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
or
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| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from to
Commission File Number 001-8610
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
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| 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. | T 21B | New York Stock Exchange |
AT&T Inc. | T 22B | New York Stock Exchange |
AT&T Inc. | T 23 | New York Stock Exchange |
AT&T Inc. | 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. | T 23E | New York Stock Exchange |
AT&T Inc. | T 23A | New York Stock Exchange |
AT&T Inc. | T 23F | New York Stock Exchange |
AT&T Inc. | T 24A | New York Stock Exchange |
AT&T Inc. | T 25 | New York Stock Exchange |
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| Name of each exchange |
Title of each class | Trading Symbol(s) | on which registered |
AT&T Inc. | 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. | 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. | 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. | 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. | T 35 | New York Stock Exchange |
AT&T Inc. | 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. | T 40 | New York Stock Exchange |
AT&T Inc. | 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. | 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 every Interactive Data File required to be submitted 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 such files).
Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See definition of “accelerated filer,” “large accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer | [X] |
| Accelerated Filer | [ ] |
Non-accelerated filer | [ ] |
| Smaller reporting company | [ ] |
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| 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, 2019,2020, there were 7,3057,125 million common shares outstanding.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
AT&T INC. | AT&T INC. | AT&T INC. | ||||||||||||||||||||
CONSOLIDATED STATEMENTS OF INCOME | CONSOLIDATED STATEMENTS OF INCOME | CONSOLIDATED STATEMENTS OF INCOME | ||||||||||||||||||||
Dollars in millions except per share amounts | Dollars in millions except per share amounts | Dollars in millions except per share amounts | ||||||||||||||||||||
(Unaudited) | (Unaudited) | (Unaudited) | ||||||||||||||||||||
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| Three months ended |
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| Nine months ended |
| Three months ended |
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| Six months ended | ||||||||||||
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| September 30, |
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| September 30, |
| June 30, |
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| June 30, | ||||||||||||
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| 2019 |
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| 2018 |
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| 2019 |
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| 2018 |
| 2020 |
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| 2019 |
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| 2020 |
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| 2019 |
Operating Revenues |
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Service | $ | 40,317 |
| $ | 41,297 |
| $ | 122,024 |
| $ | 109,849 | $ | 37,051 |
| $ | 41,023 |
| $ | 75,934 |
| $ | 81,707 |
Equipment |
| 4,271 |
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| 4,442 |
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| 12,348 |
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| 12,914 |
| 3,899 |
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| 3,934 |
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| 7,795 |
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| 8,077 |
Total operating revenues |
| 44,588 |
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| 45,739 |
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| 134,372 |
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| 122,763 |
| 40,950 |
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| 44,957 |
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| 83,729 |
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| 89,784 |
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Operating Expenses |
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Cost of revenues |
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Equipment |
| 4,484 |
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| 4,828 |
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| 13,047 |
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| 14,053 |
| 3,978 |
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| 4,061 |
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| 8,070 |
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| 8,563 |
Broadcast, programming and operations |
| 7,066 |
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| 7,227 |
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| 22,448 |
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| 17,842 |
| 5,889 |
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| 7,730 |
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| 12,643 |
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| 15,382 |
Other cost of revenues (exclusive of depreciation and amortization shown separately below) |
| 8,604 |
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| 8,651 |
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| 25,910 |
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| 24,215 | |||||||||||
Other cost of revenues (exclusive of depreciation and |
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amortization shown separately below) |
| 8,116 |
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| 8,721 |
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| 16,458 |
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| 17,306 | |||||||||||
Selling, general and administrative |
| 9,584 |
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| 9,598 |
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| 29,077 |
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| 26,179 |
| 9,831 |
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| 9,844 |
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| 18,591 |
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| 19,493 |
Asset impairments and abandonments |
| 2,319 |
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| - |
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| 2,442 |
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| - | |||||||||||
Depreciation and amortization |
| 6,949 |
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| 8,166 |
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| 21,256 |
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| 20,538 |
| 7,285 |
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| 7,101 |
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| 14,507 |
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| 14,307 |
Total operating expenses |
| 36,687 |
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| 38,470 |
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| 111,738 |
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| 102,827 |
| 37,418 |
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| 37,457 |
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| 72,711 |
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| 75,051 |
Operating Income |
| 7,901 |
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| 7,269 |
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| 22,634 |
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| 19,936 |
| 3,532 |
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| 7,500 |
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| 11,018 |
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| 14,733 |
Other Income (Expense) |
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Interest expense |
| (2,083) |
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| (2,051) |
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| (6,373) |
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| (5,845) |
| (2,041) |
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| (2,149) |
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| (4,059) |
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| (4,290) |
Equity in net income (loss) of affiliates |
| 3 |
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| (64) |
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| 36 |
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| (71) |
| (10) |
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| 40 |
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| (16) |
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| 33 |
Other income (expense) – net |
| (935) |
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| 1,053 |
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| (967) |
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| 5,108 |
| 1,017 |
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| (318) |
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| 1,820 |
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| (32) |
Total other income (expense) |
| (3,015) |
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| (1,062) |
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| (7,304) |
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| (808) |
| (1,034) |
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| (2,427) |
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| (2,255) |
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| (4,289) |
Income Before Income Taxes |
| 4,886 |
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| 6,207 |
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| 15,330 |
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| 19,128 |
| 2,498 |
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| 5,073 |
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| 8,763 |
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| 10,444 |
Income tax expense |
| 937 |
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| 1,391 |
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| 3,059 |
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| 4,305 |
| 935 |
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| 1,099 |
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| 2,237 |
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| 2,122 |
Net Income |
| 3,949 |
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| 4,816 |
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| 12,271 |
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| 14,823 |
| 1,563 |
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| 3,974 |
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| 6,526 |
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| 8,322 |
Less: Net Income Attributable to Noncontrolling Interest |
| (249) |
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| (98) |
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| (762) |
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| (311) |
| (282) |
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| (261) |
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| (635) |
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| (513) |
Net Income Attributable to AT&T | $ | 3,700 |
| $ | 4,718 |
| $ | 11,509 |
| $ | 14,512 | $ | 1,281 |
| $ | 3,713 |
| $ | 5,891 |
| $ | 7,809 |
Basic Earnings Per Share Attributable to AT&T | $ | 0.50 |
| $ | 0.65 |
| $ | 1.57 |
| $ | 2.19 | |||||||||||
Diluted Earnings Per Share Attributable to AT&T | $ | 0.50 |
| $ | 0.65 |
| $ | 1.57 |
| $ | 2.19 | |||||||||||
Weighted Average Number of Common Shares Outstanding – Basic (in millions) |
| 7,327 |
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| 7,284 |
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| 7,321 |
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| 6,603 | |||||||||||
Weighted Average Number of Common Shares Outstanding – with Dilution (in millions) |
| 7,356 |
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| 7,320 |
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| 7,350 |
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| 6,630 | |||||||||||
Less: Preferred Stock Dividends |
| (52) |
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| - |
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| (84) |
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| - | |||||||||||
Net Income Attributable to Common Stock | $ | 1,229 |
| $ | 3,713 |
| $ | 5,807 |
| $ | 7,809 | |||||||||||
Basic Earnings Per Share Attributable to |
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Common Stock | $ | 0.17 |
| $ | 0.51 |
| $ | 0.81 |
| $ | 1.06 | |||||||||||
Diluted Earnings Per Share Attributable to |
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Common Stock | $ | 0.17 |
| $ | 0.51 |
| $ | 0.81 |
| $ | 1.06 | |||||||||||
Weighted Average Number of Common Shares |
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Outstanding – Basic (in millions) |
| 7,145 |
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| 7,323 |
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| 7,166 |
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| 7,318 | |||||||||||
Weighted Average Number of Common Shares |
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Outstanding – with Dilution (in millions) |
| 7,170 |
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| 7,353 |
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| 7,192 |
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| 7,347 | |||||||||||
