, in many cases, once certain conditions are met, they have the rightmay be eligible to trade in the original equipment for a new device within a set period and have the remaining unpaid balance satisfied. As of September 30, 2017 and December 31, 2016, gross equipment installment receivables of $4,176 and $5,665 were included on our consolidated balance sheets, ofpaid or settled.
We maintain a program under which $2,485 and $3,425 are notes receivable that are included in "Accounts receivable - net."
The following table sets forth a summary of equipment installment receivables sold under this program during the three and ninesix months ended SeptemberJune 30, 20172020 and 2016:
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Gross receivables sold | $ | 1,619 | $ | 1,485 | $ | 6,217 | $ | 5,812 | ||||||||
Net receivables sold 1 | 1,478 | 1,336 | 5,698 | 5,263 | ||||||||||||
Cash proceeds received | 1,292 | 891 | 4,139 | 3,538 | ||||||||||||
Deferred purchase price recorded | 285 | 463 | 1,767 | 1,745 | ||||||||||||
Guarantee obligation recorded | 65 | - | 139 | - | ||||||||||||
1 Receivables net of allowance, imputed interest and trade-in right guarantees. |
|
| Three months ended |
| Six months ended | ||||||||
|
| June 30, |
| June 30, | ||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Gross receivables sold | $ | 1,506 |
| $ | 2,244 |
| $ | 3,873 |
| $ | 4,945 | |
Net receivables sold1 |
| 1,449 |
|
| 2,133 |
|
| 3,722 |
|
| 4,679 | |
Cash proceeds received |
| 1,225 |
|
| 1,920 |
|
| 3,175 |
|
| 4,195 | |
Deferred purchase price recorded |
| 232 |
|
| 261 |
|
| 585 |
|
| 570 | |
Guarantee obligation recorded |
| 27 |
|
| 93 |
|
| 71 |
|
| 194 | |
1 | Receivables net of allowance, imputed interest and equipment trade-in right guarantees. |
The deferred purchase price and guarantee obligation are initially recorded at estimated fair value and subsequently carried at the loweradjusted for changes in present value of cost or net realizable value.expected cash flows. The estimation of their fair values is based on remaining installment payments expected to be collected and the expected timing and value of device trade-ins. The estimated value of the device trade-ins considers prices offered to us by independent third parties that contemplate changes in value after the launch of a device model. The fair value measurements used for the deferred purchase price and the guarantee obligation are considered Level 3 under the Fair Value Measurement and Disclosure framework (see Note 6)7).
The following table showspresents the previously transferred equipment installment receivables, previously sold to the Purchasers, which we repurchased in exchange for the associated deferred purchase price during the three months and ninesix months ended SeptemberJune 30, 20172020 and 2016:
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Fair value of repurchased receivables | $ | 567 | $ | 749 | $ | 1,281 | $ | 1,281 | ||||||||
Carrying value of deferred purchase price | 507 | 722 | 1,147 | 1,261 | ||||||||||||
Gain (loss) on repurchases 1 | $ | 60 | $ | 27 | $ | 134 | $ | 20 | ||||||||
1 These gains (losses) are included in "Selling, general and administrative" in the consolidated statements of income. |
|
| Three months ended |
| Six months ended | ||||||||
|
| June 30, |
| June 30, | ||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Fair value of repurchased receivables | $ | 285 |
| $ | 235 |
| $ | 573 |
| $ | 658 | |
Carrying value of deferred purchase price |
| 281 |
|
| 225 |
|
| 558 |
|
| 632 | |
Gain on repurchases1 | $ | 4 |
| $ | 10 |
| $ | 15 |
| $ | 26 | |
1 | These gains are included in “Selling, general and administrative” in the consolidated statements of income. |
At SeptemberJune 30, 20172020 and December 31, 2016,2019, our deferred purchase price receivable was $3,170$2,319 and $3,090,$2,336, respectively, of which $2,023$1,591 and $1,606$1,569 are included in "Other“Other current assets"assets” on our consolidated balance sheets, with the remainder in "Other“Other Assets."” The guarantee obligation at June 30, 2020 and December 31, 2019 was $315 and $384, respectively, of which $213 and $148 are included in “Accounts payable and accrued liabilities” on our consolidated balance sheets, with the remainder in “Other noncurrent liabilities.” Our maximum exposure to loss as a result of selling these equipment installment receivables is limited to the total amount of our deferred purchase price and guarantee obligation.
31
AT&T INC.
JUNE 30, 2020
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
Revolving Receivables Program
In 2019, we entered into a one-year revolving agreement to transfer up to $4,300 of certain receivables through our bankruptcy-remote subsidiaries to various financial institutions on a recurring basis in exchange for cash equal to the gross receivables transferred. In the first quarter of 2020, we expanded the program limit to $5,300. In the second quarter of 2020, we extended the agreement by one year. As customers pay their balances, we transfer additional receivables into the program, resulting in our gross receivables sold exceeding net cash flow impacts (e.g., collect and reinvest). The salestransferred receivables are fully guaranteed by our bankruptcy-remote subsidiaries, which hold additional receivables in the amount of equipment installment receivables did not have a material impact on our consolidated statements$3,745 that are pledged as collateral under this agreement. The transfers are recorded at fair value of income orthe proceeds received and obligations assumed less derecognized receivables. The obligation is subsequently adjusted for changes in estimated expected credit losses and interest rates. Our maximum exposure to "Total Assets" reported on our consolidated balance sheets. We reflect the cash flowsloss related to these receivables transferred is limited to the arrangement as operating activities in our consolidated statements of cash flows becauseamount outstanding.
The fair value measurement used for the cash received fromobligation is considered Level 3 under the Purchasers upon both the sale of the receivablesFair Value Measurement and the collection of the deferred purchase price is not subject to significant interest rate risk.
The following table sets forth a summary of receivables sold:
|
| Three months ended |
| Six months ended | ||||||||
|
| June 30, |
| June 30, | ||||||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Gross receivables sold/cash proceeds received1 | $ | 3,805 |
| $ | 4,452 |
| $ | 8,027 |
| $ | 5,852 | |
Collections reinvested under revolving agreement |
| 3,805 |
|
| 2,127 |
|
| 7,027 |
|
| 2,127 | |
Net cash proceeds received (remitted) | $ | - |
| $ | 2,325 |
| $ | 1,000 |
| $ | 3,725 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net receivables sold2 | $ | 3,819 |
| $ | 4,134 |
| $ | 7,957 |
| $ | 5,497 | |
Obligations recorded (reversed) |
| (12) |
|
| 384 |
|
| 114 |
|
| 436 | |
1 | Includes initial sale of receivables of $0 and $2,325 for the three months and $1,000 and $3,725 for the six months ended | |||||||||||
| June 30, 2020 and 2019, respectively. |
|
|
|
|
|
|
|
|
|
|
|
2 | Receivables net of allowance, return and incentive reserves and imputed interest |
NOTE 10. LEASES
We have operating and finance leases for certain facilities and equipment installment receivablesused in operations. Our leases generally have remaining lease terms of up to 15 years. Some of our real estate operating leases contain renewal options that may be exercised, and some of our leases include options to terminate the leases within one year.
We have recognized a right-of-use asset for both operating and finance leases, and an operating lease liability that represents the present value of our obligation to make payments over the lease term. The present value of the lease payments is calculated using the incremental borrowing rate for operating and finance leases, which was determined using a portfolio approach based on the rate of interest that we would have to pay to borrow an amount equal to the lease payments on a collateralized basis over a similar term. We use the unsecured borrowing rate and risk-adjust that rate to approximate a collateralized rate in the currency of the lease, which will be updated on a quarterly basis for measurement of new lease liabilities.
32
AT&T INC.
JUNE 30, 2020
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
The components of lease expense were soldas follows:
| Three months ended |
| Six months ended | ||||||||
| June 30, |
| June 30, | ||||||||
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Operating lease cost | $ | 1,449 |
| $ | 1,610 |
| $ | 2,826 |
| $ | 2,852 |
|
|
|
|
|
|
|
|
|
|
|
|
Finance lease cost: |
|
|
|
|
|
|
|
|
|
|
|
Amortization of right-of-use assets | $ | 73 |
| $ | 70 |
| $ | 140 |
| $ | 136 |
Interest on lease obligation |
| 36 |
|
| 42 |
|
| 77 |
|
| 84 |
Total finance lease cost | $ | 109 |
| $ | 112 |
| $ | 217 |
| $ | 220 |
Supplemental balance sheet information related to Purchasersleases is as follows:
| June 30, | December 31, |
| ||
| 2020 | 2019 |
| ||
Operating Leases |
|
|
|
|
|
Operating lease right-of-use assets | $ | 24,692 | $ | 24,039 |
|
|
|
|
|
|
|
Accounts payable and accrued liabilities | $ | 3,474 | $ | 3,451 |
|
Operating lease obligation |
| 22,230 |
| 21,804 |
|
Total operating lease obligation | $ | 25,704 | $ | 25,255 |
|
|
|
|
|
|
|
Finance Leases |
|
|
|
|
|
Property, plant and equipment, at cost | $ | 3,468 | $ | 3,534 |
|
Accumulated depreciation and amortization |
| (1,347) |
| (1,296) |
|
Property, plant and equipment, net | $ | 2,121 | $ | 2,238 |
|
|
|
|
|
|
|
Current portion of long-term debt | $ | 180 | $ | 162 |
|
Long-term debt |
| 1,683 |
| 1,872 |
|
Total finance lease obligation | $ | 1,863 | $ | 2,034 |
|
|
|
|
|
|
|
Weighted-Average Remaining Lease Term (years) |
|
|
|
|
|
Operating leases |
| 8.5 |
| 8.4 |
|
Finance leases |
| 10.2 |
| 10.7 |
|
|
|
|
|
|
|
Weighted-Average Discount Rate |
|
|
|
|
|
Operating leases |
| 4.2 | % | 4.7 | % |
Finance leases |
| 8.2 | % | 8.5 | % |
33
AT&T INC.
JUNE 30, 2020
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
Future minimum maturities of lease obligations are as follows:
At June 30, 2020 | Operating |
| Finance | ||
| Leases |
| Leases | ||
Remainder of 2020 | $ | 2,447 |
| $ | 190 |
2021 |
| 4,582 |
|
| 309 |
2022 |
| 4,277 |
|
| 291 |
2023 |
| 3,889 |
|
| 262 |
2024 |
| 3,357 |
|
| 242 |
Thereafter |
| 13,031 |
|
| 1,632 |
Total lease payments |
| 31,583 |
|
| 2,926 |
Less imputed interest |
| (5,879) |
|
| (1,063) |
Total | $ | 25,704 |
| $ | 1,863 |
NOTE 11. PREFERRED SHARES
We have authorized 10 million preferred shares of AT&T stock, each with a par value of $1.00 per share. Cumulative perpetual preferred shares consist of the following:
Series A: 48 thousand shares outstanding at June 30, 2020 and December 31, 2019, with a $25,000 per share liquidation preference and a dividend rate of 5.00%.
Series B: 20 thousand shares outstanding at June 30, 2020 and 0 issued and outstanding at December 31, 2019, with a €100,000 per share liquidation preference, and an initial dividend rate of 2.875%, subject to reset beginning on May 1, 2025.
Series C: 70 thousand shares outstanding at June 30, 2020 and 0 issued and outstanding at December 31, 2019, with a $25,000 per share liquidation preference and a dividend rate of 4.75%.
So long as the preferred dividends are declared and paid on a timely basis on each series of preferred shares, there are no longer consideredlimitations on our assets.
NOTE 12. ADDITIONAL FINANCIAL INFORMATION
Cash and Cash Flows
We typically maintain our restricted cash balances for purchases and sales of certain investment securities and funding of certain deferred compensation benefit payments:
|
| June 30, |
| December 31, | ||||||||
|
|
| 2020 |
|
| 2019 |
|
| 2019 |
|
| 2018 |
Cash and cash equivalents |
| $ | 16,941 |
| $ | 8,423 |
| $ | 12,130 |
| $ | 5,204 |
Restricted cash in Other current assets |
|
| 3 |
|
| 15 |
|
| 69 |
|
| 61 |
Restricted cash in Other Assets |
|
| 87 |
|
| 216 |
|
| 96 |
|
| 135 |
Cash and Cash Equivalents and Restricted Cash |
| $ | 17,031 |
| $ | 8,654 |
| $ | 12,295 |
| $ | 5,400 |
34
2017 | ||||
Outstanding derecognized receivables at January 1, | $ | 7,232 | ||
Gross receivables sold | 6,217 | |||
Collections on cash purchase price | (3,556 | ) | ||
Collections on deferred purchase price | (665 | ) | ||
Trade ins and other | (295 | ) | ||
Fair value of repurchased receivables | (1,281 | ) | ||
Outstanding derecognized receivables at September 30, | $ | 7,652 |
AT&T INC.
JUNE 30, 2020
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
Consolidated Statements of Cash Flows | Six months ended | ||||
| June 30, | ||||
Cash paid (received) during the period for: |
| 2020 |
|
| 2019 |
Interest | $ | 4,202 |
| $ | 4,410 |
Income taxes, net of refunds |
| (214) |
|
| (32) |
|
| Six months ended | ||||
|
| June 30, | ||||
|
| 2020 |
| 2019 | ||
Cash Flows from Operating Activities |
|
|
|
|
|
|
Cash paid for amounts included in lease obligations |
|
|
|
|
|
|
Operating cash flows from operating leases |
| $ | 2,424 |
| $ | 2,464 |
|
|
|
|
|
|
|
Supplemental Lease Cash Flow Disclosures |
|
|
|
|
|
|
Operating lease right-of-use assets obtained |
|
|
|
|
|
|
in exchange for new operating lease obligations |
|
| 2,895 |
|
| 3,899 |
Other Noncash Investing and Financing Activities In connection with capital improvements and the acquisition of other productive assets, we negotiate favorable payment terms (referred to as vendor financing), which are reported as financing activities when paid. For the first six months, we recorded vendor financing commitments related to capital investments of approximately $1,680 in 2020 and $1,265 in 2019.
Financing Activities
Debt Transactions At June 30, 20172020, our total long-term debt obligations totaled $168,964. Our debt activity primarily consisted of the following:
Net borrowings of approximately $2,960 of debt under our commercial paper program.
In April 2020, entry into and draw on a $5,500 Term Loan Credit Agreement, with certain commercial banks and Bank of America, N.A., as lead agent, which was redeemed in May 2020 (originally due on December 31, 2020).
Issuance of $16,545 of AT&T global notes due 2027 to 2060.
Issuance of €3,000 million global notes ($3,281 at issuance) due 2028 to 2038.
Redemptions of $12,689 of AT&T global notes due 2020 to 2047.
Redemptions of $1,800 under term loan credit agreements with certain banks.
Redemptions of $1,000 annual put reset securities issued by BellSouth.
Our long-term debt issuances carried a weighted average interest rate of 3.5%, and our long-term debt redemptions had a weighted average interest rate of 3.4%.
Subsequent Events In July 2020, we completed redemptions of $4,264 of AT&T, WarnerMedia and DIRECTV notes due 2022, with an average interest rate of 3.4%.
In August 2020, we issued $11,000 of global notes due 2028 to 2061, with an average interest rate of 2.7%.
35
AT&T INC.
JUNE 30, 2020
Item 2. Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
OVERVIEW
AT&T Inc. is referred to as “we,” “AT&T” or the “Company” throughout this document, and the names of the particular subsidiaries and affiliates providing the services generally have been omitted. AT&T is a holding company whose subsidiaries and affiliates operate worldwide in the communicationstelecommunications, media and digital entertainment services industry. Our subsidiaries and affiliates provide services and equipment that deliver voice, video and broadband services both domestically and internationally.technology industries. You should read this discussion in conjunction with the consolidated financial statements and accompanying notes. A referencenotes (Notes).
We have three reportable segments: (1) Communications, (2) WarnerMedia and (3) Latin America. Our segment results presented in Note 4 and discussed below follow our internal management reporting. We analyze our segments based on segment operating contribution, which consists of operating income, excluding acquisition-related costs and other significant items and equity in net income (loss) of affiliates for investments managed within each segment. Percentage increases and decreases that are not considered meaningful are denoted with a dash.
We have recast our segment results for all prior periods to a "Note" in this section refersinclude our prior Xandr segment within our WarnerMedia segment.
| Second Quarter |
|
| Six-Month Period |
| ||||||||||
|
|
|
|
|
| Percent |
|
|
|
|
|
|
| Percent |
|
| 2020 |
| 2019 | Change |
|
| 2020 |
| 2019 | Change |
| ||||
Operating Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Communications | $ | 33,592 |
| $ | 35,267 | (4.7) | % |
| $ | 67,841 |
| $ | 70,436 | (3.7) | % |
WarnerMedia |
| 6,814 |
|
| 8,835 | (22.9) |
|
|
| 14,662 |
|
| 17,640 | (16.9) |
|
Latin America |
| 1,232 |
|
| 1,757 | (29.9) |
|
|
| 2,822 |
|
| 3,475 | (18.8) |
|
Corporate and other |
| 437 |
|
| 420 | 4.0 |
|
|
| 825 |
|
| 811 | 1.7 |
|
Eliminations and consolidation |
| (1,125) |
|
| (1,322) | 14.9 |
|
|
| (2,421) |
|
| (2,578) | 6.1 |
|
AT&T Operating Revenues |
| 40,950 |
|
| 44,957 | (8.9) |
|
|
| 83,729 |
|
| 89,784 | (6.7) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Contribution |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Communications |
| 8,112 |
|
| 8,671 | (6.4) |
|
|
| 16,315 |
|
| 16,682 | (2.2) |
|
WarnerMedia |
| 1,917 |
|
| 2,350 | (18.4) |
|
|
| 3,930 |
|
| 4,913 | (20.0) |
|
Latin America |
| (201) |
|
| (209) | 3.8 |
|
|
| (385) |
|
| (382) | (0.8) |
|
Segment Operating Contribution | $ | 9,828 |
| $ | 10,812 | (9.1) | % |
| $ | 19,860 |
| $ | 21,213 | (6.4) | % |
The Communications segment provides services to the accompanying Notes to Consolidated Financial Statements.