See Notes to Consolidated Financial Statements. |
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3
AT&T INC. |
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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME |
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| CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME |
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Dollars in millions |
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(Unaudited) |
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| Three months ended |
| Nine months ended | Three months ended |
| Six months ended | ||||||||||||||||
| September 30, |
| September 30, | June 30, |
| June 30, | ||||||||||||||||
| 2019 |
| 2018 |
| 2019 |
| 2018 | 2020 |
| 2019 |
| 2020 |
| 2019 | ||||||||
Net income | $ | 3,949 |
| $ | 4,816 |
| $ | 12,271 |
| $ | 14,823 | $ | 1,563 |
| $ | 3,974 |
| $ | 6,526 |
| $ | 8,322 |
Other comprehensive income (loss), net of tax: |
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Foreign currency: |
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Translation adjustment (includes $(17), $(7), $(15) and $(37) |
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Translation adjustment (includes $(8), $2, $(59) and $2 |
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attributable to noncontrolling interest), net of taxes of |
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$(69), $(2), $(21) and $(145) |
| (342) |
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| (14) |
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| (181) |
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| (824) | |||||||||||
$(135), $(1), $(197) and $48 |
| 305 |
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| (127) |
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| (1,549) |
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| 161 | |||||||||||
Securities: |
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Net unrealized gains (losses), net of taxes of $7, $(4), $22 |
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and $(8) |
| 25 |
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| (10) |
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| 67 |
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| (22) | |||||||||||
Net unrealized gains (losses), net of taxes of $5, $10, $27 |
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and $15 |
| 14 |
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| 26 |
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| 80 |
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| 42 | |||||||||||
Derivative instruments: |
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Net unrealized gains (losses), net of taxes of $(168), $0, |
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$(299) and $68 |
| (516) |
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| 4 |
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| (1,006) |
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| 257 | |||||||||||
Net unrealized gains (losses), net of taxes of $168, $(165), |
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$(803) and $(131) |
| 631 |
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| (617) |
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| (3,026) |
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| (490) | |||||||||||
Reclassification adjustment included in net income, |
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net of taxes of $2, $3, $7 and $9 |
| 7 |
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| 12 |
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| 24 |
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| 35 | |||||||||||
net of taxes of $4, $3, $4 and $5 |
| 17 |
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| 6 |
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| 17 |
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| 17 | |||||||||||
Defined benefit postretirement plans: |
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Net prior service (cost) credit arising during period, net of taxes of $0, $0, $0 and $173 |
| - |
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| - |
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| - |
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| 530 | |||||||||||
Amortization of net prior service credit included in net |
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income, net of taxes of $(112), $(108), $(332) |
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and $(322) |
| (343) |
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| (332) |
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| (1,031) |
|
| (989) | |||||||||||
income, net of taxes of $(150), $(107), $(301) |
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and $(220) |
| (461) |
|
| (342) |
|
| (922) |
|
| (688) | |||||||||||
Other comprehensive income (loss) |
| (1,169) |
|
| (340) |
|
| (2,127) |
|
| (1,013) |
| 506 |
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| (1,054) |
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| (5,400) |
|
| (958) |
Total comprehensive income |
| 2,780 |
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| 4,476 |
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| 10,144 |
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| 13,810 |
| 2,069 |
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| 2,920 |
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| 1,126 |
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| 7,364 |
Less: Total comprehensive income attributable to |
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noncontrolling interest |
| (232) |
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| (91) |
|
| (747) |
|
| (274) |
| (274) |
|
| (263) |
|
| (576) |
|
| (515) |
Total Comprehensive Income Attributable to AT&T | $ | 2,548 |
| $ | 4,385 |
| $ | 9,397 |
| $ | 13,536 | $ | 1,795 |
| $ | 2,657 |
| $ | 550 |
| $ | 6,849 |
See Notes to Consolidated Financial Statements. |
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4
AT&T INC. | AT&T INC. | AT&T INC. | ||||||||
CONSOLIDATED BALANCE SHEETS | CONSOLIDATED BALANCE SHEETS | CONSOLIDATED BALANCE SHEETS | ||||||||
Dollars in millions except per share amounts | Dollars in millions except per share amounts | Dollars in millions except per share amounts | ||||||||
| September 30, |
| December 31, | June 30, |
| December 31, | ||||
| 2019 |
| 2018 | 2020 |
| 2019 | ||||
Assets | (Unaudited) |
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| (Unaudited) |
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Current Assets |
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Cash and cash equivalents | $ | 6,588 |
| $ | 5,204 | $ | 16,941 |
| $ | 12,130 |
Accounts receivable - net of allowances for doubtful accounts of $1,121 and $907 |
| 22,921 |
|
| 26,472 | |||||
Accounts receivable - net of related allowances for credit loss of $1,606 and $1,235 |
| 19,127 |
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| 22,636 | |||||
Prepaid expenses |
| 1,493 |
|
| 2,047 |
| 1,439 |
|
| 1,631 |
Other current assets |
| 19,693 |
|
| 17,704 |
| 19,048 |
|
| 18,364 |
Total current assets |
| 50,695 |
|
| 51,427 |
| 56,555 |
|
| 54,761 |
Noncurrent Inventories and Theatrical Film and Television Production Costs |
| 12,014 |
|
| 7,713 |
| 14,514 |
|
| 12,434 |
Property, plant and equipment |
| 337,240 |
|
| 330,690 |
| 332,883 |
|
| 333,538 |
Less: accumulated depreciation and amortization |
| (205,924) |
|
| (199,217) |
| (203,938) |
|
| (203,410) |
Property, Plant and Equipment – Net |
| 131,316 |
|
| 131,473 |
| 128,945 |
|
| 130,128 |
Goodwill |
| 146,106 |
|
| 146,370 |
| 143,651 |
|
| 146,241 |
Licenses – Net |
| 96,026 |
|
| 96,144 |
| 98,763 |
|
| 97,907 |
Trademarks and Trade Names – Net |
| 23,855 |
|
| 24,345 |
| 23,757 |
|
| 23,567 |
Distribution Networks – Net |
| 15,806 |
|
| 17,069 |
| 14,704 |
|
| 15,345 |
Other Intangible Assets – Net |
| 22,060 |
|
| 26,269 |
| 18,452 |
|
| 20,798 |
Investments in and Advances to Equity Affiliates |
| 4,137 |
|
| 6,245 |
| 2,302 |
|
| 3,695 |
Operating lease right-of-use assets |
| 24,477 |
|
| - | |||||
Operating Lease Right-Of-Use Assets |
| 24,692 |
|
| 24,039 | |||||
Other Assets |
| 22,304 |
|
| 24,809 |
| 21,563 |
|
| 22,754 |
Total Assets | $ | 548,796 |
| $ | 531,864 | $ | 547,898 |
| $ | 551,669 |
|
|
|
|
|
| |||||
Liabilities and Stockholders’ Equity |
|
|
|
|
|
|
|
|
|
|
Current Liabilities |
|
|
|
|
|
|
|
|
|
|
Debt maturing within one year | $ | 11,608 |
| $ | 10,255 | $ | 15,576 |
| $ | 11,838 |
Accounts payable and accrued liabilities |
| 43,955 |
|
| 43,184 |
| 41,881 |
|
| 45,956 |
Advanced billings and customer deposits |
| 6,097 |
|
| 5,948 |
| 5,723 |
|
| 6,124 |
Accrued taxes |
| 2,741 |
|
| 1,179 |
| 2,548 |
|
| 1,212 |
Dividends payable |
| 3,725 |
|
| 3,854 |
| 3,741 |
|
| 3,781 |
Total current liabilities |
| 68,126 |
|
| 64,420 |
| 69,469 |
|
| 68,911 |
Long-Term Debt |
| 153,568 |
|
| 166,250 |
| 153,388 |
|
| 151,309 |
Deferred Credits and Other Noncurrent Liabilities |
|
|
|
|
|
|
|
|
|
|
Deferred income taxes |
| 57,786 |
|
| 57,859 |
| 58,387 |
|
| 59,502 |
Postemployment benefit obligation |
| 22,853 |
|
| 19,218 |
| 18,167 |
|
| 18,788 |
Operating lease liabilities |
| 22,288 |
|
| - |
| 22,230 |
|
| 21,804 |
Other noncurrent liabilities |
| 29,848 |
|
| 30,233 |
| 32,804 |
|
| 29,421 |
Total deferred credits and other noncurrent liabilities |
| 132,775 |
|
| 107,310 |
| 131,588 |
|
| 129,515 |
|
|
|
|
|
| |||||
Stockholders’ Equity |
|
|
|
|
|
|
|
|
|
|
Common stock ($1 par value, 14,000,000,000 authorized at September 30, 2019 and |
|
|
|
|
| |||||
December 31, 2018: issued 7,620,748,598 at September 30, 2019 and December 31, 2018) |
| 7,621 |
|
| 7,621 | |||||
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 |
| 125,139 |
|
| 125,525 |
| 130,046 |
|
| 126,279 |
Retained earnings |
| 59,347 |
|
| 58,753 |
| 56,045 |
|
| 57,936 |
Treasury stock (317,374,689 at September 30, 2019 and 339,120,073 December 31, 2018, |
|
|
|
|
| |||||
Treasury stock (495,425,902 at June 30, 2020 and 366,193,458 December 31, 2019, |
|
|
|
|
| |||||
at cost) |
| (11,195) |
|
| (12,059) |
| (17,945) |
|
| (13,085) |
Accumulated other comprehensive income |
| 2,137 |
|
| 4,249 |
| 129 |
|
| 5,470 |
Noncontrolling interest |
| 11,278 |
|
| 9,795 |
| 17,557 |
|
| 17,713 |
Total stockholders’ equity |
| 194,327 |
|
| 193,884 |
| 193,453 |
|
| 201,934 |
Total Liabilities and Stockholders’ Equity | $ | 548,796 |
| $ | 531,864 | $ | 547,898 |
| $ | 551,669 |
See Notes to Consolidated Financial Statements. |
|
|
|
|
|
|
|
|
|
|
5
AT&T INC. | AT&T INC. | AT&T INC. | ||||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS | CONSOLIDATED STATEMENTS OF CASH FLOWS | CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
Dollars in millions | Dollars in millions | Dollars in millions | ||||||||
(Unaudited) |
|
|
|
|
|
| ||||
| Nine months ended | Six months ended | ||||||||
| September 30, | June 30, | ||||||||
| 2019 |
| 2018 | 2020 |
| 2019 | ||||
Operating Activities |
|
|
|
|
|
|
|
|
|
|
Net income | $ | 12,271 |
| $ | 14,823 | $ | 6,526 |
| $ | 8,322 |
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
| 21,256 |
|
| 20,538 |
| 14,507 |
|
| 14,307 |
Amortization of television and film costs |
| 7,059 |
|
| 1,608 |
| 3,985 |
|
| 5,199 |
Undistributed earnings from investments in equity affiliates |
| 81 |
|
| 312 |
| 64 |
|
| 76 |
Provision for uncollectible accounts |
| 1,855 |
|
| 1,240 |
| 1,199 |
|
| 1,216 |
Deferred income tax expense |
| 1,039 |
|
| 4,337 |
| 653 |
|
| 1,080 |
Net (gain) loss from investments, net of impairments |
| (1,014) |
|
| (501) | |||||
Net (gain) loss on investments, net of impairments |
| (705) |
|
| (905) | |||||
Pension and postretirement benefit expense (credit) |
| (1,297) |
|
| (762) |
| (1,495) |
|
| (808) |
Actuarial (gain) loss on pension and postretirement benefits |
| 4,048 |
|
| (2,726) |
| - |
|
| 2,131 |
Asset impairments and abandonments |
| 2,442 |
|
| - | |||||
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
Receivables |
| 2,503 |
|
| (1,268) |
| 2,522 |
|
| 3,584 |
Other current assets, inventories and theatrical film and television production costs |
| (9,337) |
|
| (2,729) |
| (5,592) |
|
| (5,422) |
Accounts payable and other accrued liabilities |
| (936) |
|
| (1,385) |
| (3,847) |
|
| (3,056) |
Equipment installment receivables and related sales |
| 848 |
|
| 220 |
| 226 |
|
| 1,144 |
Deferred customer contract acquisition and fulfillment costs |
| (796) |
|
| (2,657) |
| 322 |
|
| (614) |
Postretirement claims and contributions |
| (635) |
|
| (630) |
| (228) |
|
| (424) |
Other - net |
| (220) |
|
| 1,102 |
| 346 |
|
| (494) |
Total adjustments |
| 24,454 |
|
| 16,699 |
| 14,399 |
|
| 17,014 |
Net Cash Provided by Operating Activities |
| 36,725 |
|
| 31,522 |
| 20,925 |
|
| 25,336 |
Investing Activities |
|
|
|
|
|
|
|
|
|
|
Capital expenditures: |
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment |
| (15,683) |
|
| (16,695) |
| (9,372) |
|
| (10,542) |
Interest during construction |
| (160) |
|
| (404) |
| (60) |
|
| (112) |
Acquisitions, net of cash acquired |
| (1,124) |
|
| (43,116) |
| (1,174) |
|
| (320) |
Dispositions |
| 3,775 |
|
| 983 |
| 347 |
|
| 3,593 |
(Purchases), sales and settlements of securities and investments, net |
| 523 |
|
| (234) |
| 47 |
|
| 396 |
Advances to and investments in equity affiliates, net |
| (333) |
|
| (1,021) |
| (66) |
|
| (314) |
Cash collections of deferred purchase price |
| - |
|
| 500 | |||||
Net Cash Used in Investing Activities |
| (13,002) |
|
| (59,987) |
| (10,278) |
|
| (7,299) |
Financing Activities |
|
|
|
|
|
|
|
|
|
|
Net change in short-term borrowings with original maturities of three months or less |
| (22) |
|
| (1,071) |
| 498 |
|
| 119 |
Issuance of other short-term borrowings |
| 4,012 |
|
| 4,852 |