Mobility provides nationwide wireless service and 2016 are summarizedequipment.
Entertainment Group provides video, including over-the-top (OTT) services, broadband and voice communications services primarily to residential customers. This segment also sells advertising on distribution platforms.
Business Wireline provides advanced IP-based services, as follows:
Third Quarter | Nine-Month Period | |||||||||||||||||||||||
Percent | Percent | |||||||||||||||||||||||
2017 | 2016 | Change | 2017 | 2016 | Change | |||||||||||||||||||
Operating Revenues | ||||||||||||||||||||||||
Service | $ | 36,378 | $ | 37,272 | (2.4 | )% | $ | 109,372 | $ | 111,515 | (1.9 | )% | ||||||||||||
Equipment | 3,290 | 3,618 | (9.1 | ) | 9,498 | 10,430 | (8.9 | ) | ||||||||||||||||
Total Operating Revenues | 39,668 | 40,890 | (3.0 | ) | 118,870 | 121,945 | (2.5 | ) | ||||||||||||||||
Operating expenses | ||||||||||||||||||||||||
Cost of services and sales | ||||||||||||||||||||||||
Equipment | 4,191 | 4,455 | (5.9 | ) | 12,177 | 13,090 | (7.0 | ) | ||||||||||||||||
Broadcast, programming and operations | 5,284 | 4,909 | 7.6 | 15,156 | 14,239 | 6.4 | ||||||||||||||||||
Other cost of services | 9,431 | 9,526 | (1.0 | ) | 27,714 | 28,436 | (2.5 | ) | ||||||||||||||||
Selling, general and administrative | 8,317 | 9,013 | (7.7 | ) | 24,917 | 26,363 | (5.5 | ) | ||||||||||||||||
Depreciation and amortization | 6,042 | 6,579 | (8.2 | ) | 18,316 | 19,718 | (7.1 | ) | ||||||||||||||||
Total Operating Expenses | 33,265 | 34,482 | (3.5 | ) | 98,280 | 101,846 | (3.5 | ) | ||||||||||||||||
Operating Income | 6,403 | 6,408 | (0.1 | ) | 20,590 | 20,099 | 2.4 | |||||||||||||||||
Income Before Income Taxes | 4,974 | 5,193 | (4.2 | ) | 16,422 | 16,621 | (1.2 | ) | ||||||||||||||||
Net Income | 3,123 | 3,418 | (8.6 | ) | 10,711 | 10,818 | (1.0 | ) | ||||||||||||||||
Net Income Attributable to AT&T | $ | 3,029 | $ | 3,328 | (9.0 | )% | $ | 10,413 | $ | 10,539 | (1.2 | )% |
36
AT&T INC.
JUNE 30, 2017
Item 2. Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
The WarnerMedia segment develops, produces and distributes feature films, television, gaming and other content in various physical and digital formats globally. Historical financial results from Xandr, previously a separate reportable segment, have been combined with the WarnerMedia segment within Eliminations and other. This segment contains the following business units:
Turner primarily operates multichannel basic television networks and digital properties. Turner also sells advertising on its networks and digital properties.
Home Box Office consists of premium pay television and OTT and streaming services domestically and premium pay, basic tier television and OTT services internationally, as well as content licensing and home entertainment.
Warner Bros. primarily consists of the production, distribution and licensing of television programming and operations
The Latin America segment provides entertainment and wireless services outside of the U.S. This segment contains the following business units:
Vrio provides video services primarily to residential customers using satellite technology in Latin America and the Caribbean.
Mexico provides wireless service and equipment to customers in Mexico.
COVID-19 Update
In March 2020, the World Health Organization designated the coronavirus (COVID-19) a pandemic and the President of the United States declared a national emergency. To date, COVID-19 has surfaced in nearly all regions around the world and resulted in travel restrictions and business slowdowns or 7.6%,shutdowns.
Disruptions caused by COVID-19 and measures taken to prevent its spread or mitigate its effects both domestically and internationally have impacted our results of operations. We recorded approximately $320, or $0.03 per diluted share, in the thirdsecond quarter and $917,$750, or 6.4%,$0.08 per diluted share, for the first ninesix months of 2017, reflecting annual content cost increases2020, of incremental costs associated with voluntary corporate actions taken primarily to protect and additional programmingcompensate front-line employees and contractors, and WarnerMedia production disruption costs.
In addition to these incremental costs, for DIRECTV NOW.
All subscriber counts at and for the period ended June 30, 2020, exclude customers who we have agreed not to terminate service under the FCC’s “Keep Americans Connected Pledge.” For reporting purposes, we count the following nonpaying subscribers as well as lower Federal Universal Service Fund (USF) ratesif they had disconnected, even though they are still receiving service:
Postpaid subscribers totaling 466,0000 (including 338,000 postpaid phone) in the second quarter and fees. The decrease521,000 (including 382,000 postpaid phone) for the first nine months also includes an actuarial gain from the second-quarter 2017 remeasurement of our postretirement benefit obligation. These expense declines were partially offset by an increase in amortization of deferred customer fulfillment cost.
Premium TV connections totaling 91,000 in the thirdsecond quarter and $1,446, or 5.5%,157,000 for the first nine months of 2017. The decreases were attributable to our disciplined cost management, lower sellingsix months; and wireless commission costs from reduced volumes, fewer advertising costs, and, for the nine month period, the actuarial gain resulting from the second-quarter remeasurement of our postretirement benefit obligation. The decreases
Broadband connections totaling 159,000 (including 48,000 fiber) in the thirdsecond quarter were partially offset by costs arising from natural disasters, and 194,000 (including 58,000 fiber) for the first nine months, lower gains on wireless spectrum transactions during 2017 than insix months.
The economic effects of the comparable periodpandemic and resulting societal changes are currently not predictable. There are a number of 2016. We are continuing to assess network damage fromuncertainties that could impact our future results of operations, including the natural disasters that occurred in effectiveness of COVID-19 mitigation measures; the third quarter as well asduration of the recent fires in California, and expect additional pressure in the fourth quarter.
37
AT&T INC.
JUNE 30, 2017
Item 2. Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
The shift in timing of tax benefitsadvertising revenues from the postponement, restarting or cancellation of sporting events and the related totiming of the restructuringsports costs;
Lower revenues from the closure of a portionmovie theaters and postponement of our wireless businesstheatrical releases, partially offset by state-level legislation changes.
Selected Financial and Operating Data | ||||||||
September 30, | ||||||||
Subscribers and connections in (000s) | 2017 | 2016 | ||||||
Domestic wireless subscribers | 138,826 | 133,338 | ||||||
Mexican wireless subscribers | 13,779 | 10,698 | ||||||
North American wireless subscribers | 152,605 | 144,036 | ||||||
North American branded subscribers | 106,098 | 100,821 | ||||||
North American branded net additions | 2,782 | 3,881 | ||||||
Domestic satellite and over-the-top video subscribers | 21,392 | 20,777 | ||||||
AT&T U-verse® (U-verse) video subscribers | 3,718 | 4,544 | ||||||
Latin America satellite video subscribers 1 | 13,490 | 12,476 | ||||||
Total video subscribers | 38,600 | 37,797 | ||||||
Total domestic broadband connections | 15,715 | 15,618 | ||||||
Network access lines in service | 12,249 | 14,603 | ||||||
U-verse VoIP connections | 5,774 | 5,707 | ||||||
Debt ratio 2 | 56.4 | % | 50.1 | % | ||||
Net debt ratio 3 | 39.7 | % | 47.8 | % | ||||
Ratio of earnings to fixed charges 4 | 3.55 | 3.91 | ||||||
Number of AT&T employees | 256,800 | 273,140 |
The decline in revenues from international roaming wireless services due to reduced travel;
Higher expenses to protect front-line employees, contractors and equity in net income (loss)customers; and
The continued transition of affiliates for investments managed within each segment. We have four reportable segments: (1) Business Solutions, (2) Entertainment Group, (3) Consumer Mobility and (4) International.
RESULTS OF OPERATIONS
Consolidated Results Our financial results are summarized in the discussions that follow. Additional analysis is partdiscussed in our “Segment Results” section. Certain prior period amounts have been reclassified to conform to the current period’s presentation.
| Second Quarter |
|
| Six-Month Period |
| ||||||||||
|
|
|
|
|
| Percent |
|
|
|
|
|
|
| Percent |
|
| 2020 |
| 2019 | Change |
|
| 2020 |
| 2019 | Change |
| ||||
Operating Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service | $ | 37,051 |
| $ | 41,023 | (9.7) | % |
| $ | 75,934 |
| $ | 81,707 | (7.1) | % |
Equipment |
| 3,899 |
|
| 3,934 | (0.9) |
|
|
| 7,795 |
|
| 8,077 | (3.5) |
|
Total Operating Revenues |
| 40,950 |
|
| 44,957 | (8.9) |
|
|
| 83,729 |
|
| 89,784 | (6.7) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations and support |
| 30,133 |
|
| 30,356 | (0.7) |
|
|
| 58,204 |
|
| 60,744 | (4.2) |
|
Depreciation and amortization |
| 7,285 |
|
| 7,101 | 2.6 |
|
|
| 14,507 |
|
| 14,307 | 1.4 |
|
Total Operating Expenses |
| 37,418 |
|
| 37,457 | (0.1) |
|
|
| 72,711 |
|
| 75,051 | (3.1) |
|
Operating Income |
| 3,532 |
|
| 7,500 | (52.9) |
|
|
| 11,018 |
|
| 14,733 | (25.2) |
|
Interest expense |
| 2,041 |
|
| 2,149 | (5.0) |
|
|
| 4,059 |
|
| 4,290 | (5.4) |
|
Equity in net income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of affiliates |
| (10) |
|
| 40 | - |
|
|
| (16) |
|
| 33 | - |
|
Other income (expense) – net |
| 1,017 |
|
| (318) | - |
|
|
| 1,820 |
|
| (32) | - |
|
Income Before Income Taxes |
| 2,498 |
|
| 5,073 | (50.8) |
|
|
| 8,763 |
|
| 10,444 | (16.1) |
|
Net Income |
| 1,563 |
|
| 3,974 | (60.7) |
|
|
| 6,526 |
|
| 8,322 | (21.6) |
|
Net Income Attributable to AT&T |
| 1,281 |
|
| 3,713 | (65.5) |
|
|
| 5,891 |
|
| 7,809 | (24.6) |
|
Net Income Attributable to |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock | $ | 1,229 |
| $ | 3,713 | (66.9) | % |
| $ | 5,807 |
| $ | 7,809 | (25.6) | % |
Operating revenues decreased in the second quarter and in the first six months of 2020, driven by declines in our internal management reportingWarnerMedia, Communications and planning processesLatin America segments. Lower WarnerMedia segment revenues reflect lower advertising revenue from cancelled and it is an important metric that management usespostponed live sports programming and lower revenue due to evaluate operating performance. EBITDA does not give effectpostponed theatrical releases. Communications segment revenue declines were driven by continued declines in video and legacy services, and lower wireless revenues from the imposition of international travel restrictions and closure of retail stores. Latin America segment revenue declines were primarily due to cash used for debtforeign exchange rate pressure and store closures related to COVID-19. Partially offsetting these decreases were revenue increases in strategic and managed business service requirementsin our Communications segment.
Operations and thus does not reflect available funds for distributions, reinvestment or other discretionary uses. EBITDA margin is EBITDA dividedsupportexpenses decreased in the second quarter and in the first six months of 2020. The decreases were driven by total revenues.lower broadcast and programming costs in our Communications and WarnerMedia segments. Expense declines in the first six months were also driven by a noncash gain of $900 on a spectrum transaction, reduced wireless equipment costs
38
AT&T INC.
JUNE 30, 2017
Item 2. Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
resulting from lower device sales and our continued focus on cost management. Partially offsetting expense declines were charges for a goodwill impairment at our Vrio business unit, employee separation charges and incremental costs related to business customers,COVID-19, including multinational companies; governmentalincreased first-quarter 2020 bad debt expense. As part of our cost and wholesale customers;efficiency initiatives, we expect operations and individual subscribers who purchase wireless services through employer-sponsored plans. We provide advanced IP-based services including Virtual Private Networks (VPN); Ethernet-related productssupport expense improvements to continue as we size our operations to reflect the new economic activity level.
Depreciation and broadband, collectively referred to as fixed strategic services; as well as traditional data and voice products. We utilize our wireless and wired networks to provide a complete integrated communications solution to our business customers.
Depreciation expense increased $36, or in U.S. territories. We utilize our copper and IP-based wired network and our satellite technology.
Amortization expense increased $148, or 7.1% in the second quarter and $135, or 3.2% for the first six months of 2020 primarily due to provide voicethe amortization of orbital slot licenses, which began in the first quarter of 2020 (see Note 1).
Operatingincome decreased in the second quarter and data services,the first six months of 2020. Our operating income margin for the second quarter decreased from 16.7% in 2019 to 8.6% in 2020 and for the first six months decreased from 16.4% in 2019 to 13.2% in 2020.
Interest expense decreased in the second quarter and first six months of 2020, primarily due to lower debt balances and interest rates.
Equity in net income of affiliates decreased in the second quarter and for the first six months of 2020, reflecting changes in our investment portfolio, including high-speed internet, video and home monitoring services over wireless devices.
Other income (expense) – net increased in the second quarter and wireless servicesfor the first six months of 2020. The increases were primarily due to the recognition of actuarial losses in Mexico. Video entertainment services are provided to primarily residential customers using satellite technology. We utilize our regional2019, with no comparable interim remeasurement in 2020, totaling $1,699 and national networks$2,131 in Mexico to provide consumerthe second quarter and business customers with wireless datafor the first six months of 2019, respectively, and voice communication services. Our international subsidiaries conduct businesshigher prior service credit amortization in their local currency,2020 (see Note 6). The increase was partially offset by the write-off of certain investments in 2020 and operating results are converted to U.S. dollars using official exchange rates. Our International segment is subject to foreign currency fluctuations.
Income taxes decreased in the second quarter and wired networks as well as an international satellite fleet.increased for the first six months of 2020. The decrease in income tax expense in the second quarter was primarily attributable to lower income before tax.
Our domestic communications business strategies reflect bundled product offerings that increasingly cut across product lineseffective tax rate was 37.5% for the second quarter and utilize25.5% for the first six months of 2020, versus 21.7% and 20.3% for the comparable year-prior periods, respectively. The increases in our asset base. Therefore asset information and capital expenditures by segment areeffective tax rates were primarily due to the Vrio goodwill impairment, which is not presented. Depreciation is allocated based on asset utilization by segment. In expectation of the close of our acquisition of Time Warner, we are beginning to realign our operations and strategies. We are pushing down administrative activities into the business units to better manage costs and serve our customers.
39
Business Solutions | ||||||||||||||||||||||||
Segment Results | ||||||||||||||||||||||||
Third Quarter | Nine-Month Period | |||||||||||||||||||||||
2017 | 2016 | Percent Change | 2017 | 2016 | Percent Change | |||||||||||||||||||
Segment operating revenues | ||||||||||||||||||||||||
Wireless service | $ | 8,034 | $ | 8,050 | (0.2 | )% | $ | 23,969 | $ | 23,868 | 0.4 | % | ||||||||||||
Fixed strategic services | 3,087 | 2,913 | 6.0 | 9,089 | 8,469 | 7.3 | ||||||||||||||||||
Legacy voice and data services | 3,434 | 4,042 | (15.0 | ) | 10,572 | 12,577 | (15.9 | ) | ||||||||||||||||
Other service and equipment | 852 | 886 | (3.8 | ) | 2,513 | 2,619 | (4.0 | ) | ||||||||||||||||
Wireless equipment | 1,654 | 1,876 | (11.8 | ) | 4,873 | 5,422 | (10.1 | ) | ||||||||||||||||
Total Segment Operating Revenues | 17,061 | 17,767 | (4.0 | ) | 51,016 | 52,955 | (3.7 | ) | ||||||||||||||||
Segment operating expenses | ||||||||||||||||||||||||
Operations and support | 10,233 | 10,925 | (6.3 | ) | 30,722 | 32,584 | (5.7 | ) | ||||||||||||||||
Depreciation and amortization | 2,325 | 2,539 | (8.4 | ) | 6,972 | 7,568 | (7.9 | ) | ||||||||||||||||
Total Segment Operating Expenses | 12,558 | 13,464 | (6.7 | ) | 37,694 | 40,152 | (6.1 | ) | ||||||||||||||||
Segment Operating Income | 4,503 | 4,303 | 4.6 | 13,322 | 12,803 | 4.1 | ||||||||||||||||||
Equity in Net Income of Affiliates | - | - | - | - | - | - | ||||||||||||||||||
Segment Contribution | $ | 4,503 | $ | 4,303 | 4.6 | % | $ | 13,322 | $ | 12,803 | 4.1 | % |
AT&T INC.
JUNE 30, 2017
Item 2. Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
September 30, | Percent | |||||||||||
(in 000s) | 2017 | 2016 | Change | |||||||||
Business Wireless Subscribers | ||||||||||||
Postpaid/Branded | 51,412 | 50,014 | 2.8 | % | ||||||||
Reseller | 77 | 58 | 32.8 | |||||||||
Connected devices 1 | 35,909 | 29,355 | 22.3 | |||||||||
Total Business Wireless Subscribers | 87,398 | 79,427 | 10.0 | |||||||||
Business IP Broadband Connections | 1,017 | 963 | 5.6 | % | ||||||||
1 Includes data-centric devices such as session-based tablets, monitoring devices and primarily wholesale automobile systems. Excludes postpaid tablets. |
Third Quarter | Nine-Month Period | |||||||||||||||||||||||
Percent | Percent | |||||||||||||||||||||||
(in 000s) | 2017 | 2016 | Change | 2017 | 2016 | Change | ||||||||||||||||||
Business Wireless Net Additions 1, 4 | ||||||||||||||||||||||||
Postpaid/Branded | 15 | 191 | (92.1 | )% | (74 | ) | 509 | - | % | |||||||||||||||
Reseller | 2 | 1 | - | 3 | (34 | ) | - | |||||||||||||||||
Connected devices 2 | 2,292 | 1,290 | 77.7 | 7,015 | 4,067 | 72.5 | ||||||||||||||||||
Business Wireless Net Subscriber Additions | 2,309 | 1,482 | 55.8 | 6,944 | 4,542 | 52.9 | ||||||||||||||||||
Business Wireless Postpaid Churn 1, 3, 4 | 1.01 | % | 0.97 | % | 4 BP | 1.02 | % | 0.97 | % | 5 BP | ||||||||||||||
Business IP Broadband Net Additions | 25 | 15 | 66.7 | % | 41 | 52 | (21.2 | )% | ||||||||||||||||
1 Excludes migrations between AT&T segments and/or subscriber categories and acquisition-related additions during the period. | ||||||||||||||||||||||||
2 Includes data-centric devices such as session-based tablets, monitoring devices and primarily wholesale automobile systems. | ||||||||||||||||||||||||
Excludes postpaid tablets. | ||||||||||||||||||||||||
3 Calculated by dividing the aggregate number of wireless subscribers who canceled service during a period divided by the total number | ||||||||||||||||||||||||
of wireless subscribers at the beginning of that period. The churn rate for the period is equal to the average of the churn rate for | ||||||||||||||||||||||||
each month of that period. | ||||||||||||||||||||||||
4 2017 excludes the impact of the 2G shutdown, which was reflected in beginning of period subscribers. |
COMMUNICATIONS SEGMENT | Second Quarter |
|
| Six-Month Period |
| ||||||||||
|
|
|
|
|
| Percent |
|
|
|
|
|
|
| Percent |
|
| 2020 |
| 2019 | Change |
|
| 2020 |
| 2019 | Change |
| ||||
Segment Operating Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobility | $ | 17,149 |
| $ | 17,292 | (0.8) | % |
| $ | 34,551 |
| $ | 34,655 | (0.3) | % |
Entertainment Group |
| 10,069 |
|
| 11,368 | (11.4) |
|
|
| 20,584 |
|
| 22,696 | (9.3) |
|
Business Wireline |
| 6,374 |
|
| 6,607 | (3.5) |
|
|
| 12,706 |
|
| 13,085 | (2.9) |
|
Total Segment Operating Revenues |
| 33,592 |
|
| 35,267 | (4.7) |
|
|
| 67,841 |
|
| 70,436 | (3.7) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Operating Contribution |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobility |
| 5,805 |
|
| 5,767 | 0.7 |
|
|
| 11,593 |
|
| 11,076 | 4.7 |
|
Entertainment Group |
| 1,030 |
|
| 1,514 | (32.0) |
|
|
| 2,365 |
|
| 2,992 | (21.0) |
|
Business Wireline |
| 1,277 |
|
| 1,390 | (8.1) |
|
|
| 2,357 |
|
| 2,614 | (9.8) |
|
Total Segment Operating Contribution | $ | 8,112 |
| $ | 8,671 | (6.4) | % |
| $ | 16,315 |
| $ | 16,682 | (2.2) | % |
Selected Subscribers and Connections |
|
|
| |
| June 30, | |||
(000s) | 2020 |
| 2019 | |
Mobility Subscribers1 | 171,407 |
| 158,622 | |
Total domestic broadband connections1 | 15,201 |
| 15,698 | |
Network access lines in service | 7,878 |
| 9,207 | |
U-verse VoIP connections | 4,058 |
| 4,766 | |
1 | Excludes 521 wireless and 194 broadband customers who we have agreed not to terminate service under the FCC's "Keep Americans | |||
| Connected Pledge," which was implemented March 13, 2020. |
Operating Revenues
Operating contribution decreased in the second quarter and increased $101, or 0.4%, for the first ninesix months of 2017. The decrease2020, reflecting declines in our Business Wireline and Entertainment Group business units, largely offset by improvement in our Mobility business unit. Our Communications segment operating income margin in the thirdsecond quarter was primarily duedecreased from 24.6% in 2019 to customers shifting to our unlimited plans as well as fewer migrations from our Consumer Mobility segment during the quarter. The increase24.1% in 2020 and for the first ninesix months was primarily dueincreased from 23.7% in 2019 to the migration of customers from our Consumer Mobility segment.24.0% in 2020.
40
AT&T INC.
JUNE 30, 2017
Item 2. Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
Communications Business Unit Discussion | |||||||||||||||
Mobility Results |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Second Quarter |
| Six-Month Period | ||||||||||||
|
|
|
|
|
| Percent |
|
|
|
|
|
| Percent | ||
| 2020 |
| 2019 | Change |
| 2020 |
| 2019 | Change | ||||||
Operating revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service | $ | 13,669 |
| $ | 13,824 | (1.1) | % |
| $ | 27,637 |
| $ | 27,453 | 0.7 | % |
Equipment |
| 3,480 |
|
| 3,468 | 0.3 |
|
|
| 6,914 |
|
| 7,202 | (4.0) |
|
Total Operating Revenues |
| 17,149 |
|
| 17,292 | (0.8) |
|
|
| 34,551 |
|
| 34,655 | (0.3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations and support |
| 9,332 |
|
| 9,522 | (2.0) |
|
|
| 18,901 |
|
| 19,563 | (3.4) |
|
Depreciation and amortization |
| 2,012 |
|
| 2,003 | 0.4 |
|
|
| 4,057 |
|
| 4,016 | 1.0 |
|
Total Operating Expenses |
| 11,344 |
|
| 11,525 | (1.6) |
|
|
| 22,958 |
|
| 23,579 | (2.6) |
|
Operating Income |
| 5,805 |
|
| 5,767 | 0.7 |
|
|
| 11,593 |
|
| 11,076 | 4.7 |
|
Equity in Net Income (Loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of Affiliates |
| - |
|
| - | - |
|
|
| - |
|
| - | - |
|
Operating Contribution | $ | 5,805 |
| $ | 5,767 | 0.7 | % |
| $ | 11,593 |
| $ | 11,076 | 4.7 | % |
The following tables highlight other key measures of performance for Mobility:
Subscribers |
|
|
|
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
| June 30, | Percent | ||||
(in 000s) |
|
|
|
|
|
| 2020 |
| 2019 | Change | |||
Postpaid |
|
|
|
|
|
|
| 74,919 |
| 75,478 | (0.7) | % | |
Prepaid |
|
|
|
|
|
|
| 18,008 |
| 17,434 | 3.3 |
| |
Reseller |
|
|
|
|
|
|
| 6,718 |
| 7,323 | (8.3) |
| |
Connected devices1 |
|
|
|
|
|
|
| 71,762 |
| 58,387 | 22.9 |
| |
Total Mobility Subscribers2 |
|
|
|
|
|
|
| 171,407 |
| 158,622 | 8.1 | % | |
1 | Includes data-centric devices such as session-based tablets, monitoring devices and primarily wholesale automobile systems. | ||||||||||||
2 | Excludes 521 customers who we have agreed not to terminate service under the FCC's "Keep Americans Connected Pledge." |
41
AT&T INC.
JUNE 30, 2020
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
Net Additions |
|
|
|
|
|
|
|
|
|
|
|
| |
| Second Quarter |
|
|
|
| Six-Month Period |
| ||||||
|
|
|
| Percent |
|
|
|
|
| Percent | |||
(in 000s) | 2020 |
| 2019 | Change |
|
| 2020 |
| 2019 | Change | |||
Postpaid Phone Net Additions | (151) |
| 74 | - | % |
|
| 12 |
| 153 | (92.2) | % | |
Total Phone Net Additions | (16) |
| 357 | - |
|
|
| 104 |
| 525 | (80.2) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Postpaid2, 5 | (154) |
| (146) | (5.5) |
|
|
| (127) |
| (353) | 64.0 |
| |
Prepaid | 165 |
| 341 | (51.6) |
|
|
| 120 |
| 442 | (72.9) |
| |
Reseller | (58) |
| (204) | 71.6 |
|
|
| (248) |
| (446) | 44.4 |
| |
Connected devices3 | 2,255 |
| 3,959 | (43.0) |
|
|
| 5,773 |
| 7,047 | (18.1) |
| |
Mobility Net Subscriber Additions1, 5 | 2,208 |
| 3,950 | (44.1) | % |
|
| 5,518 |
| 6,690 | (17.5) | % | |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Postpaid Churn4, 5 | 1.05 |
| 1.07 | (2) | BP |
|
| 1.06 |
| 1.12 | (6) | BP | |
Postpaid Phone-Only Churn4, 5 | 0.84 |
| 0.86 | (2) | BP |
|
| 0.85 |
| 0.89 | (4) | BP | |
1 | Excludes acquisition-related additions during the period. | ||||||||||||
2 | In addition to postpaid phones, includes tablets and wearables and other. Tablet net (losses) were (159) and (357) for the three months | ||||||||||||
| and (426) and (767) for the six months ended June 30, 2020 and 2019, respectively. Wearables and other net adds were 155 and 137 for | ||||||||||||
| the three months and 287 and 264 for the six months ended June 30, 2020 and 2019, respectively. | ||||||||||||
3 | Includes data-centric devices such as session-based tablets, monitoring devices and primarily wholesale automobile systems. Excludes | ||||||||||||
| postpaid tablets. | ||||||||||||
4 | Calculated by dividing the aggregate number of wireless subscribers who canceled service during a month divided by the total number | ||||||||||||
| of wireless subscribers at the beginning of that month. The churn rate for the period is equal to the average of the churn rate for | ||||||||||||
| each month of that period. | ||||||||||||
5 | The second quarter and six-month period ended June 30, 2020, exclude 466 (338 phone) and 521 (382 phone), respectively, who we | ||||||||||||
| have agreed not to terminate service under the FCC’s “Keep Americans Connected Pledge.” The second quarter and six-month | ||||||||||||
| period ended June 30, 2020, postpaid churn includes 21 bps (18 bps phone) and 22 bps (19 bps phone) pressure for these customers. |
Service revenue decreased in the second quarter and increased for the first six months of 2020. The second quarter decrease is due to lower roaming revenue from decreased international travel and waived fees, reflecting a full quarter of pandemic-related impacts. Revenues from the first six months were not as affected by the pandemic, with approximately 15 days of impact in the first quarter. Increases in postpaid phone average revenue per subscriber (ARPU) and gains in prepaid subscribers, largely offset by impacts of the pandemic for the first six months.
ARPU
Postpaid ARPU decreased in the second quarter and increased for the first six months. ARPU during 2020 has been pressured by the decline in international roaming revenues and waived fees.
Churn
The effective management of subscriber churn is critical to our ability to maximize revenue growth and to maintain and improve margins. InPostpaid churn and postpaid phone-only churn were lower in the thirdfirst six months due to migrations to unlimited plans, continued network improvements and industry-wide store closures from COVID-19, partially offset by higher accrual for subscriber disconnections under the “Keep Americans Connected Pledge.”
Equipment revenue was stable in the second quarter business wirelessand decreased for the first six months of 2020 driven by lower postpaid churn increased to 1.01%smartphone sales reflecting store closures.
Operations and support expenses decreased in 2017 from 0.97% in 2016,the second quarter and for the first nine months increased to 1.02% in 2017 from 0.97% in 2016.
42
AT&T INC.
JUNE 30, 2017
Item 2. Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
Entertainment Group | ||||||||||||||||||||||||
Segment Results | ||||||||||||||||||||||||
Third Quarter | Nine-Month Period | |||||||||||||||||||||||
2017 | 2016 | Percent Change | 2017 | 2016 | Percent Change | |||||||||||||||||||
Segment operating revenues | ||||||||||||||||||||||||
Video entertainment | $ | 9,200 | $ | 9,026 | 1.9 | % | $ | 27,373 | $ | 26,893 | 1.8 | % | ||||||||||||
High-speed internet | 1,916 | 1,892 | 1.3 | 5,784 | 5,562 | 4.0 | ||||||||||||||||||
Legacy voice and data services | 949 | 1,168 | (18.8 | ) | 3,010 | 3,725 | (19.2 | ) | ||||||||||||||||
Other service and equipment | 583 | 634 | (8.0 | ) | 1,786 | 1,909 | (6.4 | ) | ||||||||||||||||
Total Segment Operating Revenues | 12,648 | 12,720 | (0.6 | ) | 37,953 | 38,089 | (0.4 | ) | ||||||||||||||||
Segment operating expenses | ||||||||||||||||||||||||
Operations and support | 9,953 | 9,728 | 2.3 | 29,112 | 28,875 | 0.8 | ||||||||||||||||||
Depreciation and amortization | 1,379 | 1,504 | (8.3 | ) | 4,256 | 4,481 | (5.0 | ) | ||||||||||||||||
Total Segment Operating Expenses | 11,332 | 11,232 | 0.9 | 33,368 | 33,356 | - | ||||||||||||||||||
Segment Operating Income | 1,316 | 1,488 | (11.6 | ) | 4,585 | 4,733 | (3.1 | ) | ||||||||||||||||
Equity in Net Income (Loss) of Affiliates | (6 | ) | - | - | (23 | ) | 1 | - | ||||||||||||||||
Segment Contribution | $ | 1,310 | $ | 1,488 | (12.0 | )% | $ | 4,562 | $ | 4,734 | (3.6 | )% |
amortization, including the impacts of performance forsecond-quarter 2020 updates to extend the Entertainment Group segment:
September 30, | Percent | |||||||||||
(in 000s) | 2017 | 2016 | Change | |||||||||
Video Connections | ||||||||||||
Satellite | 20,605 | 20,777 | (0.8 | )% | ||||||||
U-verse | 3,691 | 4,515 | (18.3 | ) | ||||||||
DIRECTV NOW 1 | 787 | - | - | |||||||||
Total Video Connections | 25,083 | 25,292 | (0.8 | ) | ||||||||
Broadband Connections | ||||||||||||
IP | 13,367 | 12,752 | 4.8 | |||||||||
DSL | 964 | 1,424 | (32.3 | ) | ||||||||
Total Broadband Connections | 14,331 | 14,176 | 1.1 | |||||||||
Retail Consumer Switched Access Lines | 4,996 | 6,155 | (18.8 | ) | ||||||||
U-verse Consumer VoIP Connections | 5,337 | 5,378 | (0.8 | ) | ||||||||
Total Retail Consumer Voice Connections | 10,333 | 11,533 | (10.4 | )% | ||||||||
1 Consistent with industry practice, DIRECTV NOW includes over-the-top connections that are on a free-trial. |
Third Quarter | Nine-Month Period | |||||||||||||||||||||||
Percent | Percent | |||||||||||||||||||||||
(in 000s) | 2017 | 2016 | Change | 2017 | 2016 | Change | ||||||||||||||||||
Video Net Additions | ||||||||||||||||||||||||
Satellite 1 | (251 | ) | 323 | - | % | (407 | ) | 993 | - | % | ||||||||||||||
U-verse 1 | (134 | ) | (326 | ) | 58.9 | (562 | ) | (1,099 | ) | 48.9 | ||||||||||||||
DIRECTV NOW 2 | 296 | - | - | 520 | - | - | ||||||||||||||||||
Net Video Additions | (89 | ) | (3 | ) | - | (449 | ) | (106 | ) | - | ||||||||||||||
Broadband Net Additions | ||||||||||||||||||||||||
IP | 125 | 156 | (19.9 | ) | 479 | 396 | 21.0 | |||||||||||||||||
DSL | (96 | ) | (161 | ) | 40.4 | (327 | ) | (506 | ) | 35.4 | ||||||||||||||
Net Broadband Additions | 29 | (5 | ) | - | % | 152 | (110 | ) | - | % | ||||||||||||||
1 Includes disconnections for customers that migrated to DIRECTV NOW. | ||||||||||||||||||||||||
2 Consistent with industry practice, DIRECTV NOW includes over-the-top connections that are on a free-trial. |
Depreciation expense increased in the third quarter and $136, or 0.4%, for the first nine months of 2017, largely due to lower revenues from legacy voice and data products, partially offset by growth in revenues from consumer IP broadband services.