| 8,440 |
|
| 3,067 |
Repayment of other short-term borrowings |
| (4,702) |
|
| (1,075) |
| (5,975) |
|
| (3,148) |
Issuance of long-term debt |
| 15,034 |
|
| 38,325 |
| 21,060 |
|
| 10,030 |
Repayment of long-term debt |
| (24,368) |
|
| (43,579) |
| (17,284) |
|
| (16,124) |
Payment of vendor financing |
| (2,601) |
|
| (347) |
| (1,354) |
|
| (1,836) |
Issuance of preferred stock |
| 3,869 |
|
| - | |||||
Purchase of treasury stock |
| (409) |
|
| (577) |
| (5,480) |
|
| (240) |
Issuance of treasury stock |
| 576 |
|
| 359 |
| 84 |
|
| 455 |
Issuance of preferred interests in subsidiary |
| 1,488 |
|
| - | |||||
Dividends paid |
| (11,162) |
|
| (9,775) |
| (7,474) |
|
| (7,436) |
Other |
| (187) |
|
| (791) |
| (2,295) |
|
| 330 |
Net Cash Used in Financing Activities |
| (22,341) |
|
| (13,679) |
| (5,911) |
|
| (14,783) |
Net increase (decrease) in cash and cash equivalents and restricted cash |
| 1,382 |
|
| (42,144) | |||||
Net increase in cash and cash equivalents and restricted cash |
| 4,736 |
|
| 3,254 | |||||
Cash and cash equivalents and restricted cash beginning of year |
| 5,400 |
|
| 50,932 |
| 12,295 |
|
| 5,400 |
Cash and Cash Equivalents and Restricted Cash End of Period | $ | 6,782 |
| $ | 8,788 | $ | 17,031 |
| $ | 8,654 |
See Notes to Consolidated Financial Statements. | See Notes to Consolidated Financial Statements. | See Notes to Consolidated Financial Statements. |
6
AT&T INC. | AT&T INC. |
|
|
|
|
|
|
|
| AT&T INC. |
|
|
|
|
|
|
|
| ||||||||||||||||||||
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY | CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY | CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY | ||||||||||||||||||||||||||||||||||||
Dollars and shares in millions except per share amounts | Dollars and shares in millions except per share amounts |
|
|
|
|
|
|
|
| Dollars and shares in millions except per share amounts |
|
|
|
|
|
|
|
| ||||||||||||||||||||
(Unaudited) | (Unaudited) |
|
|
|
|
|
|
|
| (Unaudited) |
|
|
|
|
|
|
|
| ||||||||||||||||||||
| Three months ended |
| Nine months ended | Three months ended |
| Six months ended | ||||||||||||||||||||||||||||||||
| September 30, 2019 |
| September 30, 2018 |
| September 30, 2019 |
| September 30, 2018 | June 30, 2020 |
| June 30, 2019 |
| June 30, 2020 |
| June 30, 2019 | ||||||||||||||||||||||||
| Shares |
| Amount |
| Shares |
| Amount |
| Shares |
| Amount |
| Shares |
| Amount | 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 |
| 6,495 |
| $ | 6,495 | 7,621 |
| $ | 7,621 |
| 7,621 |
| $ | 7,621 |
| 7,621 |
| $ | 7,621 |
| 7,621 |
| $ | 7,621 |
Issuance of stock | - |
| - |
| - |
| - |
| - |
| - |
| 1,126 |
| 1,126 | - |
| - |
| - |
| - |
| - |
| - |
| - |
| - | ||||||||
Balance at end of period | 7,621 |
| $ | 7,621 |
| 7,621 |
| $ | 7,621 |
| 7,621 |
| $ | 7,621 |
| 7,621 |
| $ | 7,621 | 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 |
|
| $ | 125,109 |
|
|
| $ | 125,960 |
|
|
| $ | 125,525 |
|
|
| $ | 89,563 |
|
| $ | 129,966 |
|
|
| $ | 125,174 |
|
|
| $ | 126,279 |
|
|
| $ | 125,525 |
Issuance of common stock |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 35,473 | |||||||||||||||||||||||
Repurchase and acquisition of common stock |
|
| - |
|
|
| - |
|
|
| 67 |
|
|
| - | |||||||||||||||||||||||
Issuance of preferred stock |
|
| - |
|
|
| - |
|
|
| 3,869 |
|
|
| - | |||||||||||||||||||||||
Issuance of treasury stock |
|
| (1) |
|
|
| (45) |
|
|
| (128) |
|
|
| (49) |
|
| (7) |
|
|
| (50) |
|
|
| (54) |
|
|
| (127) | ||||||||
Share-based payments |
|
| 31 |
|
|
| (209) |
|
|
| (258) |
|
|
| 719 |
|
| 87 |
|
|
| (15) |
|
|
| (115) |
|
|
| (289) | ||||||||
Balance at end of period |
|
| $ | 125,139 |
|
|
| $ | 125,706 |
|
|
| $ | 125,139 |
|
|
| $ | 125,706 |
|
| $ | 130,046 |
|
|
| $ | 125,109 |
|
|
| $ | 130,046 |
|
|
| $ | 125,109 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Retained Earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Balance at beginning of period |
|
| $ | 59,389 |
|
|
| $ | 56,555 |
|
|
| $ | 58,753 |
|
|
| $ | 50,500 |
|
| $ | 58,534 |
|
|
| $ | 59,424 |
|
|
| $ | 57,936 |
|
|
| $ | 58,753 |
Net income attributable to AT&T ($0.50, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
$0.65, $1.57 and $2.19 per diluted share) |
|
| 3,700 |
|
|
| 4,718 |
|
|
| 11,509 |
|
|
| 14,512 | |||||||||||||||||||||||
Dividends to stockholders ($0.51, $0.50, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
$1.53, and $1.50 per share) |
|
| (3,742) |
|
|
| (3,649) |
|
|
| (11,231) |
|
|
| (10,388) | |||||||||||||||||||||||
Cumulative effect of accounting changes |
|
| - |
|
|
| - |
|
|
| 316 |
|
|
| 3,000 | |||||||||||||||||||||||
Balance at end of period |
|
| $ | 59,347 |
|
|
| $ | 57,624 |
|
|
| $ | 59,347 |
|
|
| $ | 57,624 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Treasury Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Balance at beginning of period | (316) |
| $ | (11,151) |
| (361) |
| $ | (12,872) |
| (339) |
| $ | (12,059) |
| (356) |
| $ | (12,714) | |||||||||||||||||||
Repurchase and acquisition of common stock | (5) |
| (186) |
| (1) |
| (34) |
| (14) |
| (466) |
| (19) |
| (641) | |||||||||||||||||||||||
Issuance of treasury stock | 4 |
| 142 |
| 11 |
| 420 |
| 36 |
| 1,330 |
| 24 |
| 869 | |||||||||||||||||||||||
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 | (317) |
| $ | (11,195) |
| (351) |
| $ | (12,486) |
| (317) |
| $ | (11,195) |
| (351) |
| $ | (12,486) |
|
| $ | 56,045 |
|
|
| $ | 59,389 |
|
|
| $ | 56,045 |
|
|
| $ | 59,389 |
See Notes to Consolidated Financial Statements. | See Notes to Consolidated Financial Statements. | See Notes to Consolidated Financial Statements. |
7
AT&T INC. | AT&T INC. |
|
|
|
|
|
|
|
| AT&T INC. |
|
|
|
|
|
|
|
| ||||||||||||||||||||
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY - continued | CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY - continued | CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY - continued | ||||||||||||||||||||||||||||||||||||
Dollars and shares in millions except per share amounts | Dollars and shares in millions except per share amounts |
|
|
|
|
|
|
|
| Dollars and shares in millions except per share amounts |
|
|
|
|
|
|
|
| ||||||||||||||||||||
(Unaudited) | (Unaudited) |
|
|
|
|
|
|
|
| (Unaudited) |
|
|
|
|
|
|
|
| ||||||||||||||||||||
| Three months ended |
| Nine months ended | Three months ended |
| Six months ended | ||||||||||||||||||||||||||||||||
| September 30, 2019 |
| September 30, 2018 |
| September 30, 2019 |
| September 30, 2018 | June 30, 2020 |
| June 30, 2019 |
| June 30, 2020 |
| June 30, 2019 | ||||||||||||||||||||||||
| Shares |
| Amount |
| Shares |
| Amount |
| Shares |
| Amount |
| Shares |
| Amount | 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 | Income Attributable to AT&T, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Balance at beginning of period |
|
| $ | 3,289 |
|
|
| $ | 5,716 |
|
|
| $ | 4,249 |
|
|
| $ | 7,017 |
|
| $ | (385) |
|
|
| $ | 4,345 |
|
|
| $ | 5,470 |
|
|
| $ | 4,249 |
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
attributable to AT&T |
|
| (1,152) |
|
|
| (333) |
|
|
| (2,112) |
|
|
| (976) |
|
| 514 |
|
|
| (1,056) |
|
|
| (5,341) |
|
|
| (960) | ||||||||
Amounts reclassified to retained earnings |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (658) | |||||||||||||||||||||||
Balance at end of period |
|
| $ | 2,137 |
|
|
| $ | 5,383 |
|
|
| $ | 2,137 |
|
|
| $ | 5,383 |
|
| $ | 129 |
|
|
| $ | 3,289 |
|
|
| $ | 129 |
|
|
| $ | 3,289 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Noncontrolling Interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Balance at beginning of period |
|
| $ | 9,824 |
|
|
| $ | 1,150 |
|
|
| $ | 9,795 |
|
|
| $ | 1,146 |
|
| $ | 17,670 |
|
|
| $ | 9,839 |
|
|
| $ | 17,713 |
|
|
| $ | 9,795 |
Net income attributable to |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
noncontrolling interest |
|
| 249 |
|
|
| 98 |
|
|
| 762 |
|
|
| 311 |
|
| 282 |
|
|
| 261 |
|
|
| 635 |
|
|
| 513 | ||||||||
Interest acquired by noncontrolling owners |
|
| 1,488 |
|
|
| - |
|
|
| 1,498 |
|
|
| 8 |
|
| - |
|
|
| 1 |
|
|
| 1 |
|
|
| 10 | ||||||||
Acquisition of noncontrolling interest |
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1 | |||||||||||||||||||||||
Acquisition of interests held by |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
noncontrolling owners |
|
| - |
|
|
| (9) |
|
|
| - |
|
|
| (9) | |||||||||||||||||||||||
Distributions |
|
| (266) |
|
|
| (109) |
|
|
| (791) |
|
|
| (332) |
|
| (387) |
|
|
| (279) |
|
|
| (726) |
|
|
| (525) | ||||||||
Translation adjustments attributable to |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
noncontrolling interest, net of taxes |
|
| (17) |
|
|
| (7) |
|
|
| (15) |
|
|
| (37) |
|
| (8) |
|
|
| 2 |
|
|
| (59) |
|
|
| 2 | ||||||||
Cumulative effect of accounting changes |
|
| - |
|
|
| - |
|
|
| 29 |
|
|
| 35 | |||||||||||||||||||||||
Cumulative effect of accounting change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
and other adjustments |
|
| - |
|
|
| - |
|
|
| (7) |
|
|
| 29 | |||||||||||||||||||||||
Balance at end of period |
|
| $ | 11,278 |
|
|
| $ | 1,123 |
|
|
| $ | 11,278 |
|
|
| $ | 1,123 |
|
| $ | 17,557 |
|
|
| $ | 9,824 |
|
|
| $ | 17,557 |
|
|
| $ | 9,824 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||
Total Stockholders’ Equity at beginning |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of period |
|
| $ | 194,081 |
|
|
| $ | 184,130 |
|
|
| $ | 193,884 |
|
|
| $ | 142,007 |
|
| $ | 195,449 |
|
|
| $ | 194,951 |
|
|
| $ | 201,934 |
|
|
| $ | 193,884 |
Total Stockholders’ Equity at end |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of period |
|
| $ | 194,327 |
|
|
| $ | 184,971 |
|
|
| $ | 194,327 |
|
|
| $ | 184,971 |
|
| $ | 193,453 |
|
|
| $ | 194,081 |
|
|
| $ | 193,453 |
|
|
| $ | 194,081 |
See Notes to Consolidated Financial Statements. | See Notes to Consolidated Financial Statements. | See Notes to Consolidated Financial Statements. |
8
AT&T INC.
SEPTEMBERJUNE 30, 20192020
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, including the operating results of Warner Media, LLC (referred to as “Time Warner” or “WarnerMedia”), which was acquired on June 14, 2018 (see Note 8). Our operating results for 2018 include the results from Time Warner following the acquisition date.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, 2018.2019. 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 subsidiaries and partnerships which 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’ other comprehensive income (OCI) items.
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. Certain prior period amounts have been conformed to the current period’s presentation.presentation, including the combination of our prior Xandr segment with the WarnerMedia segment.
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 and Other Changes
LeasesCredit Losses As of January 1, 2019,2020, we adopted, withthrough modified retrospective application, the Financial Accounting Standards Board’s (FASB) Accounting Standards Update (ASU) No. 2016-02, “Leases2016-13, “Financial Instruments—Credit Losses (Topic 842)” (ASC 842)326): Measurement of Credit Losses on Financial Instruments” (ASU 2016-13, as amended), which replaces existing leasing rulesthe incurred loss impairment methodology under prior GAAP with an 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 comprehensive lease measurement$293 reduction to “Retained earnings,” $395 increase to “allowances for doubtful accounts” applicable to our trade and recognition standardloan receivables, $10 reduction of contract assets, $105 reduction of net deferred income tax liability and expanded disclosure requirements (see Note 10). ASC 842 requires lessees to recognize most leases$7 reduction of “Noncontrolling interest” as an opening adjustment. Our adoption of ASU 2016-13 did not have a material impact on their balance sheets as liabilities, with corresponding “right-of-use” assets. For income statement recognition purposes, leases are classified as either a finance or an operating lease without relying upon bright-line tests.our financial statements.
The key change uponReference Rate ReformIn March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (ASU 2020-04), which provides optional expedients, and allows for certain exceptions to existing GAAP, for contract modifications triggered by the expected market transition of certain benchmark interest rates to alternative reference rates. ASU 2020-04 applies to contracts, hedging relationships and other arrangements that reference the London Interbank Offering Rate (LIBOR) or any other rates ending after December 31, 2022. We are evaluating the impact of our adoption of the standard was balance sheet recognition, given that the recognition of lease expense on our income statement is similarASU 2020-04, including optional expedients, to our historical accounting. Using the modified retrospective transition method of adoption, we did not adjust the balance sheet for comparative periods but recorded a cumulative effect adjustment to retained earnings on January 1, 2019. We elected the package of practical expedients permitted under the transition guidance within the new standard, which, among other things, allowed us to carry forward our historical lease classification. We also elected the practical expedient related to land easements, allowing us to carry forward our accounting treatment for land easements on existing agreements that were not accounted for as leases. We excluded leases with original terms of one year or less. Additionally, we elected to not separate lease and non-lease components for certain classes of assets in arrangements where we are the lessee and for certain classes of assets where we are the lessor. Our accounting for finance leases did not change from our prior accounting for capital leases.financial statements.
The adoptionIntangible Assets Driven by significant and adverse economic and political environments in Latin America, including the impact of ASC 842 resultedthe COVID-19 pandemic, we have experienced accelerated subscriber losses and revenue decline in the recognitionregion, as well as closure of an operating lease liabilityour operations in Venezuela. When combining these business trends and higher weighted-average cost of $22,121 and an operating right-of-use asset ofcapital resulting from the same amount. Existing prepaid and deferred rent accruals were recorded as an offset toincrease in country-risk premiums in the right-of-use asset, resulting in a net asset of $20,960. The cumulative effect ofregion, we concluded that it is more likely than not that the adoption to retained earnings was an increase of $316 reflecting the reclassification of deferred gains related to sale/leaseback transactions. The standard did not materially impact our income statements or statements of cash flows, and had no impact on our debt-covenant compliance under our current agreements.
9
AT&T INC.
SEPTEMBERJUNE 30, 20192020
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
Deferralfair value of Episodic Televisionthe Vrio reporting unit, estimated using discounted cash flow and Film Costs In March 2019,market multiple approaches, is less than its carrying amount. We recorded a $2,212 goodwill impairment in the FASB issued ASU No. 2019-02, “Entertainment—Films—Other Assets—Film Costs (Subtopic 926-20)reporting unit, with $105 attributable to noncontrolling interest. The impairment is not deductible for tax purposes and Entertainment—Broadcasters—Intangibles—Goodwill and Other (Subtopic 920-350): Improvements to Accounting for Costs of Films and License Agreements for Program Materials” (ASU 2019-02), which we early adopted as of January 1, 2019, with prospective application. The standard eliminates certain revenue-related constraints on capitalization of inventory costs for episodic television that existed under prior guidance. In addition, the balance sheet classification requirements that existedresulted in prior guidance for film production costs and programming inventory were eliminated. As of January 1, 2019, we reclassified $2,274 ofan increase in our programming inventory costs from “Other current assets” to “Other Assets” in accordance with the guidance. This change in accounting does not materially impact our income statement.effective tax rate.
Spectrum Licenses in MexicoDuring the first quarter of 2019,2020, 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 renewal processnationwide launch of certain spectrum licenses in Mexico,AT&T TV and our customers’ continued shift from linear to streaming video services, we reassessed the estimated economic lives and renewal assumptions for theseour orbital slot licenses. As a result, we have changed the lifeestimated lives of these licenses from indefinite to finite-lived. Onfinite-lived, effective January 1, 2019, we2020, and began amortizing our spectrumorbital slot licenses in Mexicousing the sum-of-months-digits method over their average remaining economic life of 2515 years. This change in accounting does not materially impact our income statement.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.
Recently Issued Accounting Standards
Credit Loss Standard In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (ASU 2016-13, as amended), which replaces the incurred loss impairment methodology under current GAAP. ASU 2016-13 affects trade receivables, loans and other financial assets that are not subject to fair value through net income, as defined by the standard. The amendments under ASU 2016-13 will be effective for years beginning after December 15, 2019, and interim periods within those years. We are currently evaluating ASU 2016-13 but do not anticipate it will have a material impact on our financial statements.
10
AT&T INC.
SEPTEMBER 30, 2019
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
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, 20192020 and 2018,2019, is shown in the table below:below.
| Three months ended |
| Nine months ended | ||||||||
| September 30, |
| September 30, | ||||||||
| 2019 |
| 2018 |
| 2019 |
| 2018 | ||||
Numerators |
|
|
|
|
|
|
|
|
|
|
|
Numerator for basic earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
Net Income | $ | 3,949 |
| $ | 4,816 |
| $ | 12,271 |
| $ | 14,823 |
Less: Net income attributable to noncontrolling interest |
| (249) |
|
| (98) |
|
| (762) |
|
| (311) |
Net Income attributable to AT&T |
| 3,700 |
|
| 4,718 |
|
| 11,509 |
|
| 14,512 |
Dilutive potential common shares: |
|
|
|
|
|
|
|
|
|
|
|
Share-based payment |
| 6 |
|
| 4 |
|
| 16 |
|
| 13 |
Numerator for diluted earnings per share | $ | 3,706 |
| $ | 4,722 |
| $ | 11,525 |
| $ | 14,525 |
Denominators (000,000) |
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding |
| 7,327 |
|
| 7,284 |
|
| 7,321 |
|
| 6,603 |
Dilutive potential common shares: |
|
|
|
|
|
|
|
|
|
|
|
Share-based payment (in shares) |
| 29 |
|
| 36 |
|
| 29 |
|
| 27 |
Denominator for diluted earnings per share |
| 7,356 |
|
| 7,320 |
|
| 7,350 |
|
| 6,630 |
Basic earnings per share attributable to AT&T | $ | 0.50 |
| $ | 0.65 |
| $ | 1.57 |
| $ | 2.19 |
Diluted earnings per share attributable to AT&T | $ | 0.50 |
| $ | 0.65 |
| $ | 1.57 |
| $ | 2.19 |
| 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.
1110
AT&T INC.
SEPTEMBERJUNE 30, 20192020
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
NOTE 3. OTHER COMPREHENSIVE INCOME
Changes in the balances of each component included in accumulated 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, 2018 | $ | (3,084) |
| $ | (2) |
| $ | 818 |
| $ | 6,517 |
| $ | 4,249 | |
Other comprehensive income (loss) before reclassifications |
| (166) |
|
| 67 |
|
| (1,006) |
|
| - |
|
| (1,105) | |
Amounts reclassified from accumulated OCI |
| - |
|
| - |
|
| 24 | 1 |
| (1,031) | 2 |
| (1,007) | |
Net other comprehensive income (loss) |
| (166) |
|
| 67 |
|
| (982) |
|
| (1,031) |
|
| (2,112) | |
Balance as of September 30, 2019 | $ | (3,250) |
| $ | 65 |
| $ | (164) |
| $ | 5,486 |
| $ | 2,137 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 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, 2017 | $ | (2,054) |
| $ | 660 |
| $ | 1,402 |
| $ | 7,009 |
| $ | 7,017 | |
Other comprehensive income (loss) before reclassifications |
| (787) |
|
| (22) |
|
| 257 |
|
| 530 |
|
| (22) | |
Amounts reclassified from accumulated OCI |
| - |
|
| - |
|
| 35 | 1 |
| (989) | 2 |
| (954) | |
Net other comprehensive income (loss) |
| (787) |
|
| (22) |
|
| 292 |
|
| (459) |
|
| (976) | |
Amounts reclassified to retained earnings |
| - |
|
| (658) | 3 |
| - |
|
| - |
|
| (658) | |
Balance as of September 30, 2018 | $ | (2,841) |
| $ | (20) |
| $ | 1,694 |
| $ | 6,550 |
| $ | 5,383 | |
1 | (Gains) losses are included in Interest expense in the consolidated statements of income (see Note 7). | ||||||||||||||
2 | The amortization of prior service credits associated with postretirement benefits are included in Other income (expense) in the consolidated statements of income (see Note 6). | ||||||||||||||
3 | With the adoption of ASU 2016-01, "Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Liabilities," the unrealized (gains) losses on our equity investments are reclassified to retained earnings. |
|
| 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). |
1211
AT&T INC.
SEPTEMBERJUNE 30, 20192020
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 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 43 reportable segments: (1) Communications, (2) WarnerMedia and (3) Latin America, and (4) Xandr.America.
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 operating 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 operating performance. EBITDA does not give effect to cash used for debt service requirements and thus does not reflect available funds for distributions, reinvestment or other discretionary uses. EBITDA margin is EBITDA divided by total revenues.
We have recast our segment results for all prior periods to exclude our wireless and wireline operations in Puerto Rico and the U.S. Virgin Islands from our Mobility and Business Wireline business units of the Communications segment, instead reporting them with Corporate and Other. (See Note 8)
The Communications 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 units:
Mobility provides nationwide wireless service and equipment.
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 DIRECTV and U-verse distribution platforms.
Business Wireline provides advanced IP-based services, as well as traditional voice and data services to 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 AT&T’s Regional Sports Networks (RSNs) and equity investments (predominantly Game Show Network and Otter Media),Xandr, previously included in Entertainment Group,a separate reportable segment, have been reclassified intocombined with the WarnerMedia segment within Eliminations and are combined with the Time Warner operations for the period subsequent to our acquisition on June 14, 2018.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 feature films, the distribution of home entertainment products and the production and distribution of games.
The Latin America segment provides entertainment and wireless services outside of the U.S. This segment contains the following business units:
Mexico provides wireless service and equipment to customers in Mexico.
Vrio provides video services primarily to residential customers using satellite technology in Latin America and the Caribbean.
TheMexico Xandr segmentprovides advertising serviceswireless service and includes AppNexus, an advertising technology company we acquiredequipment to customers in August 2018. Xandr services utilize data insights to develop and deliver targeted advertising across video and digital platforms. Certain revenues in this segment are also reported by the Communications segment and are eliminated upon consolidation.Mexico.
13
AT&T INC.
SEPTEMBER 30, 2019
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
Corporate and Other reconcilereconciles our segment results to consolidated operating income and income before income taxes, and include:includes:
Corporate, which consists of: (1) businesses no longer integral to our operations or which we no longer actively market, (2) corporate support functions, (3) impacts of corporate-wide decisions for which the individual operating segments are not being evaluated, and (4) the reclassification of the amortization of prior service credits, which we continue to report with segment operating expenses, to consolidated other“Other income (expense) – net and (5) the recharacterization of programming intangible asset amortization, for released programming acquired in the Time Warner acquisition, which we continue to report within WarnerMedia segment operating expense, to consolidated amortization expense. The programming and intangible asset amortization reclass was $108 and $772 in the third quarter and $370 and $870 for the first nine months of 2019 and 2018, respectively.net.”
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 or impairment 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 expenseexpense” and other“Other income (expense) – net,” are managed only on a total company basis and are, accordingly, reflected only in consolidated results.
1413
AT&T INC.