Operating income
Consumer Mobility | ||||||||||||||||||||||||
Segment Results | ||||||||||||||||||||||||
Third Quarter | Nine-Month Period | |||||||||||||||||||||||
2017 | 2016 | Percent Change | 2017 | 2016 | Percent Change | |||||||||||||||||||
Segment operating revenues | ||||||||||||||||||||||||
Service | $ | 6,507 | $ | 6,914 | (5.9 | )% | $ | 19,644 | $ | 20,805 | (5.6 | )% | ||||||||||||
Equipment | 1,241 | 1,353 | (8.3 | ) | 3,635 | 3,976 | (8.6 | ) | ||||||||||||||||
Total Segment Operating Revenues | 7,748 | 8,267 | (6.3 | ) | 23,279 | 24,781 | (6.1 | ) | ||||||||||||||||
Segment operating expenses | ||||||||||||||||||||||||
Operations and support | 4,551 | 4,751 | (4.2 | ) | 13,599 | 14,343 | (5.2 | ) | ||||||||||||||||
Depreciation and amortization | 877 | 944 | (7.1 | ) | 2,621 | 2,798 | (6.3 | ) | ||||||||||||||||
Total Segment Operating Expenses | 5,428 | 5,695 | (4.7 | ) | 16,220 | 17,141 | (5.4 | ) | ||||||||||||||||
Segment Operating Income | 2,320 | 2,572 | (9.8 | ) | 7,059 | 7,640 | (7.6 | ) | ||||||||||||||||
Equity in Net Income of Affiliates | - | - | - | - | - | - | ||||||||||||||||||
Segment Contribution | $ | 2,320 | $ | 2,572 | (9.8 | )% | $ | 7,059 | $ | 7,640 | (7.6 | )% |
The following tables highlight other key measures of performance for the Consumer Mobility segment: | ||||||||||||
September 30, | Percent | |||||||||||
(in 000s) | 2017 | 2016 | Change | |||||||||
Consumer Mobility Subscribers | ||||||||||||
Postpaid | 26,003 | 27,374 | (5.0 | )% | ||||||||
Prepaid 2 | 15,136 | 13,035 | 16.1 | |||||||||
Branded | 41,139 | 40,409 | 1.8 | |||||||||
Reseller | 9,800 | 12,566 | (22.0 | ) | ||||||||
Connected devices 1, 2 | 489 | 936 | (47.8 | ) | ||||||||
Total Consumer Mobility Subscribers | 51,428 | 53,911 | (4.6 | )% | ||||||||
1 Includes data-centric devices such as session-based tablets, monitoring devices and postpaid automobile systems. Excludes | ||||||||||||
postpaid tablets. See (2) below. | ||||||||||||
2 Beginning in July 2017, we are reporting prepaid IoT connections, which primarily consist of "connected" cars, as a component of | ||||||||||||
prepaid subscribers. The prepaid subscriber base at September 30, 2017 now includes approximately 543 subscribers that | ||||||||||||
were formerly included in connected devices. |
Third Quarter | Nine-Month Period | |||||||||||||||||||||||
Percent | Percent | |||||||||||||||||||||||
(in 000s) | 2017 | 2016 | Change | 2017 | 2016 | Change | ||||||||||||||||||
Consumer Mobility Net Additions 1, 4 | ||||||||||||||||||||||||
Postpaid | 102 | 21 | - | % | 127 | 89 | 42.7 | % | ||||||||||||||||
Prepaid 5 | 324 | 304 | 6.6 | 873 | 1,169 | (25.3 | ) | |||||||||||||||||
Branded Net Additions | 426 | 325 | 31.1 | 1,000 | 1,258 | (20.5 | ) | |||||||||||||||||
Reseller | (394 | ) | (316 | ) | (24.7 | ) | (1,345 | ) | (1,140 | ) | (18.0 | ) | ||||||||||||
Connected devices 2, 5 | (18 | ) | 41 | - | 87 | 14 | - | |||||||||||||||||
Consumer Mobility Net Subscriber Additions | 14 | 50 | (72.0 | )% | (258 | ) | 132 | - | % | |||||||||||||||
Total Churn 1, 3, 4 | 2.37 | % | 2.11 | % | 26 BP | 2.32 | % | 2.06 | % | 26 BP | ||||||||||||||
Postpaid Churn 1, 3, 4 | 1.17 | % | 1.19 | % | (2) BP | 1.16 | % | 1.17 | % | (1) BP | ||||||||||||||
1 Excludes migrations between AT&T segments and/or subscriber categories and acquisition-related additions during the period. | ||||||||||||||||||||||||
2 Includes data-centric devices such as session-based tablets, monitoring devices and postpaid automobile systems. Excludes | ||||||||||||||||||||||||
postpaid tablets. See (5) below. | ||||||||||||||||||||||||
3 Calculated by dividing the aggregate number of wireless subscribers who canceled service during a month divided by the total number | ||||||||||||||||||||||||
of wireless subscribers at the beginning of that month. The churn rate for the period is equal to the average of the churn rate for | ||||||||||||||||||||||||
each month of that period. | ||||||||||||||||||||||||
4 2017 excludes the impact of the 2G shutdown and a true-up to the reseller subscriber base, which were reflected in beginning of | ||||||||||||||||||||||||
period subscribers. | ||||||||||||||||||||||||
5 Beginning in July 2017, we are reporting prepaid IoT connections, which primarily consist of "connected" cars, as a component | ||||||||||||||||||||||||
of prepaid subscribers, resulting in 97 additional prepaid net adds in the quarter. Had we restated our prior periods, prepaid | ||||||||||||||||||||||||
net adds for the comparable periods would have been 381 in the third quarter of 2016, and 1,060 and 1,324 for the first nine months of , | ||||||||||||||||||||||||
2017 and 2016, respectively. |
International | ||||||||||||||||||||||||
Segment Results | ||||||||||||||||||||||||
Third Quarter | Nine-Month Period | |||||||||||||||||||||||
2017 | 2016 | Percent Change | 2017 | 2016 | Percent Change | |||||||||||||||||||
Segment operating revenues | ||||||||||||||||||||||||
Video entertainment | $ | 1,363 | $ | 1,297 | 5.1 | % | $ | 4,065 | $ | 3,649 | 11.4 | % | ||||||||||||
Wireless service | 536 | 484 | 10.7 | 1,546 | 1,428 | 8.3 | ||||||||||||||||||
Wireless equipment | 200 | 98 | - | 443 | 297 | 49.2 | ||||||||||||||||||
Total Segment Operating Revenues | 2,099 | 1,879 | 11.7 | 6,054 | 5,374 | 12.7 | ||||||||||||||||||
Segment operating expenses | ||||||||||||||||||||||||
Operations and support | 1,937 | 1,640 | 18.1 | 5,468 | 4,951 | 10.4 | ||||||||||||||||||
Depreciation and amortization | 304 | 293 | 3.8 | 905 | 868 | 4.3 | ||||||||||||||||||
Total Segment Operating Expenses | 2,241 | 1,933 | 15.9 | 6,373 | 5,819 | 9.5 | ||||||||||||||||||
Segment Operating Income (Loss) | (142 | ) | (54 | ) | - | (319 | ) | (445 | ) | 28.3 | ||||||||||||||
Equity in Net Income (Loss) of Affiliates | 17 | 1 | - | 62 | 24 | - | ||||||||||||||||||
Segment Contribution | $ | (125 | ) | $ | (53 | ) | - | % | $ | (257 | ) | $ | (421 | ) | 39.0 | % |
September 30, | Percent | |||||||||||
(in 000s) | 2017 | 2016 | Change | |||||||||
Mexican Wireless Subscribers | ||||||||||||
Postpaid | 5,316 | 4,733 | 12.3 | % | ||||||||
Prepaid | 8,231 | 5,665 | 45.3 | |||||||||
Branded | 13,547 | 10,398 | 30.3 | |||||||||
Reseller | 232 | 300 | (22.7 | ) | ||||||||
Total Mexican Wireless Subscribers | 13,779 | 10,698 | 28.8 | |||||||||
Latin America Satellite Subscribers | ||||||||||||
PanAmericana | 8,201 | 7,139 | 14.9 | |||||||||
SKY Brazil 1 | 5,289 | 5,337 | (0.9 | ) | ||||||||
Total Latin America Satellite Subscribers | 13,490 | 12,476 | 8.1 | % | ||||||||
1 Excludes subscribers of our International segment equity investments in SKY Mexico, in which we own a 41.3% stake. SKY Mexico | ||||||||||||
had 8.0 million subscribers at June 30, 2017 and 7.9 million subscribers at September 30, 2016. |
Third Quarter | Nine-Month Period | |||||||||||||||||||||||
(in 000s) | 2017 | 2016 | Percent Change | 2017 | 2016 | Percent Change | ||||||||||||||||||
Mexican Wireless Net Additions | ||||||||||||||||||||||||
Postpaid | 129 | 163 | (20.9 | )% | 351 | 444 | (20.9 | )% | ||||||||||||||||
Prepaid | 585 | 606 | (3.5 | ) | 1,504 | 1,670 | (9.9 | ) | ||||||||||||||||
Branded Net Additions | 714 | 769 | (7.2 | ) | 1,855 | 2,114 | (12.3 | ) | ||||||||||||||||
Reseller | (17 | ) | (26 | ) | 34.6 | (49 | ) | (100 | ) | 51.0 | ||||||||||||||
Mexican Wireless Net Subscriber Additions | 697 | 743 | (6.2 | ) | 1,806 | 2,014 | (10.3 | ) | ||||||||||||||||
Latin America Satellite Net Additions 1 | ||||||||||||||||||||||||
PanAmericana | 98 | (36 | ) | - | 163 | 73 | - | |||||||||||||||||
SKY Brazil | (230 | ) | (12 | ) | - | (260 | ) | (107 | ) | - | ||||||||||||||
Latin America Satellite Net Subscriber Additions 2 | (132 | ) | (48 | ) | - | % | (97 | ) | (34 | ) | - | % | ||||||||||||
1 In 2017, we updated the methodology used to account for prepaid video connections, which were reflected in beginning of period | ||||||||||||||||||||||||
subscribers. | ||||||||||||||||||||||||
2 Excludes SKY Mexico net subscriber losses of 13 for the six months ended June 30, 2017 and additions of 519 for the six | ||||||||||||||||||||||||
months of June 30, 2016. |
AT&T Mobility Results | ||||||||||||||||||||||||
Third Quarter | Nine-Month Period | |||||||||||||||||||||||
2017 | 2016 | Percent Change | 2017 | 2016 | Percent Change | |||||||||||||||||||
Operating revenues | ||||||||||||||||||||||||
Service | $ | 14,541 | $ | 14,964 | (2.8 | )% | $ | 43,613 | $ | 44,673 | (2.4 | )% | ||||||||||||
Equipment | 2,895 | 3,229 | (10.3 | ) | 8,508 | 9,398 | (9.5 | ) | ||||||||||||||||
Total Operating Revenues | 17,436 | 18,193 | (4.2 | ) | 52,121 | 54,071 | (3.6 | ) | ||||||||||||||||
Operating expenses | ||||||||||||||||||||||||
Operations and support | 10,113 | 10,697 | (5.5 | ) | 30,308 | 31,822 | (4.8 | ) | ||||||||||||||||
EBITDA | 7,323 | 7,496 | (2.3 | ) | 21,813 | 22,249 | (2.0 | ) | ||||||||||||||||
Depreciation and amortization | 2,010 | 2,107 | (4.6 | ) | 5,999 | 6,244 | (3.9 | ) | ||||||||||||||||
Total Operating Expenses | 12,123 | 12,804 | (5.3 | ) | 36,307 | 38,066 | (4.6 | ) | ||||||||||||||||
Operating Income | $ | 5,313 | $ | 5,389 | (1.4 | )% | $ | 15,814 | $ | 16,005 | (1.2 | )% |
The following tables highlight other key measures of performance for AT&T Mobility: | ||||||||||||
September 30, | Percent | |||||||||||
(in 000s) | 2017 | 2016 | Change | |||||||||
Wireless Subscribers 1 | ||||||||||||
Postpaid smartphones | 59,277 | 58,688 | 1.0 | % | ||||||||
Postpaid feature phones and data-centric devices | 18,138 | 18,700 | (3.0 | ) | ||||||||
Postpaid | 77,415 | 77,388 | - | |||||||||
Prepaid 3 | 15,136 | 13,035 | 16.1 | |||||||||
Branded | 92,551 | 90,423 | 2.4 | |||||||||
Reseller | 9,877 | 12,624 | (21.8 | ) | ||||||||
Connected devices 2, 3 | 36,398 | 30,291 | 20.2 | |||||||||
Total Wireless Subscribers | 138,826 | 133,338 | 4.1 | |||||||||
Branded Smartphones | 72,242 | 69,752 | 3.6 | |||||||||
Smartphones under our installment programs at end of period | 31,207 | 29,382 | 6.2 | % | ||||||||
1 Represents 100% of AT&T Mobility wireless subscribers. | ||||||||||||
2 Includes data-centric devices such as session-based tablets, monitoring devices and primarily wholesale automobile systems. Excludes | ||||||||||||
postpaid tablets. See (3) below. | ||||||||||||
3 Beginning in July 2017, we are reporting prepaid IoT connections, which primarily consist of "connected" cars, as a component of | ||||||||||||
prepaid subscribers. The prepaid subscriber base at September 30, 2017 now includes approximately 543 subscribers | ||||||||||||
that were formerly included in connected devices. |
Third Quarter | Nine-Month Period | |||||||||||||||||||||||
Percent | Percent | |||||||||||||||||||||||
(in 000s) | 2017 | 2016 | Change | 2017 | 2016 | Change | ||||||||||||||||||
Wireless Net Additions 1, 4 | ||||||||||||||||||||||||
Postpaid | 117 | 212 | (44.8 | )% | 53 | 598 | (91.1 | )% | ||||||||||||||||
Prepaid 5 | 324 | 304 | 6.6 | 873 | 1,169 | (25.3 | ) | |||||||||||||||||
Branded Net Additions | 441 | 516 | (14.5 | ) | 926 | 1,767 | (47.6 | ) | ||||||||||||||||
Reseller | (392 | ) | (315 | ) | (24.4 | ) | (1,342 | ) | (1,174 | ) | (14.3 | ) | ||||||||||||
Connected devices 2, 5 | 2,274 | 1,331 | 70.8 | 7,102 | 4,081 | 74.0 | ||||||||||||||||||
Wireless Net Subscriber Additions | 2,323 | 1,532 | 51.6 | 6,686 | 4,674 | 43.0 | ||||||||||||||||||
Smartphones sold under our installment programs during period | 3,491 | 4,283 | (18.5 | )% | 10,575 | 12,378 | (14.6 | )% | ||||||||||||||||
Total Churn 3, 4 | 1.32 | % | 1.45 | % | (13) BP | 1.35 | % | 1.41 | % | (6) BP | ||||||||||||||
Branded Churn 3, 4 | 1.70 | % | 1.63 | % | 7 BP | 1.66 | % | 1.57 | % | 9 BP | ||||||||||||||
Postpaid Churn 3, 4 | 1.07 | % | 1.05 | % | 2 BP | 1.07 | % | 1.04 | % | 3 BP | ||||||||||||||
Postpaid Phone Only Churn 3, 4 | 0.84 | % | 0.90 | % | (6) BP | 0.84 | % | 0.90 | % | (6) BP | ||||||||||||||
1 Excludes acquisition-related additions during the period. | ||||||||||||||||||||||||
2 Includes data-centric devices such as session-based tablets, monitoring devices and primarily wholesale automobile systems. Excludes | ||||||||||||||||||||||||
postpaid tablets. See (5) below. | ||||||||||||||||||||||||
3 Calculated by dividing the aggregate number of wireless subscribers who canceled service during a month divided by the total number | ||||||||||||||||||||||||
of wireless subscribers at the beginning of that month. The churn rate for the period is equal to the average of the churn rate for each month of that period. | ||||||||||||||||||||||||
4 2017 excludes the impact of the 2G shutdown and a true-up to the reseller subscriber base, which were reflected in beginning of period subscribers. | ||||||||||||||||||||||||
5 Beginning in July 2017, we are reporting prepaid IoT connections, which primarily consist of "connected" cars, as a component | ||||||||||||||||||||||||
of prepaid subscribers, resulting in 97 additional prepaid net adds in the quarter. Had we restated our prior periods, prepaid | ||||||||||||||||||||||||
net adds for the comparable periods would have been 381 in the third quarter of 2016, and 1,060 and 1,324 for the first nine months of, | ||||||||||||||||||||||||
2017 and 2016, respectively. |
Subscriber Relationships
As the wireless industry continues to mature,has matured, future wireless growth will become increasingly dependentdepend on our ability to offer innovative services, plans and devices that take advantage of our premier 5G wireless network, which recently went nationwide (in July 2020), and to provide these services in bundled product offerings. Subscribers that purchase two or more services from us have significantly lower churn than subscribers that purchase only one service. To support higher mobile data usage, our priority is to best utilize a wireless network that has sufficient spectrum and capacity to support these innovations on as broad a geographic basis as possible.
To attract and retain subscribers in a maturingmature and highly competitive market, we have launched a wide variety of plans, including unlimited, as well as equipment installment programs. Beginning in the first quarter of 2017, we expanded our unlimited wireless data plans to make them available to customersFirstNet and prepaid products, and arrangements that do not subscribe tobundle our video services.
Connected Devices
Connected devices in installments over a period of up to 30 months. Additionally, after a specified period of time, AT&T Next subscribers also have the right to trade in the original device for a new device with a new installment plan and have the remaining unpaid balance satisfied. For installment programs, we recognize equipment revenue at the time of the sale for the amount of the customer receivable, net of the fair value of the trade-in right guarantee and imputed interest. A significant percentage of our customers choosing equipment installment programs pay a lower monthly service charge, which results in lower service revenue recorded for these subscribers. At September 30, 2017, about 53% of the postpaid smartphone base is on an equipment installment program compared to 50% at September 30, 2016. Over 90% of postpaid smartphone gross adds and upgrades for all periods presented were either equipment installment plans or Bring Your Own Device (BYOD). While BYOD customers do not generate equipment revenue or expense, the service revenue helps improve our margins.
43
AT&T INC.
JUNE 30, 2017
Item 2. Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
Entertainment Group Results |
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Operating revenues |
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Video entertainment | $ | 6,976 |
| $ | 8,035 | (13.2) | % |
| $ | 14,371 |
| $ | 16,109 | (10.8) | % |
High-speed internet |
| 2,092 |
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| 2,109 | (0.8) |
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| 4,201 |
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| 4,179 | 0.5 |
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Legacy voice and data services |
| 560 |
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| 658 | (14.9) |
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| 1,141 |
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| 1,341 | (14.9) |
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Other service and equipment |
| 441 |
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| 566 | (22.1) |
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| 871 |
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| 1,067 | (18.4) |
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Total Operating Revenues |
| 10,069 |
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| 11,368 | (11.4) |
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| 22,696 | (9.3) |
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|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations and support |
| 7,730 |
|
| 8,515 | (9.2) |
|
|
| 15,621 |
|
| 17,042 | (8.3) |
|
Depreciation and amortization |
| 1,309 |
|
| 1,339 | (2.2) |
|
|
| 2,598 |
|
| 2,662 | (2.4) |
|
Total Operating Expenses |
| 9,039 |
|
| 9,854 | (8.3) |
|
|
| 18,219 |
|
| 19,704 | (7.5) |
|
Operating Income |
| 1,030 |
|
| 1,514 | (32.0) |
|
|
| 2,365 |
|
| 2,992 | (21.0) |
|
Equity in Net Income (Loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of Affiliates |
| - |
|
| - | - |
|
|
| - |
|
| - | - |
|
Operating Contribution | $ | 1,030 |
| $ | 1,514 | (32.0) | % |
| $ | 2,365 |
| $ | 2,992 | (21.0) | % |
44
AT&T INC.
JUNE 30, 2017
Item 2. Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
The following tables highlight other key measures of performance for Entertainment Group:
Connections |
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| June 30, | Percent | ||||
(in 000s) |
|
|
|
|
|
| 2020 |
| 2019 | Change | |||
Video Connections |
|
|
|
|
|
|
|
|
|
|
|
| |
Premium TV1 |
|
|
|
|
|
|
| 17,690 |
| 21,581 | (18.0) | % | |
AT&T TV Now |
|
|
|
|
|
|
| 720 |
| 1,340 | (46.3) |
| |
Total Video Connections |
|
|
|
|
|
|
| 18,410 |
| 22,921 | (19.7) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Broadband Connections |
|
|
|
|
|
|
| 13,944 |
| 14,420 | (3.3) |
| |
Fiber Broadband Connections |
|
|
|
|
|
|
| 4,321 |
| 3,378 | 27.9 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail Consumer Switched Access Lines |
|
|
|
|
|
|
| 3,096 |
| 3,630 | (14.7) |
| |
U-verse Consumer VoIP Connections |
|
|
|
|
|
|
| 3,480 |
| 4,211 | (17.4) |
| |
Total Retail Consumer Voice Connections |
|
|
|
| 6,576 |
| 7,841 | (16.1) | % | ||||
1 | Excludes 157 premium TV and 194 broadband connections who we have agreed not to terminate service under the FCC's "Keep | ||||||||||||
| Americans Connected Pledge." | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Additions |
|
|
|
|
|
|
|
|
|
|
|
| |
|
| Second Quarter |
|
|
|
| Six-Month Period |
|
| ||||
|
|
|
|
| Percent |
|
|
|
|
| Percent | ||
(in 000s) | 2020 |
| 2019 | Change |
|
| 2020 |
| 2019 | Change | |||
Video Net Additions |
|
|
|
|
|
|
|
|
|
|
|
| |
Premium TV1 | (886) |
| (778) | (13.9) | % |
|
| (1,783) |
| (1,322) | (34.9) | % | |
AT&T TV Now | (68) |
| (168) | 59.5 |
|
|
| (206) |
| (251) | 17.9 |
| |
Net Video Additions1 | (954) |
| (946) | (0.8) |
|
|
| (1,989) |
| (1,573) | (26.4) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Broadband Additions1 | (102) |
| (34) | - |
|
|
| (175) |
| 11 | - |
| |
Fiber Broadband Net Additions | 225 |
| 318 | (29.2) | % |
|
| 434 |
| 615 | (29.4) | % | |
1 | The second quarter and six-month period ended June 30, 2020, exclude 91 and 157 premium TV and 159 and 194 broadband (48 and 58 | ||||||||||||
| fiber) connections, respectively, who we have agreed not to terminate service under the FCC's "Keep Americans Connected Pledge." |
Video entertainment revenues are comprised of subscription and many other applications are typically unaffected. Contrary toadvertising revenues. Revenues decreased in the FTC's allegations, our MBR program is permitted by our customer contracts, was fully disclosed in advance to our Unlimited Data Plan customers,second quarter and was implemented to protect the network for the benefitfirst six months of all customers. In March 2015,2020, largely driven by a decline in premium TV and OTT subscribers as we continue to focus on retention of existing subscribers with a particular focus on our motionhigh-value subscribers, and lower subscription-based advertising revenues driven by impacts of the pandemic. Consistent with the rest of the industry, our customers continue to dismissshift from a premium linear service to more economically priced OTT and subscription video on demand services, which has pressured our video revenues.
High-speed internet revenues decreased in the litigation on the grounds that the FTC lacked jurisdiction to file suit was denied. In May 2015, the Court granted our motion to certify its decision for immediate appeal. The United States Court of Appealssecond quarter and increased for the Ninth Circuit subsequently granted our petition to acceptfirst six months of 2020. The decrease in the appeal,second quarter was driven by a decline in the average subscriber base, partially offset by higher ARPU. The increase for the six months reflects higher ARPU resulting from an increase in high-speed fiber and on August 29, 2016, issued its decision reversingpricing.
Legacy voice and data servicerevenues decreased in the district courtsecond quarter and finding thatfor the FTC lacked jurisdiction to proceed withfirst six months of 2020, reflecting the action. The FTC askedcontinued decline in the Courtnumber of Appeals to reconsider the decision
45
AT&T INC.
JUNE 30, 2017
Item 2. Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
Operations and support expenses decreased in the second quarter and for the first six months of 2020. Contributing to the decreases were lower content and selling costs largely due to fewer subscribers, lower marketing costs and our ongoing focus on cost initiatives. Partially offsetting the decreases were annual content rate increases, higher amortization of fulfillment cost deferrals, including the impact of second-quarter 2020 updates to decrease the estimated economic life for our Entertainment Group customers, and pandemic-related compassion payments.
Depreciation expense decreased in the second quarter and for the first six months of 2020 due to network assets becoming fully depreciated. Partially offsetting the decreases was ongoing capital spending for network upgrades and expansion.
Operating income decreased in the second quarter and for the first six months of 2020. Our Entertainment Group operating income margin in the second quarter decreased from 13.3% in 2019 to 10.2% in 2020, and for the first six months decreased from 13.2% in 2019 to 11.5% in 2020. Our Entertainment Group EBITDA margin in the second quarter decreased from 25.1% in 2019 to 23.2% in 2020, and for the first six months decreased from 24.9% in 2019 to 24.1% in 2020.
Business Wireline Results |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Second Quarter |
|
| Six-Month Period |
| ||||||||||
|
|
|
|
|
| Percent |
|
|
|
|
|
| Percent | ||
| 2020 |
| 2019 | Change |
| 2020 |
| 2019 | Change | ||||||
Operating revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Strategic and managed services | $ | 3,943 |
| $ | 3,834 | 2.8 | % |
| $ | 7,822 |
| $ | 7,613 | 2.7 | % |
Legacy voice and data services |
| 2,067 |
|
| 2,324 | (11.1) |
|
|
| 4,196 |
|
| 4,721 | (11.1) |
|
Other service and equipment |
| 364 |
|
| 449 | (18.9) |
|
|
| 688 |
|
| 751 | (8.4) |
|
Total Operating Revenues |
| 6,374 |
|
| 6,607 | (3.5) |
|
|
| 12,706 |
|
| 13,085 | (2.9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations and support |
| 3,779 |
|
| 3,975 | (4.9) |
|
|
| 7,730 |
|
| 8,007 | (3.5) |
|
Depreciation and amortization |
| 1,318 |
|
| 1,242 | 6.1 |
|
|
| 2,619 |
|
| 2,464 | 6.3 |
|
Total Operating Expenses |
| 5,097 |
|
| 5,217 | (2.3) |
|
|
| 10,349 |
|
| 10,471 | (1.2) |
|
Operating Income |
| 1,277 |
|
| 1,390 | (8.1) |
|
|
| 2,357 |
|
| 2,614 | (9.8) |
|
Equity in Net Income (Loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of Affiliates |
| - |
|
| - | - |
|
|
| - |
|
| - | - |
|
Operating Contribution | $ | 1,277 |
| $ | 1,390 | (8.1) | % |
| $ | 2,357 |
| $ | 2,614 | (9.8) | % |
Strategic and managed servicesrevenues increased in the second quarter and for the first six months of 2020. Our strategic services are made up of (1) data services, including our VPN, dedicated internet ethernet and broadband, (2) voice service, including VoIP and cloud-based voice solutions, (3) security and cloud solutions, and (4) managed, professional and outsourcing services. Revenue increases were primarily attributable to growth in our security and cloud solutions, dedicated internet and managed services and also includes the impact of higher demand for connectivity due to the pandemic.
Legacy voice and dataservicerevenues decreased in the second quarter and for the first six months of 2020, primarily due to lower demand as customers continue to shift to our more advanced IP-based offerings or our competitors.
Other service and equipmentrevenues decreased in the second quarter and for the first six months of 2020, reflecting prior-year licensing of intellectual property assets. Revenue trends are impacted by the licensing of intellectual property assets, which vary from period-to-period. Other service revenues include project-based revenue, which is nonrecurring in nature, as well as revenues from customer premises equipment.
Operations and support expenses decreased in the second quarter and for the first six months of 2020, primarily due to our continued efforts to drive efficiencies in our network operations through automation and reductions in customer support expenses through digitization.
46
AT&T INC.
JUNE 30, 2020
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
Depreciation expense increased in the second quarter and for the first six months of 2020, primarily due to increases in capital spending for network upgrades and expansion.
Operating income decreased in the second quarter and for the first six months of 2020. Our Business Wireline operating income margin in the second quarter decreased from 21.0% in 2019 to 20.0% in 2020, and for the first six months decreased from 20.0% in 2019 to 18.6% in 2020. Our Business Wireline EBITDA margin in the second quarter increased from 39.8% in 2019 to 40.7% in 2020, and for the first six months increased from 38.8% in 2019 to 39.2% in 2020.
WARNERMEDIA SEGMENT | Second Quarter |
| Six-Month Period |
| |||||||||||
|
|
|
|
|
| Percent |
|
|
|
|
|
| Percent | ||
| 2020 |
| 2019 | Change |
| 2020 |
| 2019 | Change | ||||||
Segment Operating Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Turner | $ | 2,988 |
| $ | 3,410 | (12.4) | % |
| $ | 6,150 |
| $ | 6,853 | (10.3) | % |
Home Box Office |
| 1,627 |
|
| 1,716 | (5.2) |
|
|
| 3,124 |
|
| 3,226 | (3.2) |
|
Warner Bros. |
| 3,256 |
|
| 3,389 | (3.9) |
|
|
| 6,496 |
|
| 6,907 | (6.0) |
|
Eliminations and other |
| (1,057) |
|
| 320 | - |
|
|
| (1,108) |
|
| 654 | - |
|
Total Segment Operating Revenues |
| 6,814 |
|
| 8,835 | (22.9) |
|
|
| 14,662 |
|
| 17,640 | (16.9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Turner |
| 965 |
|
| 1,796 | (46.3) |
|
|
| 2,285 |
|
| 3,476 | (34.3) |
|
Home Box Office |
| 1,095 |
|
| 839 | 30.5 |
|
|
| 1,911 |
|
| 1,509 | 26.6 |
|
Warner Bros. |
| 2,233 |
|
| 2,492 | (10.4) |
|
|
| 4,579 |
|
| 4,922 | (7.0) |
|
Selling, general and administrative |
| 1,324 |
|
| 1,344 | (1.5) |
|
|
| 2,788 |
|
| 2,716 | 2.7 |
|
Eliminations and other |
| (883) |
|
| (35) | - |
|
|
| (1,142) |
|
| (34) | - |
|
Depreciation and amortization |
| 167 |
|
| 104 | 60.6 |
|
|
| 330 |
|
| 260 | 26.9 |
|
Total Operating Expenses |
| 4,901 |
|
| 6,540 | (25.1) |
|
|
| 10,751 |
|
| 12,849 | (16.3) |
|
Operating Income |
| 1,913 |
|
| 2,295 | (16.6) |
|
|
| 3,911 |
|
| 4,791 | (18.4) |
|
Equity in Net Income (Loss) of Affiliates |
| 4 |
|
| 55 | (92.7) |
|
|
| 19 |
|
| 122 | (84.4) |
|
Total Segment Operating Contribution | $ | 1,917 |
| $ | 2,350 | (18.4) | % |
| $ | 3,930 |
| $ | 4,913 | (20.0) | % |
Our WarnerMedia segment includes our Turner, Home Box Office (HBO) and Warner Bros. business units. The order of presentation reflects the consistency of revenue streams, rather than overall magnitude as that is subject to timing and frequency of studio releases.
Operating revenues decreased in the second quarter and for the first six months of 2020, primarily due to lower advertising revenues from the postponement or cancellation of televised sporting events at Turner; lower theatrical product revenues, reflecting the pandemic-related closure of movie theaters and postponement of theatrical releases, and unfavorable programming comparisons, including strong carryover revenues in the first quarter of 2019 at Warner Bros.; and lower linear subscription revenue at HBO.
Operating contribution decreased in the second quarter and for the first six months of 2020. The WarnerMedia segment operating income margin in the second quarter increased from 26.0% in 2019 to 28.1% in 2020 and for the first six months decreased from 27.2% in 2019 to 26.7% in 2020.
47
AT&T INC.
JUNE 30, 2020
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
WarnerMedia Business Unit Discussion | |||||||||||||||
Turner Results |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Second Quarter |
| Six-Month Period | ||||||||||||
|
|
|
|
|
| Percent |
|
|
|
|
|
| Percent | ||
| 2020 |
| 2019 | Change |
| 2020 |
| 2019 | Change | ||||||
Operating revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription | $ | 1,804 |
| $ | 1,943 | (7.2) | % |
| $ | 3,853 |
| $ | 3,908 | (1.4) | % |
Advertising |
| 796 |
|
| 1,266 | (37.1) |
|
|
| 1,753 |
|
| 2,527 | (30.6) |
|
Content and other |
| 388 |
|
| 201 | 93.0 |
|
|
| 544 |
|
| 418 | 30.1 |
|
Total Operating Revenues |
| 2,988 |
|
| 3,410 | (12.4) |
|
|
| 6,150 |
|
| 6,853 | (10.3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues |
| 965 |
|
| 1,796 | (46.3) |
|
|
| 2,285 |
|
| 3,476 | (34.3) |
|
Selling, general and administrative |
| 382 |
|
| 421 | (9.3) |
|
|
| 772 |
|
| 877 | (12.0) |
|
Depreciation and amortization |
| 69 |
|
| 39 | 76.9 |
|
|
| 138 |
|
| 99 | 39.4 |
|
Total Operating Expenses |
| 1,416 |
|
| 2,256 | (37.2) |
|
|
| 3,195 |
|
| 4,452 | (28.2) |
|
Operating Income |
| 1,572 |
|
| 1,154 | 36.2 |
|
|
| 2,955 |
|
| 2,401 | 23.1 |
|
Equity in Net Income (Loss) of Affiliates |
| - |
|
| 11 | - |
|
|
| 6 |
|
| 36 | (83.3) |
|
Operating Contribution | $ | 1,572 |
| $ | 1,165 | 34.9 | % |
| $ | 2,961 |
| $ | 2,437 | 21.5 | % |
Operating revenues decreased in the second quarter and for the first six months of 2020, primarily due to decreases in advertising revenue largely resulting from the postponement of the NBA season and the cancellation of the NCAA Division I Men’s Basketball Tournament, in the first quarter of 2020. Subscription revenue declines reflect lower regional sports network revenue and unfavorable exchange rates. These decreases were partially offset by higher content and other revenue, including internal sales to HBO Max, which are eliminated in consolidation within the WarnerMedia segment.
Cost of revenues decreased in the second quarter and for the first six months of 2020, primarily due to lower programming costs, including a decline of approximately $850 in the second quarter and $1,125 for the first six months in sports costs resulting from the postponement of the NBA season, the cancellation of the NCAA tournament and other smaller items.
Selling, general and administrative decreased in the second quarter and for the first six months of 2020, primarily due to lower marketing costs.
Operating income increased in the second quarter and for the first six months of 2020. Our Turner operating income margin in the second quarter increased from 33.8% in 2019 to 52.6% in 2020, and for the first six months increased from 35.0% in 2019 to 48.0% in 2020.
48
AT&T INC.
JUNE 30, 2020
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
Home Box Office Results |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Second Quarter |
| Six-Month Period | ||||||||||||
|
|
|
|
|
| Percent |
|
|
|
|
|
| Percent | ||
| 2020 |
| 2019 | Change |
| 2020 |
| 2019 | Change | ||||||
Operating revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription | $ | 1,441 |
| $ | 1,516 | (4.9) | % |
| $ | 2,779 |
| $ | 2,850 | (2.5) | % |
Content and other |
| 186 |
|
| 200 | (7.0) |
|
|
| 345 |
|
| 376 | (8.2) |
|
Total Operating Revenues |
| 1,627 |
|
| 1,716 | (5.2) |
|
|
| 3,124 |
|
| 3,226 | (3.2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues |
| 1,095 |
|
| 839 | 30.5 |
|
|
| 1,911 |
|
| 1,509 | 26.6 |
|
Selling, general and administrative |
| 394 |
|
| 292 | 34.9 |
|
|
| 631 |
|
| 543 | 16.2 |
|
Depreciation and amortization |
| 25 |
|
| 12 | - |
|
|
| 46 |
|
| 34 | 35.3 |
|
Total Operating Expenses |
| 1,514 |
|
| 1,143 | 32.5 |
|
|
| 2,588 |
|
| 2,086 | 24.1 |
|
Operating Income |
| 113 |
|
| 573 | (80.3) |
|
|
| 536 |
|
| 1,140 | (53.0) |
|
Equity in Net Income (Loss) of Affiliates |
| (5) |
|
| 15 | - |
|
|
| 15 |
|
| 30 | (50.0) |
|
Operating Contribution | $ | 108 |
| $ | 588 | (81.6) | % |
| $ | 551 |
| $ | 1,170 | (52.9) | % |
Operating revenues decreased in the second quarter and for the first six months of 2020, primarily due to decreases in subscription revenue resulting from domestic linear subscriber decline, including Cinemax depackaging, partially offset by growth in digital and international, including HBO Latin America Group, following our May 2020 acquisition of the remaining interest in this entity. At June 30, 2020, we had 36.3 million U.S. subscribers from HBO Max and HBO, up from 34.6 million at December 31, 2019.
Cost of revenues increased in the second quarter and for the first six months of 2020, primarily due to higher programming costs and expenses related to HBO Max.
Selling, general and administrative increased in the second quarter and for the first six months of 2020, primarily due to higher marketing costs associated with HBO Max.
Operating income decreased in the second quarter and for the first six months of 2020. Our HBO operating income margin in the second quarter decreased from 33.4% in 2019 to 6.9% in 2020, and for the first six months decreased from 35.3% in 2019 to 17.2% in 2020.
49
AT&T INC.