SEPTEMBERJUNE 30, 20192020
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
For the three months ended September 30, 2019 | ||||||||||||||||||||||||||||||||||||||||
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 | ||||||||||||
Communications |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Mobility | $ | 17,701 |
| $ | 9,948 |
| $ | 7,753 |
| $ | 2,011 |
| $ | 5,742 |
| $ | - |
| $ | 5,742 | $ | 17,149 |
| $ | 9,332 |
| $ | 7,817 |
| $ | 2,012 |
| $ | 5,805 |
| $ | - |
| $ | 5,805 |
Entertainment Group |
| 11,197 |
|
| 8,797 |
|
| 2,400 |
|
| 1,316 |
|
| 1,084 |
|
| 1 |
|
| 1,085 |
| 10,069 |
|
| 7,730 |
|
| 2,339 |
|
| 1,309 |
|
| 1,030 |
|
| - |
|
| 1,030 |
Business Wireline |
| 6,503 |
|
| 4,022 |
|
| 2,481 |
|
| 1,271 |
|
| 1,210 |
|
| (1) |
|
| 1,209 |
| 6,374 |
|
| 3,779 |
|
| 2,595 |
|
| 1,318 |
|
| 1,277 |
|
| - |
|
| 1,277 |
Total Communications |
| 35,401 |
| 22,767 |
| 12,634 |
| 4,598 |
| 8,036 |
| - |
| 8,036 |
| 33,592 |
| 20,841 |
| 12,751 |
| 4,639 |
| 8,112 |
| - |
| 8,112 | ||||||||||||
WarnerMedia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Turner |
| 3,007 |
|
| 1,460 |
|
| 1,547 |
|
| 68 |
|
| 1,479 |
|
| 10 |
|
| 1,489 |
| 2,988 |
|
| 1,347 |
|
| 1,641 |
|
| 69 |
|
| 1,572 |
|
| - |
|
| 1,572 |
Home Box Office |
| 1,819 |
|
| 1,072 |
|
| 747 |
|
| 33 |
|
| 714 |
|
| 10 |
|
| 724 |
| 1,627 |
|
| 1,489 |
|
| 138 |
|
| 25 |
|
| 113 |
|
| (5) |
|
| 108 |
Warner Bros. |
| 3,333 |
|
| 2,706 |
|
| 627 |
|
| 39 |
|
| 588 |
|
| (25) |
|
| 563 |
| 3,256 |
|
| 2,583 |
|
| 673 |
|
| 40 |
|
| 633 |
|
| (19) |
|
| 614 |
Eliminations and other |
| (313) |
|
| (71) |
|
| (242) |
| 10 |
| (252) |
| 20 |
| (232) |
| (1,057) |
|
| (685) |
|
| (372) |
| 33 |
| (405) |
| 28 |
| (377) | ||||||||
Total WarnerMedia |
| 7,846 |
|
| 5,167 |
|
| 2,679 |
| 150 |
| 2,529 |
| 15 |
| 2,544 |
| 6,814 |
|
| 4,734 |
|
| 2,080 |
| 167 |
| 1,913 |
| 4 |
| 1,917 | ||||||||
Latin America |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Vrio |
| 1,013 |
|
| 851 |
|
| 162 |
| 162 |
| - |
| 13 |
| 13 |
| 752 |
|
| 661 |
|
| 91 |
| 127 |
| (36) |
| 8 |
| (28) | ||||||||
Mexico |
| 717 |
|
| 774 |
|
| (57) |
| 122 |
| (179) |
| - |
| (179) |
| 480 |
|
| 538 |
|
| (58) |
| 115 |
| (173) |
| - |
| (173) | ||||||||
Total Latin America |
| 1,730 |
|
| 1,625 |
|
| 105 |
| 284 |
| (179) |
| 13 |
| (166) |
| 1,232 |
|
| 1,199 |
|
| 33 |
| 242 |
| (209) |
| 8 |
| (201) | ||||||||
Xandr |
| 504 |
|
| 162 |
|
| 342 |
| 15 |
| 327 |
| - |
| 327 | ||||||||||||||||||||||||
Segment Total |
| 45,481 |
|
| 29,721 |
|
| 15,760 |
| 5,047 |
| 10,713 |
| $ | 28 |
| $ | 10,741 |
| 41,638 |
|
| 26,774 |
|
| 14,864 |
| 5,048 |
| 9,816 |
| $ | 12 |
| $ | 9,828 | ||||
Corporate and Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Corporate |
| 407 |
|
| 703 |
|
| (296) |
| 131 |
| (427) |
|
|
|
|
| 437 |
|
| 933 |
|
| (496) |
| 93 |
| (589) |
|
|
|
| ||||||||
Acquisition-related items |
| - |
|
| 190 |
|
| (190) |
| 1,771 |
| (1,961) |
|
|
|
|
| - |
|
| 211 |
|
| (211) |
| 2,145 |
| (2,356) |
|
|
|
| ||||||||
Certain significant items |
| - |
|
| 39 |
|
| (39) |
| - |
| (39) |
|
|
|
|
| - |
|
| 3,084 |
|
| (3,084) |
| - |
| (3,084) |
|
|
|
| ||||||||
Eliminations and consolidations |
| (1,300) |
|
| (915) |
|
| (385) |
| - |
| (385) |
|
|
|
|
| (1,125) |
|
| (869) |
|
| (256) |
| (1) |
| (255) |
|
|
|
| ||||||||
AT&T Inc. | $ | 44,588 |
| $ | 29,738 |
| $ | 14,850 |
| $ | 6,949 |
| $ | 7,901 |
|
|
|
| $ | 40,950 |
| $ | 30,133 |
| $ | 10,817 |
| $ | 7,285 |
| $ | 3,532 |
|
|
|
|
1514
AT&T INC.
SEPTEMBERJUNE 30, 20192020
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
For the three months ended September 30, 2018 | ||||||||||||||||||||||||||||||||||||||||
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 | ||||||||||||
Communications |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Mobility | $ | 17,735 |
| $ | 10,104 |
| $ | 7,631 |
| $ | 2,057 |
| $ | 5,574 |
| $ | 1 |
| $ | 5,575 | $ | 17,292 |
| $ | 9,522 |
| $ | 7,770 |
| $ | 2,003 |
| $ | 5,767 |
| $ | - |
| $ | 5,767 |
Entertainment Group |
| 11,589 |
| 9,155 |
| 2,434 |
| 1,331 |
| 1,103 |
| 1 |
| 1,104 |
| 11,368 |
| 8,515 |
| 2,853 |
| 1,339 |
| 1,514 |
| - |
| 1,514 | ||||||||||||
Business Wireline |
| 6,683 |
| 4,022 |
| 2,661 |
|
| 1,187 |
|
| 1,474 |
|
| (3) |
|
| 1,471 |
| 6,607 |
| 3,975 |
| 2,632 |
|
| 1,242 |
|
| 1,390 |
|
| - |
|
| 1,390 | ||||
Total Communications |
| 36,007 |
| 23,281 |
| 12,726 |
| 4,575 |
| 8,151 |
| (1) |
| 8,150 |
| 35,267 |
| 22,012 |
| 13,255 |
| 4,584 |
| 8,671 |
| - |
| 8,671 | ||||||||||||
WarnerMedia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Turner |
| 2,988 |
| 1,487 |
| 1,501 |
| 59 |
| 1,442 |
| 7 |
| 1,449 |
| 3,410 |
| 2,217 |
| 1,193 |
| 39 |
| 1,154 |
| 11 |
| 1,165 | ||||||||||||
Home Box Office |
| 1,644 |
| 991 |
| 653 |
| 25 |
| 628 |
| 2 |
| 630 |
| 1,716 |
| 1,131 |
| 585 |
| 12 |
| 573 |
| 15 |
| 588 | ||||||||||||
Warner Bros. |
| 3,720 |
| 3,104 |
| 616 |
| 40 |
| 576 |
| (23) |
| 553 |
| 3,389 |
| 2,918 |
| 471 |
| 31 |
| 440 |
| - |
| 440 | ||||||||||||
Eliminations and other |
| (148) |
| (79) |
| (69) |
| 10 |
| (79) |
| (25) |
| (104) |
| 320 |
| 170 |
| 150 |
| 22 |
| 128 |
| 29 |
| 157 | ||||||||||||
Total WarnerMedia |
| 8,204 |
| 5,503 |
| 2,701 |
| 134 |
| 2,567 |
| (39) |
| 2,528 |
| 8,835 |
| 6,436 |
| 2,399 |
| 104 |
| 2,295 |
| 55 |
| 2,350 | ||||||||||||
Latin America |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Vrio |
| 1,102 |
| 877 |
| 225 |
| 168 |
| 57 |
| 9 |
| 66 |
| 1,032 |
| 881 |
| 151 |
| 165 |
| (14) |
| 12 |
| (2) | ||||||||||||
Mexico |
| 731 |
| 869 |
| (138) |
| 129 |
| (267) |
| - |
| (267) |
| 725 |
| 813 |
| (88) |
| 119 |
| (207) |
| - |
| (207) | ||||||||||||
Total Latin America |
| 1,833 |
| 1,746 |
| 87 |
| 297 |
| (210) |
| 9 |
| (201) |
| 1,757 |
| 1,694 |
| 63 |
| 284 |
| (221) |
| 12 |
| (209) | ||||||||||||
Xandr |
| 445 |
| 109 |
| 336 |
| 3 |
| 333 |
| - |
| 333 | ||||||||||||||||||||||||||
Segment Total |
| 46,489 |
|
| 30,639 |
|
| 15,850 |
| 5,009 |
| 10,841 |
| $ | (31) |
| $ | 10,810 |
| 45,859 |
|
| 30,142 |
|
| 15,717 |
| 4,972 |
| 10,745 |
| $ | 67 |
| $ | 10,812 | ||||
Corporate and Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Corporate |
| 531 |
|
| 141 |
|
| 390 |
| 829 |
| (439) |
|
|
|
|
| 450 |
|
| 765 |
|
| (315) |
| 170 |
| (485) |
|
|
|
| ||||||||
Acquisition-related items |
| - |
|
| 362 |
|
| (362) |
| 2,329 |
| (2,691) |
|
|
|
|
| (30) |
|
| 316 |
|
| (346) |
| 1,960 |
| (2,306) |
|
|
|
| ||||||||
Certain significant items |
| - |
|
| 75 |
|
| (75) |
| - |
| (75) |
|
|
|
|
| - |
|
| 94 |
|
| (94) |
| - |
| (94) |
|
|
|
| ||||||||
Eliminations and consolidations |
| (1,281) |
|
| (913) |
|
| (368) |
| (1) |
| (367) |
|
|
|
|
| (1,322) |
|
| (961) |
|
| (361) |
| (1) |
| (360) |
|
|
|
| ||||||||
AT&T Inc. | $ | 45,739 |
| $ | 30,304 |
| $ | 15,435 |
| $ | 8,166 |
| $ | 7,269 |
|
|
|
| $ | 44,957 |
| $ | 30,356 |
| $ | 14,601 |
| $ | 7,101 |
| $ | 7,500 |
|
|
|
|
1615
AT&T INC.