JUNE 30, 2020
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
Warner Bros. Results |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Second Quarter |
| Six-Month Period | ||||||||||||
|
|
|
|
|
| Percent |
|
|
|
|
|
| Percent | ||
| 2020 |
| 2019 | Change |
| 2020 |
| 2019 | Change | ||||||
Operating revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Theatrical product | $ | 1,029 |
| $ | 1,527 | (32.6) | % |
| $ | 2,135 |
| $ | 3,033 | (29.6) | % |
Television product |
| 1,876 |
|
| 1,310 | 43.2 |
|
|
| 3,645 |
|
| 2,923 | 24.7 |
|
Games and other |
| 351 |
|
| 552 | (36.4) |
|
|
| 716 |
|
| 951 | (24.7) |
|
Total Operating Revenues |
| 3,256 |
|
| 3,389 | (3.9) |
|
|
| 6,496 |
|
| 6,907 | (6.0) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues |
| 2,233 |
|
| 2,492 | (10.4) |
|
|
| 4,579 |
|
| 4,922 | (7.0) |
|
Selling, general and administrative |
| 350 |
|
| 426 | (17.8) |
|
|
| 954 |
|
| 915 | 4.3 |
|
Depreciation and amortization |
| 40 |
|
| 31 | 29.0 |
|
|
| 81 |
|
| 83 | (2.4) |
|
Total Operating Expenses |
| 2,623 |
|
| 2,949 | (11.1) |
|
|
| 5,614 |
|
| 5,920 | (5.2) |
|
Operating Income |
| 633 |
|
| 440 | 43.9 |
|
|
| 882 |
|
| 987 | (10.6) |
|
Equity in Net Income (Loss) of Affiliates |
| (19) |
|
| - | - |
|
|
| (27) |
|
| 6 | - |
|
Operating Contribution | $ | 614 |
| $ | 440 | 39.5 | % |
| $ | 855 |
| $ | 993 | (13.9) | % |
Operating revenues decreased in the second quarter and for the first six months of 2020, primarily due to lower theatrical product resulting from the absence of theatrical releases in the second quarter of 2020 and, for the six months, unfavorable comparisons to the prior year, which included, in 2019, carryover revenues from the theatrical release of Aquaman. Games and other revenue declines were primarily due to unfavorable games comparison to the prior year, which included the release of Mortal Kombat 11, and other revenue decreased due to reduced studio operations. Partially offsetting these decreases were higher television product revenues, driven by licensing, including internal sales to HBO Max, partially offset by lower initial telecast revenues resulting from pandemic-related television production delays.
Cost of revenues decreased in the second quarter and for the first six months of 2020, primarily due to lower marketing of theatrical product, partially offset by incremental costs incurred due to the production hiatus.
Selling, general and administrative decreased in the second quarter and increased for the first six months of 2020. The decrease in the quarter was primarily due to lower distribution fees and favorable collection experience that allowed us to reduce our first quarter bad debt estimates for COVID-19. The increase for the six months primarily resulted from higher first-quarter pandemic-relatedbad debt expense and other charges.
Operating income increased in the second quarter and decreased for the first six months of 2020. Our Warner Bros. operating income margin in the second quarter increased from 13.0% in 2019 to 19.4% in 2020, and for the first six months decreased from 14.3% in 2019 to 13.6% in 2020.
50
AT&T INC.
JUNE 30, 2020
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
LATIN AMERICA SEGMENT | Second Quarter |
| Six-Month Period | ||||||||||||
|
|
|
|
|
| Percent |
|
|
|
|
|
| Percent | ||
| 2020 |
| 2019 | Change |
| 2020 |
| 2019 | Change | ||||||
Segment Operating Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vrio | $ | 752 |
| $ | 1,032 | (27.1) | % |
| $ | 1,639 |
| $ | 2,099 | (21.9) | % |
Mexico |
| 480 |
|
| 725 | (33.8) |
|
|
| 1,183 |
|
| 1,376 | (14.0) |
|
Total Segment Operating Revenues |
| 1,232 |
|
| 1,757 | (29.9) |
|
|
| 2,822 |
|
| 3,475 | (18.8) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Operating Contribution |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vrio |
| (28) |
|
| (2) | - |
|
|
| (67) |
|
| 30 | - |
|
Mexico |
| (173) |
|
| (207) | 16.4 |
|
|
| (318) |
|
| (412) | 22.8 |
|
Total Segment Operating Contribution | $ | (201) |
| $ | (209) | 3.8 | % |
| $ | (385) |
| $ | (382) | (0.8) | % |
Operating Results
Our Latin America operations conduct business in their local currency and operating results are converted to U.S. dollars using official exchange rates, subjecting results to foreign currency fluctuations. In May 2020, we found it necessary to close our DIRECTV operations in Venezuela dueto political instability in the country and to comply with sanctions of the U.S. government.
Operating revenues decreased in the second quarter and for the first six months of 2020 primarily driven by foreign exchange pressures and the impact of COVID-19.
Operating contribution increased in the second quarter and decreased for the first six months of 2020, reflecting foreign exchange pressures and the impact of COVID-19. Our Latin America segment operating income margin in the second quarter decreased from (12.6)% in 2019 to (17.0)% in 2020, and for the first six months decreased from (11.3)% in 2019 to (14.1)% in 2020.
Latin America Business Unit Discussion |
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Vrio Results |
|
|
|
|
|
|
|
|
|
|
|
|
| ||
| Second Quarter |
| Six-Month Period | ||||||||||||
|
|
|
|
|
| Percent |
|
|
|
|
|
| Percent | ||
| 2020 |
| 2019 | Change |
| 2020 |
| 2019 | Change | ||||||
Operating revenues | $ | 752 |
| $ | 1,032 | (27.1) | % |
| $ | 1,639 |
| $ | 2,099 | (21.9) | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations and support |
| 661 |
|
| 881 | (25.0) |
|
|
| 1,444 |
|
| 1,747 | (17.3) |
|
Depreciation and amortization |
| 127 |
|
| 165 | (23.0) |
|
|
| 274 |
|
| 334 | (18.0) |
|
Total Operating Expenses |
| 788 |
|
| 1,046 | (24.7) |
|
|
| 1,718 |
|
| 2,081 | (17.4) |
|
Operating Income |
| (36) |
|
| (14) | - |
|
|
| (79) |
|
| 18 | - |
|
Equity in Net Income (Loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of Affiliates |
| 8 |
|
| 12 | (33.3) |
|
|
| 12 |
|
| 12 | - |
|
Operating Contribution | $ | (28) |
| $ | (2) | - | % |
| $ | (67) |
| $ | 30 | - | % |
51
AT&T INC.
JUNE 30, 2020
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
The following tables highlight other key measures of performance for Vrio:
|
|
|
|
|
|
|
|
| June 30, | Percent | |||||
(in 000s) |
|
|
|
|
|
|
| 2020 |
|
| 2019 | Change | |||
Vrio Video Subscribers |
|
|
|
|
|
|
|
| 10,664 |
|
| 13,473 | (20.8) | % | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Second Quarter |
| Six -Month Period | ||||||||||
|
|
|
|
|
|
| Percent |
|
|
|
|
| Percent | ||
(in 000s) |
| 2020 |
|
| 2019 | Change |
| 2020 |
|
| 2019 | Change | |||
Vrio Video Net Additions1 |
| (312) |
|
| (111) | - | % |
| (426) |
|
| (143) | - | % | |
1 | The second-quarter and six-month period ended June 30, 2020, exclude the impact of 2.2 million subscriber disconnections resulting | ||||||||||||||
| from the closure of our DIRECTV operations in Venezuela. |
Operating revenues decreased in the second quarter and for the first six months of 2020, primarily driven by foreign exchange and COVID-19 pressures.
Operations and support expenses decreased in the second quarter and for the first six months of 2020, primarily driven by foreign exchange and COVID-19 pressures. Approximately 21% of Vrio expenses are U.S. dollar based, with the remainder in the local currency.
Depreciation expense decreased in the second quarter and for the first six months of 2020, primarily due to changes in foreign exchange rates.
Operating income decreased in the second quarter and for the first six months of 2020. Our Vrio operating income margin in the second quarter decreased from (1.4)% in 2019 to (4.8)% in 2020, and for the first six months decreased from 0.9% in 2019 to (4.8)% in 2020. Our Vrio EBITDA margin in the second quarter decreased from 14.6% in 2019 to 12.1% in 2020, and for the first six months decreased from 16.8% in 2019 to 11.9% in 2020.
Mexico Results |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Second Quarter |
|
| Six-Month Period |
| ||||||||||
| 2020 |
| 2019 | Percent Change |
| 2020 |
| 2019 | Percent Change | ||||||
Operating revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service | $ | 345 |
| $ | 479 | (28.0) | % |
| $ | 812 |
| $ | 921 | (11.8) | % |
Equipment |
| 135 |
|
| 246 | (45.1) |
|
|
| 371 |
|
| 455 | (18.5) |
|
Total Operating Revenues |
| 480 |
|
| 725 | (33.8) |
|
|
| 1,183 |
|
| 1,376 | (14.0) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations and support |
| 538 |
|
| 813 | (33.8) |
|
|
| 1,252 |
|
| 1,538 | (18.6) |
|
Depreciation and amortization |
| 115 |
|
| 119 | (3.4) |
|
|
| 249 |
|
| 250 | (0.4) |
|
Total Operating Expenses |
| 653 |
|
| 932 | (29.9) |
|
|
| 1,501 |
|
| 1,788 | (16.1) |
|
Operating Income (Loss) |
| (173) |
|
| (207) | 16.4 |
|
|
| (318) |
|
| (412) | 22.8 |
|
Equity in Net Income (Loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of Affiliates |
| - |
|
| - | - |
|
|
| - |
|
| - | - |
|
Operating Contribution | $ | (173) |
| $ | (207) | 16.4 | % |
| $ | (318) |
| $ | (412) | 22.8 | % |
52
AT&T INC.
JUNE 30, 2020
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
The following tables highlight other key measures of performance for Mexico:
|
|
|
|
|
|
|
|
|
| June 30, | Percent | |||||
(in 000s) |
|
|
|
|
|
|
|
| 2020 |
|
| 2019 | Change | |||
Mexico Wireless Subscribers |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Postpaid |
|
|
|
|
|
|
|
|
| 4,771 |
|
| 5,489 | (13.1) | % | |
Prepaid |
|
|
|
|
|
|
|
|
| 12,777 |
|
| 12,180 | 4.9 |
| |
Reseller |
|
|
|
|
|
|
|
|
| 425 |
|
| 352 | 20.7 |
| |
Total Mexico Wireless Subscribers |
|
|
|
|
|
|
|
|
| 17,973 |
|
| 18,021 | (0.3) | % | |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
|
| Second Quarter |
|
| Six-Month Period | |||||||||||
|
|
|
|
|
|
| Percent |
|
|
|
|
|
| Percent | ||
(in 000s) |
| 2020 |
|
| 2019 | Change |
|
| 2020 |
|
| 2019 | Change | |||
Mexico Wireless Net Additions1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Postpaid |
| (191) |
|
| (153) | (24.8) | % |
|
| (332) |
|
| (222) | (49.5) | % | |
Prepaid |
| (915) |
|
| 401 | - |
|
|
| (807) |
|
| 515 | - |
| |
Reseller |
| 21 |
|
| 51 | (58.8) |
|
|
| 53 |
|
| 99 | (46.5) |
| |
Mexico Wireless Net Additions |
| (1,085) |
|
| 299 | - | % |
|
| (1,086) |
|
| 392 | - | % | |
1 | The second-quarter and six-month period ended June 30, 2020, exclude the impact of 101 subscriber disconnections resulting from | |||||||||||||||
| conforming our policy on reporting of fixed wireless resellers. |
Service revenues decreased in the second quarter and for the first six months of 2020, primarily due to foreign exchange pressures, as well as lower volumes and store traffic related to COVID-19.
Equipment revenues decreased in the second quarter and for the first six months of 2020, primarily due to lower equipment sales volumes related to COVID-19 and foreign exchange rates.
Operations and support expenses decreased in the second quarter and for the first six months of 2020, primarily due to changes in foreign exchange rates and lower equipment sales. Approximately 8% of Mexico expenses are U.S. dollar based, with the remainder in the local currency.
Depreciation and amortization expense decreased in the second quarter and for the first six months of 2020, primarily due to foreign exchange pressures.
Operating income increased in the second quarter and first six months of 2020. Our Mexico operating income margin in the second quarter decreased from (28.6)% in 2019 to (36.0)% in 2020, and for the first six months increased from (29.9)% in 2019 to (26.9)% in 2020. Our Mexico EBITDA margin in the second quarter was stable at (12.1)% in 2019 and 2020, and for the first six months increased from (11.8)% in 2019 to (5.8)% in 2020.
53
AT&T INC.
JUNE 30, 2020
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
SUPPLEMENTAL TOTAL ADVERTISING REVENUE INFORMATION
As a supplemental presentation, we are providing a view of total advertising revenues generated by AT&T. See revenue categories tables in Note 5 for a reconciliation.
Total Advertising Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Second Quarter |
|
| Six-Month Period |
| ||||||||||
|
|
|
|
|
| Percent |
|
|
|
|
|
| Percent | ||
| 2020 |
| 2019 | Change |
| 2020 |
| 2019 | Change | ||||||
Operating Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Turner | $ | 796 |
| $ | 1,266 | (37.1) | % |
| $ | 1,753 |
| $ | 2,527 | (30.6) | % |
Entertainment Group |
| 294 |
|
| 399 | (26.3) |
|
|
| 707 |
|
| 749 | (5.6) |
|
Xandr |
| 362 |
|
| 485 | (25.4) |
|
|
| 851 |
|
| 911 | (6.6) |
|
Other |
| 75 |
|
| 90 | (16.7) |
|
|
| 173 |
|
| 175 | (1.1) |
|
Eliminations |
| (294) |
|
| (399) | 26.3 |
|
|
| (707) |
|
| (749) | 5.6 |
|
Total Advertising Revenues | $ | 1,233 |
| $ | 1,841 | (33.0) | % |
| $ | 2,777 |
| $ | 3,613 | (23.1) | % |
SUPPLEMENTAL COMMUNICATIONS OPERATING INFORMATION
As a supplemental presentation to our Communications segment operating results, we are providing a view of our AT&T Business Solutions results which includes both wireless and wireline operations. This combined view presents a complete profile of the entire business customer relationship and underscores the importance of mobile solutions to serving our business customers. Results have been recast to conform to the current period's classification of consumer and business wireless subscribers. See “Discussion and Reconciliation of Non-GAAP Measure” for a reconciliation of these supplemental measures to the most directly comparable financial measures calculated and presented in accordance with GAAP.
Business Solutions Results |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Second Quarter |
|
| Six-Month Period |
| ||||||||||
| 2020 |
| 2019 | Percent Change |
| 2020 |
| 2019 | Percent Change | ||||||
|
|
|
| ||||||||||||
Operating revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wireless service | $ | 1,884 |
| $ | 1,881 | 0.2 | % |
| $ | 3,833 |
| $ | 3,658 | 4.8 | % |
Strategic and managed services |
| 3,943 |
|
| 3,834 | 2.8 |
|
|
| 7,822 |
|
| 7,613 | 2.7 |
|
Legacy voice and data services |
| 2,067 |
|
| 2,324 | (11.1) |
|
|
| 4,196 |
|
| 4,721 | (11.1) |
|
Other service and equipment |
| 364 |
|
| 449 | (18.9) |
|
|
| 688 |
|
| 751 | (8.4) |
|
Wireless equipment |
| 585 |
|
| 617 | (5.2) |
|
|
| 1,295 |
|
| 1,207 | 7.3 |
|
Total Operating Revenues |
| 8,843 |
|
| 9,105 | (2.9) |
|
|
| 17,834 |
|
| 17,950 | (0.6) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations and support |
| 5,424 |
|
| 5,512 | (1.6) |
|
|
| 11,134 |
|
| 11,126 | 0.1 |
|
Depreciation and amortization |
| 1,637 |
|
| 1,545 | 6.0 |
|
|
| 3,262 |
|
| 3,070 | 6.3 |
|
Total Operating Expenses |
| 7,061 |
|
| 7,057 | 0.1 |
|
|
| 14,396 |
|
| 14,196 | 1.4 |
|
Operating Income |
| 1,782 |
|
| 2,048 | (13.0) |
|
|
| 3,438 |
|
| 3,754 | (8.4) |
|
Equity in Net Income (Loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of Affiliates |
| - |
|
| - | - |
|
|
| - |
|
| - | - |
|
Operating Contribution | $ | 1,782 |
| $ | 2,048 | (13.0) | % |
| $ | 3,438 |
| $ | 3,754 | (8.4) | % |
54
AT&T INC.
JUNE 30, 2020
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
OTHER BUSINESS MATTERS
Spectrum Auction In March 2020, we were the winning bidder of high-frequency 37/39 GHz licenses in FCC Auction 103 covering an average of 786 MHz nationwide for approximately $2,400. Prior to the auction, we exchanged the 39 GHz licenses with a book value of approximately $300 that were previously acquired through FiberTower Corporation for vouchers to be applied against the winning bids and recorded a $900 gain in the first quarter of 2020. These vouchers yielded a value of approximately $1,200 which was applied toward our $2,400 gross bids. We made our final payment of approximately $950 for the Auction 103 payment in April 2020. The FCC granted the licenses in June 2020.
Labor Contracts As of SeptemberJune 30, 2017,2020, we employed approximately 257,000243,000 persons. Approximately 46%40% of our employees are represented by the Communications Workers of America (CWA), the International Brotherhood of Electrical Workers (IBEW) or other unions. After expiration of the collective bargaining agreements, work stoppages or labor disruptions may occur in the absence of new contracts or other agreements being reached.
A summary of labor contract negotiations,covering approximately 7,000 Mobility employees expired in February 2020. In March 2020, a new 4-year contract was ratified by employees and will expire in February 2024.
A contract covering approximately 13,000 wireline employees in our West region or employee group,expired in April 2020. In March 2020, a tentative agreement was reached on a new 4-year contract. The tentative agreement is as follows:subject to ratification by employees.
A contract covering approximately 14,000 employees in the Southwest region scheduled to expire in April 2021 was extended 4 years and will now expire in April 2025.
COMPETITIVE AND REGULATORY ENVIRONMENT
Overview
AT&T subsidiaries operating within the United States are subject to federal and state regulatory authorities. AT&T subsidiaries operating outside the United States are subject to the jurisdiction of national and supranational regulatory authorities in the markets where service is provided.In the Telecommunications Act of 1996 (Telecom Act), Congress established a national policy framework intended to bring the benefits of competition and investment in advanced telecommunications facilities and services to all Americans by opening all telecommunications markets to competition and reducing or eliminating regulatory burdens that harm consumer welfare. SinceNonetheless, over the Telecom Act was passed,ensuing two decades, the Federal Communications Commission (FCC)FCC and some state regulatory commissions have maintained or expanded certain regulatory requirements that were imposed decades ago on our traditional wireline subsidiaries when they operated as legal monopolies. However, based on their public statements and written opinions, we expect the new leadership atMore recently, the FCC to charthas pursued a more predictablederegulatory agenda, eliminating a variety of antiquated and balanced regulatory course that will encourage long-term investmentunnecessary regulations and benefit consumers.streamlining its processes in a number of areas. In addition, we are pursuing, at both the state and federal levels, additional legislative and regulatory measures to reduce regulatory burdens that are no longer appropriate in a competitive telecommunications market and that inhibit our ability to compete more effectively and offer services wanted and needed by our customers, including initiatives to transition services from traditional networks to all IP-based networks. At the same time, we also seek to ensure that legacy regulations are not further extended to broadband or wireless services, which are subject to vigorous competition.
Communications Segment
Internet The FCC currently classifies fixed and mobile consumer broadband services as information services, subject to light-touch regulation. The D.C. Circuit upheld the FCC’s current classification, although it remanded three discrete issues to the FCC for further consideration. No party sought Supreme Court review of the D.C. Circuit’s decision, so that decision is final, although the FCC’s consideration of the three issues remains pending.
Some states have adopted an orderlegislation or issued executive orders that maintains light touch pricing regulation of packet-based services, extendswould reimpose net neutrality rules repealed by the FCC. Suits have been filed concerning such light touch pricing regulation to high-speed TDM transport services and to most of our TDM channel termination services, based on a competitive market test for such services. For those services that do not qualify for light touch regulation, the order allows companies to offer volume and term discounts, as well as contract tariffs. Several parties appealed the FCC's decision. These appeals were consolidatedlaws in the U.S. Court of Appeals for the Eighth Circuit, where they remain pending.
55
AT&T INC.
JUNE 30, 2020
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
Facebook. OnIn April 3, 2017, the President signed a resolution passed by Congress repealing the new rules under the Congressional Review Act, which prohibits the issuanceAct.
Privacy-related legislation has been considered or adopted in a number of a new rule that is substantially the same as a rule repealed under its provisions, or the reissuancestates. Legislative and regulatory action and ballot initiatives could result in increased costs of the repealed rule, unless the new or reissued rule is specifically authorized by a subsequent act of Congress. In June 2017, the FCC released an order clarifying that providers ofcompliance, claims against broadband internet access service continueproviders and others, and increased uncertainty in the value and availability of data. Effective as of January 1, 2020, a California state law gives consumers the right to be subjectknow what personal information is being collected about them, and whether and to privacy requirements under section 222whom it is sold or disclosed, and to access and request deletion of The Communications Act of 1934 (Communications Act), but notthis information. Subject to certain exceptions, it also gives California consumers the more restrictive rules that were adopted in October 2016.
Wireless communications providers must obtain licenses from the FCC to provide communications services at specified spectrum frequencies within specified geographic areas and must comply with the FCC rules and policies governing the use of the spectrum. While wireless communications providers' prices and offerings are generally not subject to state or local regulation, states sometimes attempt to regulate or legislate various aspects of wireless services, such as in the areas of consumer protection and the deployment of cell sites and equipment. The anticipated industry-wide deployment of 5G technology, which is needed to satisfy extensive demand for video and internet access, will involve significant deployment of "small cell"“small cell” equipment and therefore increase the need for a quicklocal permitting process.
In December 2018, we introduced the nation’s first commercial mobile spectrum holdings. The FCC rejected5G service. In July 2020, we announced nationwide 5G coverage. We anticipate the impositionintroduction of caps on the amount of spectrum any carrier could acquire, retaining its case-by-case review policy. Moreover, it increased the amount of spectrum that could be acquired before exceeding an aggregation "screen" that would automatically trigger closer scrutiny of5G handsets and devices will contribute to a proposed transaction. On the other hand, it indicated that it will separately consider an acquisition of "low band" spectrum that exceeds one-third of the available low band spectrum as presumptively harmful to competition. The spectrum screen (including the low band screen) recently increased by 23 MHz. On balance, the order and the spectrum screen should allow AT&T to obtain additional spectrum to meet our customers' needs.renewed interest in equipment upgrades.
56
AT&T INC.
JUNE 30, 2017
Item 2. Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
LIQUIDITY AND CAPITAL RESOURCES
We had $48,499$16,941 in cash“Cash and cash equivalentsequivalents” available at SeptemberJune 30, 2017. Cash2020. “Cash and cash equivalentsequivalents” included cash of $3,707$3,781 and money market funds and other cash equivalents of $44,792.$13,160. Approximately $888$2,529 of our cash“Cash and cash equivalents residedequivalents” were held by our foreign entities in foreign jurisdictionsaccounts predominantly outside of the U.S. and may be subject to restrictions on repatriation.
The Company's liquidity and capital resources were primarily in foreign currencies; these funds are primarily usednot materially impacted by COVID-19 and related economic conditions during the first six months of 2020. We will continue to meet workingmonitor impacts on the COVID-19 pandemic on our liquidity and capital requirements of foreign operations.
“Cash and cash equivalentsequivalents” increased $42,711$4,811 since December 31, 2016.2019. In the first ninesix months of 2017,2020, cash inflows were primarily provided by the issuance of long-term debt, and cash receipts from operations, including cash from our sale and transfer of certain wireless equipment installmentour receivables to third parties. We also received a $1,438 deposit refund fromparties, and the FCC.issuances of commercial paper, long-term debt and cumulative preferred stock. These inflows were offset by cash used to meet the needs of the business, including, but not limited to, payment of operating expenses, spectrum acquisitions, debt repayments, funding capital expenditures debt repayments,and vendor financing payments, collateral posted to banks and other participants in derivative arrangements, share repurchase and dividends to stockholders, and the acquisition of wireless spectrum and other operations. We discuss many of these factors in detail below.
Cash Provided by or Used in Operating Activities
During the first ninesix months of 2017,2020, cash provided by operating activities was $29,274,$20,925, compared to $29,202 $25,336for the first ninesix months of 2016. Higher2019. Lower operating cash flows in 20172020 were primarily duedriven by lower incremental receivable securitization (see Note 9).
We actively manage the timing of our supplier payments for non-capital items to higher receiptsoptimize the use of our cash. Among other things, we seek to make payments on 90-day or greater terms, while providing the suppliers with access to bank facilities that permit earlier payments at their cost. In addition, for payments to a key supplier, we have arrangements that allow us to extend payment terms up to 90 days at an additional cost to us (referred to as supplier financing). The net impact of supplier financing on cash from our sale of AT&T Next receivables andoperating activities was to decrease working capital improvements.
Cash Used in or Provided by Investing Activities
For the first ninesix months of 2017,2020, cash used in investing activities totaled $15,266$10,278, and consisted primarily of $15,756$9,432 (including interest during construction) for capital expenditures, excludingfinal payment of approximately $950 for wireless spectrum licenses won in Auction 103, and $141 for acquiring the remaining interest during construction.
For capital improvements, we have negotiated favorable vendor payment terms of 120 days or more (referred to as vendor financing) with some of our vendors, which are excluded from capital expenditures and reported as financing activities. For the FCCfirst six months of 2020, vendor financing payments were $1,354, compared to $1,836 for the first six months of 2019. Capital expenditures in the amountfirst six months of $1,438 in April 2017, resulting from2020 were $9,432, and when including $1,354 cash paid for vendor financing and excluding $79 of FirstNet reimbursements, gross capital investment was $10,865 ($1,728 lower than the conclusion of the FCC's 600 MHz Auction. We submitted winning bids to purchase spectrum licenses in 18 markets for which we paid $910.
The vast majority of our capital expenditures are spent on our networks, our video servicesincluding product development and related support systems. Capital expenditures, excluding interest during construction, increased $473During the first six months, we placed $1,681 of equipment in service under vendor financing arrangements (compared to $1,265 in the first nine months. The increase was primarily due to our continued fiber buildoutprior-year comparable period) and timingapproximately $640 of build schedules in 2017 compared with 2016. Additionally, in connection with capital improvements, we negotiate favorable payment terms (referred to as vendor financing). For the first nine months of 2017, vendor financingassets related to capital investments was $897. We do not report capital expenditures at the segment level.
Cash Provided by or Used in Financing Activities
For the first ninesix months of 2017,2020, cash provided byused in financing activities totaled $28,703$5,911 and included net proceedswas comprised of $46,761 primarily from the following long-term debt issuances:issuances and repayments, issuances of preferred stock, share repurchase, payments of dividends and required collateral deposits.
57
AT&T INC.
JUNE 30, 2017
Item 2. Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
During the first six months of 2020, debt issuances included proceeds of $8,440 in short-term borrowings and $21,060 of net proceeds from long-term debt. Borrowing activity consisted of approximately $2,940 in commercial paper draws and the following issuances:
Issued and redeemed in 2020:
March draw of $750 on a private financing agreement (repaid in the second quarter).
April draw of $5,500 on a term loan credit agreement with certain commercial banks and Bank of America, N.A., if we do not consummateas lead agent (repaid in the Time Warner acquisition pursuant to the merger agreement, on or prior to April 22, 2018, or, if prior to such date, the merger agreement is terminated, thensecond quarter).
Issued and outstanding in either case we must redeem certain2020:
February issuance of the notes at a redemption price equal to 101%$2,995 of the principal amount of the notes, plus accrued but unpaid interest.
March borrowings of $665 from loan programs with export agencies of foreign governments to purchase up to an additional $173 aggregate principal amount within 30 dayssupport network equipment purchases in those countries.
May issuances totaling $12,500 in global notes, comprised of the offering.
May issuances totaling €3,000 million in global notes (approximately $3,281 at issuance), DIRECTV Holdings LLC and DIRECTV Financing Co., Inc. due between 2020 and 2023. We may issue up to $8,000comprised of new AT&T Inc.€1,750 million of 1.600% global notes subject to increase, due 2028, and 2030. Also on October 30, 2017, we offered to exchange approximately $9,000€750 million of high-coupon existing AT&T Inc. notes and existing subsidiary notes for new AT&T Inc. notes. The notes covered in the exchange have coupons ranging from 5.85% to 8.75% and maturities from 2022 to 2097. The existing AT&T Inc. notes may be exchanged for new AT&T Inc.2.050% global notes due 20462032 and the subsidiary bonds may be exchanged for new AT&T Inc.€500 million of 2.600% global notes due 2046 or new AT&T Inc.2038.
June issuance of $1,050 of 3.750% global notes with identical coupon and maturity as the existing subsidiary notes. We are also seeking consent of bondholders to modify the covenants of the subsidiary indentures to generally conform to AT&T Inc.'s indenture. The exchange offers will expire on November 28, 2017.
During the first ninesix months of 2017, we redeemed or repaid $10,3092020, repayments of debt primarily consistingincluded $5,975 of short-term borrowings and $17,284 of long-term debt. Repayments were comprised of $475 in commercial paper and the following:
Notes redeemed at maturity:
$800 of AT&T floating-rate notes in the first quarter.
$687 of AT&T floating-rate notes in the second quarter.
Notes redeemed prior to maturity:
$2,619 of 4.600% AT&T global notes with original maturity in 2045, in the first quarter.
$2,750 of 2.450% AT&T global notes with original maturity in 2020, in the second quarter
$1,000 of annual put reset securities issued by BellSouth, in the second quarter.
$683 of 4.600% AT&T global notes with original maturity in 2021, in the second quarter.
$1,695 of 2.800% AT&T global notes with original maturity in 2021, in the second quarter.
$853 of 4.450% AT&T global notes with original maturity in 2021, in the second quarter.
$1,172 of 3.875% AT&T global notes with original maturity in 2021, in the second quarter.
$1,430 of 5.500% AT&T global notes with original maturity in 2047, in the second quarter.
Credit facilities repaid and other borrowings:
$750 of borrowings under a private financing agreement, in the first quarter.
$750 of borrowings under a private financing agreement, in the second quarter.
$5,500 under our April 2020 term loan credit agreement with certain commercial banks and Bank of America, in the second quarter.
$1,300 under our term loan credit agreement with Bank of America, in the second quarter.
$500 under our term loan credit agreement with Bank of Communications Co., in the second quarter.
Our weighted average interest rate of our entire long-term debt portfolio, including the impact of derivatives, was approximately 4.4%4.3% as of SeptemberJune 30, 2017, compared to 4.2%2020 and 4.4% as of December 31, 2016.2019. We had $162,450$164,099 of total notes and debentures outstanding at SeptemberJune 30, 2017,2020, which included Euro, British pound sterling, Canadian dollar, Swiss franc, Australian dollar, Brazilian real, and Mexican peso and Canadian dollar denominated debt that totaled approximately $37,260.$44,798.
58
AT&T INC.
JUNE 30, 2017
Item 2. Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
At June 30, 2020, we had $15,576 of debt maturing within one year, consisting of $3,001 of commercial paper borrowings and $12,575 of long-term debt issuances. Debt maturing within one year includes the following notes that may be put back to us by the holders:
An accreting zero-coupon note that may be redeemed each May until maturity in 2022. If the remainder of the zero-coupon note (issued for principal of $500 in 2007 and partially exchanged in the 2017 debt exchange offers) is held to maturity, the redemption amount will be $592.
For the first six months of 2020, we paid $1,354 of cash under our vendor financing program, compared to $1,836 in the first six months of 2019. Total vendor financing payables included in our June 30, 2020 consolidated balance sheet were approximately $1,556, with $718 due within one year (in “Accounts payable and accrued liabilities”) and the remainder predominantly due within two to three years (in “Other noncurrent liabilities”).
Financing activities in the first six months of 2020 also included $3,869 for the February issuance of Series B and Series C preferred stock (see Note 11).
We repurchased approximately 142 million shares of common stock, predominantly in the first quarter, and completed the share repurchase authorization approved by the Board of Directors in 2013. In March 2020, we cancelled an accelerated share repurchase agreement that was planned for the second quarter and other repurchases to maintain flexibility and focus on continued investment in serving our customers, taking care of our employees and enhancing our network, including 5G. At June 30, 2020, we had approximately 178 million shares remaining from our share repurchase authorizations approved by the Board of Directors in 2014.
We paid dividends on common and preferred shares of $7,474 during the first six months of 2020, compared with $7,436 for the first six months of 2019. Dividends were higher in 2020, primarily due to dividend payments to preferred stockholders and the increase in our quarterly dividend on common stock approved by our Board of Directors in December 2019, partially offset by fewer shares outstanding.
Dividends on common stock declared by our Board of Directors totaled $1.04 per share in the first six months of 2020 and $1.02 per share for the first six months of 2019. Our dividend policy considers the expectations and requirements of stockholders, capital funding requirements of AT&T and long-term growth opportunities. It is our intent to provide the financial flexibility to allow our Board of Directors to consider dividend growth and to recommend an increase in dividends to be paid in future periods. All dividends remain subject to declaration by our Board of Directors.
Financing Activities Subsequent to the Second Quarter
Taking advantage of attractive rates, we had $8,551 of debt maturing within one year, $8,379 of which was related to long-term debt issuances. Debt maturing within one year includescompleted the following financing activities subsequent to the second quarter of 2020.
In July 2020, we redeemed a total of $4,264 in notes:
$1,457 of 3.000% global notes that may be put backdue 2022 issued by AT&T.
$1,250 of 3.200% global notes due 2022 issued by AT&T.
$1,012 of 3.800% global notes due 2022 issued by AT&T.
$422 of 4.000% global notes due 2022 issued by AT&T.
$60 of 3.800% senior notes due 2022 issued by DIRECTV.
$63 of 4.00% notes due 2022 issued by WarnerMedia.
In August 2020, we issued a total of $11,000 in global notes and will use the proceeds to us by the holders:pay down near-term debt:
$2,250 of 1.650% global notes due 2028.
$2,500 of 2.250 % global notes due 2032.
$2,500 of 3.100% global notes due 2043.
$2,250 of 3.300% global notes due 2052.
$1,500 of 3.500% senior notes due 2061.
59
AT&T INC.
JUNE 30, 2020
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
Credit Facilities
The following summary of our various credit and loan agreements does not purport to be complete and is qualified in its entirety by reference to each agreement filed as exhibits to our Annual Report on Form 10-K.
We use credit facilities as a tool in managing our liquidity status. In December 2015,2018, we amended our five-year revolving credit agreement (the “Amended and Restated Credit Agreement”) and concurrently entered into a new five-year agreement (the “Five Year Credit Agreement”) such that we now have two $7,500 revolving credit agreements totaling $15,000. The Amended and Restated Credit Agreement terminates on December 11, 2021 and the Five Year Credit Agreement terminates on December 11, 2023. No amounts were outstanding under either agreement as of June 30, 2020.
In September 2019, we entered into and drew on a five-year $12,000 revolving credit agreement of which no amounts are outstanding as of September 30, 2017. On September 5, 2017 we repaid all of the amounts outstanding under our $9,155 syndicated credit agreement and terminated the facility. On September 29, 2017, we entered into a five-year $2,250 syndicated$1,300 term loan credit agreement containing (i) a $750 term loan1.25 year $400 facility (the "Tranchedue in 2020 (BAML Tranche A Facility), (ii) a $750 term loan2.25 year $400 facility (the "Tranchedue in 2021 (BAML Tranche B Facility")Facility), and (iii) a $750 term loan3.25 year $500 facility (the "Tranchedue in 2022 (BAML Tranche C Facility")Facility), with certain investmentBank of America, N.A., as agent. These facilities were repaid and terminated in the second quarter of 2020.
On April 6, 2020, we entered into and drew on a $5,500 Term Loan Credit Agreement (Term Loan) with 11 commercial banks and The Bank of Nova Scotia,America, N.A. as administrativelead agent. No amounts are outstanding underWe repaid and terminated the Tranche A Facility, the Tranche B Facility or the Tranche C Facility as of September 30, 2017.
We also enter intoutilize other external financing sources, which include various credit arrangements supported by government agencies to support network equipment purchases.