SEPTEMBERJUNE 30, 20192020
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
For the nine months ended September 30, 2019 | ||||||||||||||||||||||||||||||||||||||||
For the six months ended June 30, 2020 | 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 |
| Revenues |
| Operations and Support Expenses |
| EBITDA |
| Depreciation and Amortization |
| Operating Income (Loss) |
| Equity in Net Income (Loss) of Affiliates |
| Segment Contribution | ||||||||||||
Communications |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Mobility | $ | 52,356 |
| $ | 29,511 |
| $ | 22,845 |
| $ | 6,027 |
| $ | 16,818 |
| $ | (1) |
| $ | 16,817 | $ | 34,551 |
| $ | 18,901 |
| $ | 15,650 |
| $ | 4,057 |
| $ | 11,593 |
| $ | - |
| $ | 11,593 |
Entertainment Group |
| 33,893 |
| 25,839 |
|
| 8,054 |
|
| 3,978 |
|
| 4,076 |
|
| 1 |
|
| 4,077 |
| 20,584 |
| 15,621 |
|
| 4,963 |
|
| 2,598 |
|
| 2,365 |
|
| - |
|
| 2,365 | ||
Business Wireline |
| 19,588 |
| 12,029 |
|
| 7,559 |
|
| 3,735 |
|
| 3,824 |
|
| - |
|
| 3,824 |
| 12,706 |
| 7,730 |
|
| 4,976 |
|
| 2,619 |
|
| 2,357 |
|
| - |
|
| 2,357 | ||
Total Communications |
| 105,837 |
| 67,379 |
| 38,458 |
| 13,740 |
| 24,718 |
| - |
| 24,718 |
| 67,841 |
| 42,252 |
| 25,589 |
| 9,274 |
| 16,315 |
| - |
| 16,315 | ||||||||||||
WarnerMedia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Turner |
| 9,860 |
| 5,813 |
|
| 4,047 |
|
| 167 |
|
| 3,880 |
|
| 46 |
|
| 3,926 |
| 6,150 |
| 3,057 |
|
| 3,093 |
|
| 138 |
|
| 2,955 |
|
| 6 |
|
| 2,961 | ||
Home Box Office |
| 5,045 |
| 3,124 |
| 1,921 |
| 67 |
| 1,854 |
| 40 |
| 1,894 |
| 3,124 |
| 2,542 |
| 582 |
| 46 |
| 536 |
| 15 |
| 551 | ||||||||||||
Warner Bros. |
| 10,240 |
| 8,543 |
| 1,697 |
| 122 |
| 1,575 |
| (19) |
| 1,556 |
| 6,496 |
| 5,533 |
| 963 |
| 81 |
| 882 |
| (27) |
| 855 | ||||||||||||
Eliminations and other |
| (570) |
| (31) |
|
| (539) |
| 28 |
| (567) |
| 70 |
| (497) |
| (1,108) |
| (711) |
|
| (397) |
| 65 |
| (462) |
| 25 |
| (437) | ||||||||||
Total WarnerMedia |
| 24,575 |
| 17,449 |
|
| 7,126 |
| 384 |
| 6,742 |
| 137 |
| 6,879 |
| 14,662 |
| 10,421 |
|
| 4,241 |
| 330 |
| 3,911 |
| 19 |
| 3,930 | ||||||||||
Latin America |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Vrio |
| 3,112 |
| 2,598 |
|
| 514 |
| 496 |
| 18 |
| 25 |
| 43 |
| 1,639 |
| 1,444 |
|
| 195 |
| 274 |
| (79) |
| 12 |
| (67) | ||||||||||
Mexico |
| 2,093 |
| 2,312 |
|
| (219) |
| 372 |
| (591) |
| - |
| (591) |
| 1,183 |
| 1,252 |
|
| (69) |
| 249 |
| (318) |
| - |
| (318) | ||||||||||
Total Latin America |
| 5,205 |
| 4,910 |
|
| 295 |
| 868 |
| (573) |
| 25 |
| (548) |
| 2,822 |
| 2,696 |
|
| 126 |
| 523 |
| (397) |
| 12 |
| (385) | ||||||||||
Xandr |
| 1,415 |
| 469 |
|
| 946 |
| 41 |
| 905 |
| - |
| 905 | |||||||||||||||||||||||||
Segment Total |
| 137,032 |
| 90,207 |
|
| 46,825 |
| 15,033 |
| 31,792 |
| $ | 162 |
| $ | 31,954 |
| 85,325 |
| 55,369 |
|
| 29,956 |
| 10,127 |
| 19,829 |
| $ | 31 |
| $ | 19,860 | ||||||
Corporate and Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Corporate |
| 1,290 |
| 2,129 |
|
| (839) |
| 505 |
| (1,344) |
|
|
|
|
| 825 |
| 1,807 |
|
| (982) |
| 180 |
| (1,162) |
|
|
|
| ||||||||||
Acquisition-related items |
| (72) |
| 579 |
|
| (651) |
| 5,719 |
| (6,370) |
|
|
|
|
| - |
| 393 |
|
| (393) |
| 4,201 |
| (4,594) |
|
|
|
| ||||||||||
Certain significant items |
| - |
| 381 |
|
| (381) |
| - |
| (381) |
|
|
|
|
| - |
| 2,426 |
|
| (2,426) |
| - |
| (2,426) |
|
|
|
| ||||||||||
Eliminations and consolidations |
| (3,878) |
| (2,814) |
|
| (1,064) |
| (1) |
| (1,063) |
|
|
|
|
| (2,421) |
| (1,791) |
|
| (630) |
| (1) |
| (629) |
|
|
|
| ||||||||||
AT&T Inc. | $ | 134,372 |
| $ | 90,482 |
| $ | 43,890 |
| $ | 21,256 |
| $ | 22,634 |
|
|
|
| $ | 83,729 |
| $ | 58,204 |
| $ | 25,525 |
| $ | 14,507 |
| $ | 11,018 |
|
|
|
|
1716
AT&T INC.
SEPTEMBERJUNE 30, 20192020
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
For the nine months ended September 30, 2018 | ||||||||||||||||||||||||||||||||||||||||
For the six months ended June 30, 2019 | 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 |
| Revenues |
| Operations and Support Expenses |
| EBITDA |
| Depreciation and Amortization |
| Operating Income (Loss) |
| Equity in Net Income (Loss) of Affiliates |
| Segment Contribution | ||||||||||||
Communications |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Mobility | $ | 51,965 |
| $ | 29,603 |
| $ | 22,362 |
| $ | 6,218 |
| $ | 16,144 |
| $ | - |
| $ | 16,144 | $ | 34,655 |
| $ | 19,563 |
| $ | 15,092 |
| $ | 4,016 |
| $ | 11,076 |
| $ | - |
| $ | 11,076 |
Entertainment Group |
| 34,498 |
| 26,623 |
| 7,875 |
| 3,986 |
| 3,889 |
| (1) |
| 3,888 |
| 22,696 |
| 17,042 |
| 5,654 |
| 2,662 |
| 2,992 |
| - |
| 2,992 | ||||||||||||
Business Wireline |
| 20,035 |
| 12,047 |
| 7,988 |
|
| 3,520 |
|
| 4,468 |
|
| (2) |
|
| 4,466 |
| 13,085 |
| 8,007 |
| 5,078 |
|
| 2,464 |
|
| 2,614 |
|
| - |
|
| 2,614 | ||||
Total Communications |
| 106,498 |
| 68,273 |
| 38,225 |
| 13,724 |
| 24,501 |
| (3) |
| 24,498 |
| 70,436 |
| 44,612 |
| 25,824 |
| 9,142 |
| 16,682 |
| - |
| 16,682 | ||||||||||||
WarnerMedia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Turner |
| 3,767 |
| 1,933 |
| 1,834 |
| 71 |
| 1,763 |
| 39 |
| 1,802 |
| 6,853 |
| 4,353 |
| 2,500 |
| 99 |
| 2,401 |
| 36 |
| 2,437 | ||||||||||||
Home Box Office |
| 1,925 |
| 1,162 |
| 763 |
| 30 |
| 733 |
| 1 |
| 734 |
| 3,226 |
| 2,052 |
| 1,174 |
| 34 |
| 1,140 |
| 30 |
| 1,170 | ||||||||||||
Warner Bros. |
| 4,227 |
| 3,507 |
| 720 |
| 54 |
| 666 |
| (24) |
| 642 |
| 6,907 |
| 5,837 |
| 1,070 |
| 83 |
| 987 |
| 6 |
| 993 | ||||||||||||
Eliminations and other |
| (210) |
| (106) |
| (104) |
| 11 |
| (115) |
| (71) |
| (186) |
| 654 |
| 347 |
| 307 |
| 44 |
| 263 |
| 50 |
| 313 | ||||||||||||
Total WarnerMedia |
| 9,709 |
| 6,496 |
| 3,213 |
| 166 |
| 3,047 |
| (55) |
| 2,992 |
| 17,640 |
| 12,589 |
| 5,051 |
| 260 |
| 4,791 |
| 122 |
| 4,913 | ||||||||||||
Latin America |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Vrio |
| 3,710 |
| 2,894 |
| 816 |
| 559 |
| 257 |
| 24 |
| 281 |
| 2,099 |
| 1,747 |
| 352 |
| 334 |
| 18 |
| 12 |
| 30 | ||||||||||||
Mexico |
| 2,099 |
| 2,459 |
| (360) |
| 383 |
| (743) |
| - |
| (743) |
| 1,376 |
| 1,538 |
| (162) |
| 250 |
| (412) |
| - |
| (412) | ||||||||||||
Total Latin America |
| 5,809 |
| 5,353 |
| 456 |
| 942 |
| (486) |
| 24 |
| (462) |
| 3,475 |
| 3,285 |
| 190 |
| 584 |
| (394) |
| 12 |
| (382) | ||||||||||||
Xandr |
| 1,174 |
| 218 |
| 956 |
| 4 |
| 952 |
| - |
| 952 | ||||||||||||||||||||||||||
Segment Total |
| 123,190 |
| 80,340 |
| 42,850 |
| 14,836 |
| 28,014 |
| $ | (34) |
| $ | 27,980 |
| 91,551 |
| 60,486 |
| 31,065 |
| 9,986 |
| 21,079 |
| $ | 134 |
| $ | 21,213 | ||||||||
Corporate and Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Corporate |
| 1,636 |
| 1,832 |
| (196) |
| 1,034 |
| (1,230) |
|
|
|
|
| 883 |
| 1,426 |
| (543) |
| 374 |
| (917) |
|
|
|
| ||||||||||||
Acquisition-related items |
| - |
| 750 |
| (750) |
| 4,669 |
| (5,419) |
|
|
|
|
| (72) |
| 389 |
| (461) |
| 3,948 |
| (4,409) |
|
|
|
| ||||||||||||
Certain significant items |
| - |
| 407 |
| (407) |
| - |
| (407) |
|
|
|
|
| - |
| 342 |
| (342) |
| - |
| (342) |
|
|
|
| ||||||||||||
Eliminations and consolidations |
| (2,063) |
| (1,040) |
| (1,023) |
| (1) |
| (1,022) |
|
|
|
|
| (2,578) |
| (1,899) |
| (679) |
| (1) |
| (678) |
|
|
|
| ||||||||||||
AT&T Inc. | $ | 122,763 |
| $ | 82,289 |
| $ | 40,474 |
| $ | 20,538 |
| $ | 19,936 |
|
|
|
| $ | 89,784 |
| $ | 60,744 |
| $ | 29,040 |
| $ | 14,307 |
| $ | 14,733 |
|
|
|
|
1817
AT&T INC.
SEPTEMBERJUNE 30, 20192020
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 September 30, |
|
| Nine months ended September 30, |
|
| Three months ended June 30, |
|
| Six months ended June 30, | ||||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
Communications | $ | 8,036 |
| $ | 8,150 |
| $ | 24,718 |
| $ | 24,498 | Communications | $ | 8,112 |
| $ | 8,671 |
| $ | 16,315 |
| $ | 16,682 |
WarnerMedia |
| 2,544 |
|
| 2,528 |
|
| 6,879 |
|
| 2,992 | WarnerMedia |
| 1,917 |
|
| 2,350 |
|
| 3,930 |
|
| 4,913 |
Latin America |
| (166) |
|
| (201) |
|
| (548) |
|
| (462) | Latin America |
| (201) |
|
| (209) |
|
| (385) |
|
| (382) |
Xandr |
| 327 |
|
| 333 |
|
| 905 |
|
| 952 | ||||||||||||
Segment Contribution |
| 10,741 |
|
| 10,810 |
|
| 31,954 |
|
| 27,980 | Segment Contribution |
| 9,828 |
|
| 10,812 |
|
| 19,860 |
|
| 21,213 |
Reconciling Items: |
|
|
|
|
|
|
|
|
|
|
| Reconciling Items: |
|
|
|
|
|
|
|
|
|
|
|
Corporate and Other |
| (427) |
|
| (439) |
|
| (1,344) |
|
| (1,230) | Corporate and Other |
| (589) |
|
| (485) |
|
| (1,162) |
|
| (917) |
Merger and integration items |
| (190) |
|
| (362) |
|
| (651) |
|
| (794) | Merger and integration items |
| (211) |
|
| (346) |
|
| (393) |
|
| (461) |
Amortization of intangibles acquired |
| (1,771) |
|
| (2,329) |
|
| (5,719) |
|
| (4,669) | Amortization of intangibles acquired |
| (2,145) |
|
| (1,960) |
|
| (4,201) |
|
| (3,948) |
Employee separation charges |
| (39) |
|
| (75) |
|
| (381) |
|
| (259) | ||||||||||||
Natural disaster items |
| - |
|
| - |
|
| - |
|
| (104) | ||||||||||||
Impairments | Impairments |
| (2,319) |
|
| - |
|
| (2,442) |
|
| - | |||||||||||
Gain on spectrum transaction1 | Gain on spectrum transaction1 |
| - |
|
| - |
|
| 900 |
|
| - | |||||||||||
Employee separation costs and benefit-related losses | Employee separation costs and benefit-related losses |
| (765) |
|
| (94) |
|
| (884) |
|
| (342) | |||||||||||
Segment equity in net income of affiliates |
| (28) |
|
| 31 |
|
| (162) |
|
| 34 | Segment equity in net income of affiliates |
| (12) |
|
| (67) |
|
| (31) |
|
| (134) |
Eliminations and consolidations |
| (385) |
|
| (367) |
|
| (1,063) |
|
| (1,022) | Eliminations and consolidations |
| (255) |
|
| (360) |
|
| (629) |
|
| (678) |
AT&T Operating Income |
| 7,901 |
|
| 7,269 |
|
| 22,634 |
|
| 19,936 | AT&T Operating Income |
| 3,532 |
|
| 7,500 |
|
| 11,018 |
|
| 14,733 |
Interest Expense |
| (2,083) |
|
| (2,051) |
|
| (6,373) |
|
| (5,845) | Interest Expense |
| 2,041 |
|
| 2,149 |
|
| 4,059 |
|
| 4,290 |
Equity in net income (loss) of affiliates |
| 3 |
|
| (64) |
|
| 36 |
|
| (71) | Equity in net income (loss) of affiliates |
| (10) |
|
| 40 |
|
| (16) |
|
| 33 |
Other income (expense) - net |
| (935) |
|
| 1,053 |
|
| (967) |
|
| 5,108 | Other income (expense) - net |
| 1,017 |
|
| (318) |
|
| 1,820 |
|
| (32) |
Income Before Income Taxes | $ | 4,886 |
| $ | 6,207 |
| $ | 15,330 |
| $ | 19,128 | 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 Revenue Reconciliation |
|
|
|
|
|
|
|
|
|
| ||||||||||
Intersegment Reconciliation |
|
|
|
|
|
|
|
|
|
| ||||||||||
| Three months ended September 30, | Nine months ended September 30, | Three months ended June 30, | Six months ended June 30, | ||||||||||||||||
| 2019 |
| 2018 | 2019 |
|
| 2018 | 2020 |
| 2019 | 2020 |
|
| 2019 | ||||||
Intersegment revenues |
|
|
|
|
|
|
|
|
|
| ||||||||||
Intersegment Revenues |
|
|
|
|
|
|
|
|
|
| ||||||||||
Communications | $ | 2 |
| $ | 6 | $ | 10 |
| $ | 8 | $ | 2 |
| $ | 8 | $ | 4 |
| $ | 8 |
WarnerMedia |
| 812 |
|
| 844 |
| 2,531 |
|
| 1,053 |
| 774 |
|
| 861 |
| 1,591 |
|
| 1,719 |
Latin America |
| - |
|
| - |
| - |
|
| - |
| - |
|
| - |
| - |
|
| - |
Xandr |
| 7 |
|
| - |
| 7 |
|
| - | ||||||||||
Total Intersegment Revenues |
| 821 |
|
| 850 |
| 2,548 |
|
| 1,061 |
| 776 |
|
| 869 |
| 1,595 |
|
| 1,727 |
Consolidations |
| 479 |
|
| 431 |
| 1,330 |
|
| 1,002 |
| 349 |
|
| 453 |
| 826 |
|
| 851 |
Eliminations and consolidations | $ | 1,300 |
| $ | 1,281 | $ | 3,878 |
| $ | 2,063 | $ | 1,125 |
| $ | 1,322 | $ | 2,421 |
| $ | 2,578 |
1918
AT&T INC.