Each of our credit and loan agreements contains covenants that are customary for an issuer with an investment grade senior debt credit rating as well as a net debt-to-EBITDA financial ratio covenant requiring AT&T to maintain, as of the last day of each fiscal quarter, a ratio of not more than 3.5-to-1. As of SeptemberJune 30, 2017,2020, we were in compliance with the covenants for our credit facilities.
Collateral Arrangements
During 2019 and 2020, we amended collateral arrangements with certain counterparties to require cash collateral posting by AT&T only when derivative market values exceed certain thresholds. Under these arrangements, counterparties are still required to post collateral. During the first ninesix months of 2017,2020, we received $2,743deposited approximately $518 of additional cash collateral, on a net basis from banks and other participants in our derivative arrangements.as we exceeded the market value thresholds with some of the counterparties. Cash postings under these arrangements vary with changes in credit ratings and netting agreements. At September 30, 2017, we had posted collateral assets of $837 and received collateral liabilities of $338, compared to December 31, 2016, posted collateral assets of $3,242 and no collateral liabilities. (See Note 6)
Other
Our total capital consists of debt (long-term debt and debt maturing within one year) and stockholders'stockholders’ equity. Our capital structure does not include debt issued by our equity method investments. At SeptemberJune 30, 2017,2020, our debt ratio was 56.4%46.6%, compared to 50.1%46.8% at SeptemberJune 30, 2016,2019 and 49.9%44.7% at December 31, 2016.2019. Our net debt ratio was 39.7%41.9% at SeptemberJune 30, 2017,2020, compared to 47.8%44.5% at SeptemberJune 30, 20162019 and 47.5%41.4% at December 31, 2016.2019. The debt ratio is affected by the same factors that affect total capital, and reflects our recent debt issuances and repayments.
During the first ninesix months of 2017,2020, we have received $4,217$347 from the disposition of assets, and when combined with working capital monetization of various assets, primarilyinitiatives, which include the sale of certain equipment installment receivables.receivables, total cash received from monetization efforts, net of $1,046 of spectrum acquisitions, was approximately $300. We plan to continue to explore similar opportunities.opportunities throughout 2020.
60
AT&T INC.
JUNE 30, 2017
Item 2. Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
DISCUSSION AND RECONCILIATION OF NON-GAAP MEASURE
We believe the following measure is relevant and useful information to investors as it is used by management as a method of comparing performance with that of many of our competitors. This supplemental measure should be considered in addition to, but not as a substitute of, our consolidated and segment financial information.
Business Solutions Reconciliation
We provide a supplemental discussion of our domestic wirelessBusiness Solutions operations that is calculated by combining our Consumer Mobility and Business Solutions segments,Wireline business units, and then adjusting to remove non-wirelessnon-business operations. The following table presents a reconciliation of our supplemental AT&T MobilityBusiness Solutions results.
|
| Three Months Ended | |||||||||||||||
|
| June 30, 2020 |
|
| June 30, 2019 | ||||||||||||
|
| Mobility |
| Business Wireline |
| Adjustments1 |
| Business Solutions |
|
| Mobility |
| Business Wireline |
| Adjustments1 |
| Business Solutions |
Operating Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wireless service | $ | 13,669 | $ | - | $ | (11,785) | $ | 1,884 |
| $ | 13,824 | $ | - | $ | (11,943) | $ | 1,881 |
Strategic and managed services |
| - |
| 3,943 |
| - |
| 3,943 |
|
| - |
| 3,834 |
| - |
| 3,834 |
Legacy voice and data services |
| - |
| 2,067 |
| - |
| 2,067 |
|
| - |
| 2,324 |
| - |
| 2,324 |
Other service and equipment |
| - |
| 364 |
| - |
| 364 |
|
| - |
| 449 |
| - |
| 449 |
Wireless equipment |
| 3,480 |
| - |
| (2,895) |
| 585 |
|
| 3,468 |
| - |
| (2,851) |
| 617 |
Total Operating Revenues |
| 17,149 |
| 6,374 |
| (14,680) |
| 8,843 |
|
| 17,292 |
| 6,607 |
| (14,794) |
| 9,105 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations and support |
| 9,332 |
| 3,779 |
| (7,687) |
| 5,424 |
|
| 9,522 |
| 3,975 |
| (7,985) |
| 5,512 |
EBITDA |
| 7,817 |
| 2,595 |
| (6,993) |
| 3,419 |
|
| 7,770 |
| 2,632 |
| (6,809) |
| 3,593 |
Depreciation and amortization |
| 2,012 |
| 1,318 |
| (1,693) |
| 1,637 |
|
| 2,003 |
| 1,242 |
| (1,700) |
| 1,545 |
Total Operating Expense |
| 11,344 |
| 5,097 |
| (9,380) |
| 7,061 |
|
| 11,525 |
| 5,217 |
| (9,685) |
| 7,057 |
Operating Income |
| 5,805 |
| 1,277 |
| (5,300) |
| 1,782 |
|
| 5,767 |
| 1,390 |
| (5,109) |
| 2,048 |
Equity in net income (loss) of affiliates |
| - |
| - |
| - |
| - |
|
| - |
| - |
| - |
| - |
Operating Contribution | $ | 5,805 | $ | 1,277 | $ | (5,300) | $ | 1,782 |
| $ | 5,767 | $ | 1,390 | $ | (5,109) | $ | 2,048 |
1Non-business wireless reported in the Communications segment under the Mobility business unit. |
61
Three Months Ended | ||||||||||||||||||||||||||||||||
September 30, 2017 | September 30, 2016 | |||||||||||||||||||||||||||||||
Consumer Mobility | Business Solutions | Adjustments1 | AT&T Mobility | Consumer Mobility | Business Solutions | Adjustments1 | AT&T Mobility | |||||||||||||||||||||||||
Operating Revenues | ||||||||||||||||||||||||||||||||
Wireless service | $ | 6,507 | $ | 8,034 | $ | - | $ | 14,541 | $ | 6,914 | $ | 8,050 | $ | - | $ | 14,964 | ||||||||||||||||
Fixed strategic services | - | 3,087 | (3,087 | ) | - | - | 2,913 | (2,913 | ) | - | ||||||||||||||||||||||
Legacy voice and data services | - | 3,434 | (3,434 | ) | - | - | 4,042 | (4,042 | ) | - | ||||||||||||||||||||||
Other service and equipment | - | 852 | (852 | ) | - | - | 886 | (886 | ) | - | ||||||||||||||||||||||
Wireless equipment | 1,241 | 1,654 | - | 2,895 | 1,353 | 1,876 | - | 3,229 | ||||||||||||||||||||||||
Total Operating Revenues | 7,748 | 17,061 | (7,373 | ) | 17,436 | 8,267 | 17,767 | (7,841 | ) | 18,193 | ||||||||||||||||||||||
Operating Expenses | ||||||||||||||||||||||||||||||||
Operations and support | 4,551 | 10,233 | (4,671 | ) | 10,113 | 4,751 | 10,925 | (4,979 | ) | 10,697 | ||||||||||||||||||||||
EBITDA | 3,197 | 6,828 | (2,702 | ) | 7,323 | 3,516 | 6,842 | (2,862 | ) | 7,496 | ||||||||||||||||||||||
Depreciation and amortization | 877 | 2,325 | (1,192 | ) | 2,010 | 944 | 2,539 | (1,376 | ) | 2,107 | ||||||||||||||||||||||
Total Operating Expense | 5,428 | 12,558 | (5,863 | ) | 12,123 | 5,695 | 13,464 | (6,355 | ) | 12,804 | ||||||||||||||||||||||
Operating Income | $ | 2,320 | $ | 4,503 | $ | (1,510 | ) | $ | 5,313 | $ | 2,572 | $ | 4,303 | $ | (1,486 | ) | $ | 5,389 | ||||||||||||||
1 Non-wireless (fixed) operations reported in Business Solutions segment. |
AT&T INC.
JUNE 30, 2017
Item 2. Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
Nine Months Ended | ||||||||||||||||||||||||||||||||
September 30, 2017 | September 30, 2016 | |||||||||||||||||||||||||||||||
Consumer Mobility | Business Solutions | Adjustments1 | AT&T Mobility | Consumer Mobility | Business Solutions | Adjustments1 | AT&T Mobility | |||||||||||||||||||||||||
Operating Revenues | ||||||||||||||||||||||||||||||||
Wireless service | $ | 19,644 | $ | 23,969 | $ | - | $ | 43,613 | $ | 20,805 | $ | 23,868 | $ | - | $ | 44,673 | ||||||||||||||||
Fixed strategic services | - | 9,089 | (9,089 | ) | - | - | 8,469 | (8,469 | ) | - | ||||||||||||||||||||||
Legacy voice and data services | - | 10,572 | (10,572 | ) | - | - | 12,577 | (12,577 | ) | - | ||||||||||||||||||||||
Other service and equipment | - | 2,513 | (2,513 | ) | - | - | 2,619 | (2,619 | ) | - | ||||||||||||||||||||||
Wireless equipment | 3,635 | 4,873 | - | 8,508 | 3,976 | 5,422 | - | 9,398 | ||||||||||||||||||||||||
Total Operating Revenues | 23,279 | 51,016 | (22,174 | ) | 52,121 | 24,781 | 52,955 | (23,665 | ) | 54,071 | ||||||||||||||||||||||
Operating Expenses | ||||||||||||||||||||||||||||||||
Operations and support | 13,599 | 30,722 | (14,013 | ) | 30,308 | 14,343 | 32,584 | (15,105 | ) | 31,822 | ||||||||||||||||||||||
EBITDA | 9,680 | 20,294 | (8,161 | ) | 21,813 | 10,438 | 20,371 | (8,560 | ) | 22,249 | ||||||||||||||||||||||
Depreciation and amortization | 2,621 | 6,972 | (3,594 | ) | 5,999 | 2,798 | 7,568 | (4,122 | ) | 6,244 | ||||||||||||||||||||||
Total Operating Expense | 16,220 | 37,694 | (17,607 | ) | 36,307 | 17,141 | 40,152 | (19,227 | ) | 38,066 | ||||||||||||||||||||||
Operating Income | $ | 7,059 | $ | 13,322 | $ | (4,567 | ) | $ | 15,814 | $ | 7,640 | $ | 12,803 | $ | (4,438 | ) | $ | 16,005 | ||||||||||||||
1 Non-wireless (fixed) operations reported in Business Solutions segment. |
62
AT&T INC.
JUNE 30, 2017
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Dollars in millions except per share amounts
At SeptemberJune 30, 2017,2020, we had interest rate swaps with a notional value of $10,775$21 and a fair value of $11.
We have fixed-to-fixed and floating-to-fixed cross-currency swaps on foreign currency-denominated debt instruments with a U.S. dollar notional value of $38,694$45,606 to hedge our exposure to changes in foreign currency exchange rates. These derivatives have been designated at inception and qualify as cash flow hedges with a net fair value of $(842)$(6,700) at SeptemberJune 30, 2017.
We have foreign exchange contracts with a U.S. dollar notional value of $298 to provide currency at a fixed rate to hedge a portion of the exchange risk involved in foreign currency-denominated transactions. These foreign exchange contracts include fair value hedges, cash flow hedges and economic (nonqualifying) hedges with a total net fair value of $4 at June 30, 2020.
We have designated €1,450 million aggregate principal amount of debt as a hedge of the variability of some of the Euro-denominated net investments of our subsidiaries. The gain or loss on the debt that is designated as, and is effective as, an economic hedge of the net investment in a foreign operation is recorded as a currency translation adjustment within accumulated other comprehensive income, net on the consolidated balance sheet.
Item 4. Controls and Procedures
The registrant maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed by the registrant is recorded, processed, summarized, accumulated and communicated to its management, including its principal executive and principal financial officers, to allow timely decisions regarding required disclosure, and reported within the time periods specified in the Securities and Exchange Commission'sCommission’s rules and forms. The chief executive officer and chief financial officer have performed an evaluation of the effectiveness of the design and operation of the registrant'sregistrant’s disclosure controls and procedures as of SeptemberJune 30, 2017.2020. Based on that evaluation, the chief executive officer and chief financial officer concluded that the registrant'sregistrant’s disclosure controls and procedures were effective as of SeptemberJune 30, 2017.2020.
There have not been any changes in our internal control over financial reporting during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Due to the COVID-19 pandemic, most of our corporate employees are working remotely. We continue to monitor and assess the COVID-19 situation on our internal controls over financial reporting to address any potential impact on their design and operating effectiveness.
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CAUTIONARY LANGUAGE CONCERNING FORWARD-LOOKING STATEMENTS
Information set forth in this report contains forward-looking statements that are subject to risks and uncertainties, and actual results could differ materially. Many of these factors are discussed in more detail in the "Risk Factors"“Risk Factors” section. We claim the protection of the safe harbor for forward-looking statements provided by the Private Securities Litigation Reform Act of 1995.
The following factors could cause our future results to differ materially from those expressed in the forward-looking statements:
•The severity, magnitude and duration of the COVID-19 pandemic and containment, mitigation and other measures taken in response, including the potential impacts of these matters on our business and operations.
•Our inability to predict the extent to which the COVID-19 pandemic and related impacts will continue to impact our business operations, financial performance and results of operations.
•Adverse economic, political and/or capital access changes in the markets served by us or in countries in which we have significant investments and/or operations, including the impact on customer demand and our ability and our suppliers’ ability to access financial markets at favorable rates and terms.
•Increases in our benefit plans’ costs, including increases due to adverse changes in the United States and foreign securities markets, resulting in worse-than-assumed investment returns and discount rates; adverse changes in mortality assumptions; adverse medical cost trends; and unfavorable or delayed implementation or repeal of healthcare legislation, regulations or related court decisions.
•The final outcome of FCC and other federal, state or foreign government agency proceedings (including judicial review, if any, of such proceedings) and legislative efforts involving issues that are important to our business, including, without limitation, pending Notices of Apparent Liability; the transition from legacy technologies to IP-based infrastructure, including the withdrawal of legacy TDM-based services; universal service; broadband deployment; wireless equipment siting regulations and, in particular, siting for 5G service; E911 services; competition policy; privacy; net neutrality; multichannel video programming distributor services and equipment; content licensing and copyright protection; availability of new spectrum on fair and balanced terms; and wireless and satellite license awards and renewals.
•Enactment of additional state, local, federal and/or foreign regulatory and tax laws and regulations, or changes to existing standards and actions by tax agencies and judicial authorities including the resolution of disputes with any taxing jurisdictions, pertaining to our subsidiaries and foreign investments, including laws and regulations that reduce our incentive to invest in our networks, resulting in lower revenue growth and/or higher operating costs.
•Potential changes to the electromagnetic spectrum currently used for broadcast television and satellite distribution being considered by the FCC could negatively impact WarnerMedia’s ability to deliver linear network feeds of its domestic cable networks to its affiliates, and in some cases, WarnerMedia’s ability to produce high-value news and entertainment programming on location.
•U.S. and foreign laws and regulations regarding intellectual property rights protection and privacy, personal data protection and user consent are complex and rapidly evolving and could result in adverse impacts to our business plans, increased costs, or claims against us that may harm our reputation.
•The ability of our competitors to offer product/service offerings at lower prices due to lower cost structures and regulatory and legislative actions adverse to us, including non-regulation of comparable alternative technologies and/or government-owned or subsidized networks.
•Disruption in our supply chain for a number of reasons, including, difficulties in obtaining export licenses for certain technology, inability to secure component parts, general business disruption, natural disasters, safety issues, economic and political instability and public health emergencies.
•The continued development and delivery of attractive and profitable wireless, video and broadband offerings and devices, and, in particular, the success of our new HBO Max platform; the extent to which regulatory and build-out requirements apply to our offerings; our ability to match speeds offered by our competitors and the availability, cost and/or reliability of the various technologies and/or content required to provide such offerings.
•Our ability to generate advertising revenue from attractive video content, especially from WarnerMedia, in the face of unpredictable and rapidly evolving public viewing habits and legal restrictions on the use of personal data.
•The availability and cost and our ability to adequately fund additional wireless spectrum and network upgrades; and regulations and conditions relating to spectrum use, licensing, obtaining additional spectrum, technical standards and deployment and usage, including network management rules.
•Our ability to manage growth in wireless data services, including network quality and acquisition of adequate spectrum at reasonable costs and terms.
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CAUTIONARY LANGUAGE CONCERNING FORWARD-LOOKING STATEMENTS
•The outcome of pending, threatened or potential litigation (which includes arbitrations), including, without limitation, patent and product safety claims by or against third parties.
•The impact from major equipment or software failures on our networks, including satellites operated by DIRECTV; the effect of security breaches related to the network or customer information; our inability to obtain handsets, equipment/software or have handsets, equipment/software serviced in a timely and cost-effective manner from suppliers; and in the case of satellites launched, timely provisioning of services from vendors; or severe weather conditions including flooding and hurricanes, natural disasters including earthquakes and forest fires, pandemics, energy shortages, wars or terrorist attacks.
•The issuance by the Financial Accounting Standards Board or other accounting oversight bodies of new accounting standards or changes to existing standards.
•Our ability to successfully integrate our WarnerMedia operations, including the ability to manage various businesses in widely dispersed business locations and with decentralized management.
•Changes in our corporate strategies, such as changing network-related requirements or acquisitions and dispositions, which may require significant amounts of cash or stock, to respond to competition and regulatory, legislative and technological developments.
•The uncertainty surrounding further congressional action to address spending reductions, which may result in a significant decrease in government spending and reluctance of businesses and consumers to spend in general.
Readers are cautioned that other factors discussed in this report, although not enumerated here, also could materially affect our future earnings.
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PART II – OTHER INFORMATION
Dollars in millions except per share amounts
Item 1A. Risk Factors
We discuss in our Annual Report on Form 10-K for the year ended December 31, 2019 and in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 various risks that may materially affect our business. We use this section to update this discussion to reflect material developments since our Form 10-K was filed. Fordevelopments. For the thirdsecond quarter 2017,of 2020, there were no such material developments.
66 AT&T INC. JUNE 30, 2020 PART II – OTHER INFORMATION - CONTINUED Dollars in millions except per share amounts
67 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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