SEPTEMBERJUNE 30, 20192020
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
NOTE 5. REVENUE RECOGNITION
Revenue Categories | Revenue Categories | Revenue Categories | ||||||||||||||||||||||||||||||||||||||||||||||||||
The following tables set forth reported revenue by category and by business unit: | The following tables set forth reported revenue by category and by business unit: | The following tables set forth reported revenue by category and by business unit: | ||||||||||||||||||||||||||||||||||||||||||||||||||
|
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|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
For the three months ended September 30, 2019 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
For the three months ended June 30, 2020 | For the three months ended June 30, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Service Revenues |
|
|
|
| Service Revenues |
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||
|
| Wireless |
| Advanced Data |
| Legacy Voice & Data |
| Subscription |
| Content |
| Advertising |
| Other |
| Equipment |
| Total |
| Wireless |
| Advanced Data |
| Legacy Voice & Data |
| Subscription |
| Content |
| Advertising |
| Other |
| Equipment |
| Total | ||||||||||||||||
Communications |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Mobility | $ | 13,856 |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | 74 |
| $ | - |
| $ | 3,771 |
| $ | 17,701 | $ | 13,611 |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | 58 |
| $ | - |
| $ | 3,480 |
| $ | 17,149 |
Entertainment Group |
| - |
| 2,117 |
| 628 |
| 7,512 |
| - |
| 421 |
| 517 |
| 2 |
| 11,197 |
| - |
| 2,092 |
| 560 |
| 6,682 |
| - |
| 294 |
| 397 |
| 44 |
| 10,069 | ||||||||||||||||
Business Wireline |
| - |
| 3,269 |
| 2,252 |
| - |
| - |
| - |
| 783 |
| 199 |
| 6,503 |
| - |
| 3,320 |
| 2,067 |
| - |
| - |
| - |
| 782 |
| 205 |
| 6,374 | ||||||||||||||||
WarnerMedia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Turner |
| - |
| - |
|
| - |
|
| 1,927 |
|
| 89 |
|
| 913 |
|
| 78 |
|
| - |
|
| 3,007 |
| - |
| - |
|
| - |
|
| 1,804 |
|
| 334 |
|
| 796 |
|
| 54 |
|
| - |
|
| 2,988 | ||
Home Box Office |
| - |
| - |
|
| - |
|
| 1,533 |
|
| 284 |
|
| - |
|
| 2 |
|
| - |
|
| 1,819 |
| - |
| - |
|
| - |
|
| 1,441 |
|
| 181 |
|
| - |
|
| 5 |
|
| - |
|
| 1,627 | ||
Warner Bros. |
| - |
| - |
|
| - |
|
| 23 |
|
| 3,129 |
|
| 13 |
|
| 168 |
|
| - |
|
| 3,333 |
| - |
| - |
|
| - |
|
| 16 |
|
| 3,179 |
|
| 1 |
|
| 60 |
|
| - |
|
| 3,256 | ||
Eliminations and Other |
| - |
| - |
|
| - |
|
| 57 |
|
| (387) |
|
| 19 |
|
| (2) |
|
| - |
|
| (313) | |||||||||||||||||||||||||||
Eliminations and other |
| - |
| - |
|
| - |
|
| 71 |
|
| (1,516) |
|
| 378 |
|
| 10 |
|
| - |
|
| (1,057) | |||||||||||||||||||||||||||
Latin America |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Vrio |
| - |
| - |
|
| - |
|
| 1,013 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 1,013 |
| - |
| - |
|
| - |
|
| 752 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 752 | ||
Mexico |
| 455 |
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 262 |
|
| 717 |
| 345 |
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 135 |
|
| 480 | ||
Xandr |
| - |
| - |
|
| - |
|
| - |
|
| - |
|
| 504 |
|
| - |
|
| - |
|
| 504 | |||||||||||||||||||||||||||
Corporate and Other |
| 124 |
| 13 |
|
| 6 |
|
| - |
|
| - |
|
| - |
|
| 227 |
|
| 37 |
|
| 407 |
| 178 |
| 10 |
|
| 152 |
|
| - |
|
| - |
|
| - |
|
| 62 |
|
| 35 |
|
| 437 | ||
Eliminations and consolidations |
| - |
| - |
|
| - |
|
| - |
|
| (798) |
|
| (421) |
|
| (81) |
|
| - |
|
| (1,300) | |||||||||||||||||||||||||||
Eliminations and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
consolidations |
| - |
| - |
|
| - |
|
| - |
|
| (765) |
|
| (294) |
|
| (66) |
|
| - |
|
| (1,125) | |||||||||||||||||||||||||||
Total Operating Revenues | $ | 14,435 |
| $ | 5,399 |
| $ | 2,886 |
| $ | 12,065 |
| $ | 2,317 |
| $ | 1,523 |
| $ | 1,692 |
| $ | 4,271 |
| $ | 44,588 | $ | 14,134 |
| $ | 5,422 |
| $ | 2,779 |
| $ | 10,766 |
| $ | 1,413 |
| $ | 1,233 |
| $ | 1,304 |
| $ | 3,899 |
| $ | 40,950 |
2019
AT&T INC.
SEPTEMBERJUNE 30, 20192020
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
For the three months ended September 30, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
For the three months ended June 30, 2019 | For the three months ended June 30, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Service Revenues |
|
|
|
| Service Revenues |
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||
|
| Wireless |
| Advanced Data |
| Legacy Voice & Data |
| Subscription |
| Content |
| Advertising |
| Other |
| Equipment |
| Total |
| Wireless |
| Advanced Data |
| Legacy Voice & Data |
| Subscription |
| Content |
| Advertising |
| Other |
| Equipment |
| Total | ||||||||||||||||
Communications |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Mobility | $ | 13,751 |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | 77 |
| $ | - |
| $ | 3,907 |
| $ | 17,735 | $ | 13,753 |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | 71 |
| $ | - |
| $ | 3,468 |
| $ | 17,292 |
Entertainment Group |
| - |
|
| 2,045 |
|
| 739 |
|
| 7,882 |
|
| - |
|
| 401 |
|
| 518 |
|
| 4 |
|
| 11,589 |
| - |
|
| 2,109 |
|
| 658 |
|
| 7,636 |
|
| - |
|
| 399 |
|
| 563 |
|
| 3 |
|
| 11,368 |
Business Wireline |
| - |
|
| 3,053 |
|
| 2,602 |
|
| - |
|
| - |
|
| - |
|
| 831 |
|
| 197 |
|
| 6,683 |
| - |
|
| 3,208 |
|
| 2,324 |
|
| - |
|
| - |
|
| - |
|
| 897 |
|
| 178 |
|
| 6,607 |
WarnerMedia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Turner |
| - |
|
| - |
|
| - |
|
| 1,855 |
|
| 125 |
|
| 944 |
|
| 64 |
|
| - |
|
| 2,988 |
| - |
|
| - |
|
| - |
|
| 1,943 |
|
| 111 |
|
| 1,266 |
|
| 90 |
|
| - |
|
| 3,410 |
Home Box Office |
| - |
|
| - |
|
| - |
|
| 1,517 |
|
| 125 |
|
| - |
|
| 2 |
|
| - |
|
| 1,644 |
| - |
|
| - |
|
| - |
|
| 1,516 |
|
| 198 |
|
| - |
|
| 2 |
|
| - |
|
| 1,716 |
Warner Bros. |
| - |
|
| - |
|
| - |
|
| 20 |
|
| 3,494 |
|
| 20 |
|
| 186 |
|
| - |
|
| 3,720 |
| - |
|
| - |
|
| - |
|
| 23 |
|
| 3,175 |
|
| 10 |
|
| 181 |
|
| - |
|
| 3,389 |
Eliminations and Other |
| - |
|
| - |
|
| - |
|
| 27 |
|
| (199) |
|
| 19 |
|
| 5 |
|
| - |
|
| (148) | ||||||||||||||||||||||||||
Eliminations and other |
| - |
|
| - |
|
| - |
|
| 54 |
|
| (237) |
|
| 494 |
|
| 9 |
|
| - |
|
| 320 | ||||||||||||||||||||||||||
Latin America |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vrio |
| - |
|
| - |
|
| - |
|
| 1,102 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 1,102 |
| - |
|
| - |
|
| - |
|
| 1,032 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 1,032 |
Mexico |
| 440 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 291 |
|
| 731 |
| 479 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 246 |
|
| 725 |
Xandr |
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 445 |
|
| - |
|
| - |
|
| 445 | ||||||||||||||||||||||||||
Corporate and Other |
| 161 |
|
| 13 |
|
| 7 |
|
| - |
|
| - |
|
| - |
|
| 307 |
|
| 43 |
|
| 531 |
| 150 |
|
| 14 |
|
| 7 |
|
| - |
|
| - |
|
| - |
|
| 210 |
|
| 39 |
|
| 420 |
Eliminations and consolidations |
| - |
|
| - |
|
| - |
|
| - |
|
| (830) |
|
| (401) |
|
| (50) |
|
| - |
|
| (1,281) | ||||||||||||||||||||||||||
Eliminations and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||
consolidations |
| - |
|
| - |
|
| - |
|
| - |
|
| (840) |
|
| (399) |
|
| (83) |
|
| - |
|
| (1,322) | ||||||||||||||||||||||||||
Total Operating Revenues | $ | 14,352 |
| $ | 5,111 |
| $ | 3,348 |
| $ | 12,403 |
| $ | 2,715 |
| $ | 1,505 |
| $ | 1,863 |
| $ | 4,442 |
| $ | 45,739 | $ | 14,382 |
| $ | 5,331 |
| $ | 2,989 |
| $ | 12,204 |
| $ | 2,407 |
| $ | 1,841 |
| $ | 1,869 |
| $ | 3,934 |
| $ | 44,957 |
2120
AT&T INC.
SEPTEMBERJUNE 30, 20192020
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
For the nine months ended September 30, 2019 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
For the six months ended June 30, 2020 | For the six months ended June 30, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Service Revenues |
|
|
|
| Service Revenues |
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||
|
| Wireless |
| Advanced Data |
| Legacy Voice & Data |
| Subscription |
| Content |
| Advertising |
| Other |
| Equipment |
| Total |
| Wireless |
| Advanced Data |
| Legacy Voice & Data |
| Subscription |
| Content |
| Advertising |
| Other |
| Equipment |
| Total | ||||||||||||||||
Communications |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Mobility | $ | 41,171 |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | 212 |
| $ | - |
| $ | 10,973 |
| $ | 52,356 | $ | 27,503 |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | 134 |
| $ | - |
| $ | 6,914 |
| $ | 34,551 |
Entertainment Group |
| - |
| 6,296 |
| 1,969 |
| 22,872 |
| - |
| 1,170 |
| 1,580 |
| 6 |
| 33,893 |
| - |
| 4,201 |
| 1,141 |
| 13,664 |
| - |
| 707 |
| 816 |
| 55 |
| 20,584 | ||||||||||||||||
Business Wireline |
| - |
| 9,649 |
| 6,973 |
| - |
| - |
| - |
| 2,430 |
| 536 |
| 19,588 |
| - |
| 6,595 |
| 4,196 |
| - |
| - |
| - |
| 1,535 |
| 380 |
| 12,706 | ||||||||||||||||
WarnerMedia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Turner |
| - |
| - |
|
| - |
|
| 5,835 |
|
| 335 |
|
| 3,440 |
|
| 250 |
|
| - |
|
| 9,860 |
| - |
| - |
|
| - |
|
| 3,853 |
|
| 420 |
|
| 1,753 |
|
| 124 |
|
| - |
|
| 6,150 | ||
Home Box Office |
| - |
| - |
|
| - |
|
| 4,383 |
|
| 655 |
|
| - |
|
| 7 |
|
| - |
|
| 5,045 |
| - |
| - |
|
| - |
|
| 2,779 |
|
| 338 |
|
| - |
|
| 7 |
|
| - |
|
| 3,124 | ||
Warner Bros. |
| - |
| - |
|
| - |
|
| 67 |
|
| 9,636 |
|
| 33 |
|
| 504 |
|
| - |
|
| 10,240 |
| - |
| - |
|
| - |
|
| 26 |
|
| 6,239 |
|
| 3 |
|
| 228 |
|
| - |
|
| 6,496 | ||
Eliminations and Other |
| - |
| - |
|
| - |
|
| 160 |
|
| (776) |
|
| 36 |
|
| 10 |
|
| - |
|
| (570) | |||||||||||||||||||||||||||
Eliminations and other |
| - |
| - |
|
| - |
|
| 134 |
|
| (2,162) |
|
| 887 |
|
| 33 |
|
| - |
|
| (1,108) | |||||||||||||||||||||||||||
Latin America |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Vrio |
| - |
| - |
|
| - |
|
| 3,112 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 3,112 |
| - |
| - |
|
| - |
|
| 1,639 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 1,639 | ||
Mexico |
| 1,376 |
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 717 |
|
| 2,093 |
| 812 |
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 371 |
|
| 1,183 | ||
Xandr |
| - |
| - |
|
| - |
|
| - |
|
| - |
|
| 1,415 |
|
| - |
|
| - |
|
| 1,415 | |||||||||||||||||||||||||||
Corporate and Other |
| 437 |
| 40 |
|
| 20 |
|
| - |
|
| - |
|
| - |
|
| 605 |
|
| 116 |
|
| 1,218 |
| 295 |
| 24 |
|
| 286 |
|
| - |
|
| - |
|
| - |
|
| 145 |
|
| 75 |
|
| 825 | ||
Eliminations and consolidations |
| - |
| - |
|
| - |
|
| - |
|
| (2,475) |
|
| (1,170) |
|
| (233) |
|
| - |
|
| (3,878) | |||||||||||||||||||||||||||
Eliminations and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
consolidations |
| - |
| - |
|
| - |
|
| - |
|
| (1,559) |
|
| (707) |
|
| (155) |
|
| - |
|
| (2,421) | |||||||||||||||||||||||||||
Total Operating Revenues | $ | 42,984 |
| $ | 15,985 |
| $ | 8,962 |
| $ | 36,429 |
| $ | 7,375 |
| $ | 5,136 |
| $ | 5,153 |
| $ | 12,348 |
| $ | 134,372 | $ | 28,610 |
| $ | 10,820 |
| $ | 5,623 |
| $ | 22,095 |
| $ | 3,276 |
| $ | 2,777 |
| $ | 2,733 |
| $ | 7,795 |
| $ | 83,729 |
2221
AT&T INC.
SEPTEMBERJUNE 30, 20192020
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
For the nine months ended September 30, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
For the six months ended June 30, 2019 | For the six months ended June 30, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Service Revenues |
|
|
|
| Service Revenues |
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||
|
| Wireless |
| Advanced Data |
| Legacy Voice & Data |
| Subscription |
| Content |
| Advertising |
| Other |
| Equipment |
| Total |
| Wireless |
| Advanced Data |
| Legacy Voice & Data |
| Subscription |
| Content |
| Advertising |
| Other |
| Equipment |
| Total | ||||||||||||||||
Communications |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Mobility | $ | 40,432 |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | 162 |
| $ | - |
| $ | 11,371 |
| $ | 51,965 | $ | 27,315 |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | 138 |
| $ | - |
| $ | 7,202 |
| $ | 34,655 |
Entertainment Group |
| - |
|
| 5,904 |
|
| 2,317 |
|
| 23,559 |
|
| - |
|
| 1,122 |
|
| 1,588 |
|
| 8 |
|
| 34,498 |
| - |
|
| 4,179 |
|
| 1,341 |
|
| 15,360 |
|
| - |
|
| 749 |
|
| 1,063 |
|
| 4 |
|
| 22,696 |
Business Wireline |
| - |
|
| 9,101 |
|
| 8,176 |
|
| - |
|
| - |
|
| - |
|
| 2,192 |
|
| 566 |
|
| 20,035 |
| - |
|
| 6,380 |
|
| 4,721 |
|
| - |
|
| - |
|
| - |
|
| 1,647 |
|
| 337 |
|
| 13,085 |
WarnerMedia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Turner |
| - |
|
| - |
|
| - |
|
| 2,363 |
|
| 146 |
|
| 1,181 |
|
| 77 |
|
| - |
|
| 3,767 |
| - |
|
| - |
|
| - |
|
| 3,908 |
|
| 246 |
|
| 2,527 |
|
| 172 |
|
| - |
|
| 6,853 |
Home Box Office |
| - |
|
| - |
|
| - |
|
| 1,787 |
|
| 136 |
|
| - |
|
| 2 |
|
| - |
|
| 1,925 |
| - |
|
| - |
|
| - |
|
| 2,850 |
|
| 371 |
|
| - |
|
| 5 |
|
| - |
|
| 3,226 |
Warner Bros. |
| - |
|
| - |
|
| - |
|
| 27 |
|
| 3,949 |
|
| 28 |
|
| 223 |
|
| - |
|
| 4,227 |
| - |
|
| - |
|
| - |
|
| 44 |
|
| 6,507 |
|
| 20 |
|
| 336 |
|
| - |
|
| 6,907 |
Eliminations and Other |
| - |
|
| - |
|
| - |
|
| 27 |
|
| (255) |
|
| 13 |
|
| 5 |
|
| - |
|
| (210) | ||||||||||||||||||||||||||
Eliminations and other |
| - |
|
| - |
|
| - |
|
| 103 |
|
| (389) |
|
| 928 |
|
| 12 |
|
| - |
|
| 654 | ||||||||||||||||||||||||||
Latin America |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vrio |
| - |
|
| - |
|
| - |
|
| 3,710 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 3,710 |
| - |
|
| - |
|
| - |
|
| 2,099 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 2,099 |
Mexico |
| 1,261 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 838 |
|
| 2,099 |
| 921 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 455 |
|
| 1,376 |
Xandr |
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 1,174 |
|
| - |
|
| - |
|
| 1,174 | ||||||||||||||||||||||||||
Corporate and Other |
| 480 |
|
| 39 |
|
| 28 |
|
| - |
|
| - |
|
| - |
|
| 958 |
|
| 131 |
|
| 1,636 |
| 272 |
|
| 27 |
|
| 14 |
|
| - |
|
| - |
|
| - |
|
| 419 |
|
| 79 |
|
| 811 |
Eliminations and consolidations |
| - |
|
| - |
|
| - |
|
| - |
|
| (1,039) |
|
| (1,122) |
|
| 98 |
|
| - |
|
| (2,063) | ||||||||||||||||||||||||||
Eliminations and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||
consolidations |
| - |
|
| - |
|
| - |
|
| - |
|
| (1,677) |
|
| (749) |
|
| (152) |
|
| - |
|
| (2,578) | ||||||||||||||||||||||||||
Total Operating Revenues | $ | 42,173 |
| $ | 15,044 |
| $ | 10,521 |
| $ | 31,473 |
| $ | 2,937 |
| $ | 2,558 |
| $ | 5,143 |
| $ | 12,914 |
| $ | 122,763 | $ | 28,508 |
| $ | 10,586 |
| $ | 6,076 |
| $ | 24,364 |
| $ | 5,058 |
| $ | 3,613 |
| $ | 3,502 |
| $ | 8,077 |
| $ | 89,784 |
2322
AT&T INC.
SEPTEMBERJUNE 30, 20192020
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 costs and deferred customer contract fulfillment costs included on our consolidated balance sheets:
|
| September 30, |
|
| December 31, |
| June 30, |
|
| December 31, |
Consolidated Balance Sheets |
| 2019 |
|
| 2018 |
| 2020 |
|
| 2019 |
Deferred Acquisition Costs |
|
|
|
|
|
|
|
|
|
|
Other current assets | $ | 2,190 |
| $ | 1,901 | $ | 2,630 |
| $ | 2,462 |
Other Assets |
| 2,878 |
|
| 2,073 |
| 3,117 |
|
| 2,991 |
Total deferred customer contract acquisition costs |
| 5,068 |
|
| 3,974 | $ | 5,747 |
| $ | 5,453 |
|
|
|
|
|
|
|
|
|
|
|
Deferred Fulfillment Costs |
|
|
|
|
|
|
|
|
|
|
Other current assets |
| 4,589 |
|
| 4,090 | $ | 4,362 |
| $ | 4,519 |
Other Assets |
| 6,640 |
|
| 7,450 |
| 5,980 |
|
| 6,439 |
Total deferred customer contract fulfillment costs | $ | 11,229 |
| $ | 11,540 | $ | 10,342 |
| $ | 10,958 |
The following table presents deferred customer contract acquisition cost and deferred customer contract fulfillment cost amortization included in “Other cost of revenue” for the ninesix months ended:
|
| September 30, |
|
| September 30, |
| June 30, |
|
| June 30, |
Consolidated Statements of Income |
| 2019 |
|
| 2018 |
| 2020 |
|
| 2019 |
Deferred acquisition cost amortization | $ | 1,565 |
| $ | 959 | $ | 1,278 |
| $ | 1,026 |
Deferred fulfillment cost amortization |
| 3,656 |
|
| 2,983 |
| 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:
|
|
| September 30, |
|
| December 31, |
|
| June 30, |
|
| December 31, |
Consolidated Balance Sheets |
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract asset |
| $ | 2,255 |
| $ | 1,896 |
| $ | 2,546 |
| $ | 2,472 |
Contract liability |
|
| 6,886 |
|
| 6,856 |
|
| 6,533 |
|
| 6,999 |
Our December 31, 2018beginning of period contract liability recorded as customer contract revenue during 20192020 was $5,295.$5,004.
2423
AT&T INC.
SEPTEMBERJUNE 30, 20192020
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
Our consolidated balance sheets at SeptemberJune 30, 20192020 and December 31, 20182019 included approximately $1,496$1,638 and $1,244,$1,611, respectively, for the current portion of our contract asset in “Other current assets” and $5,910$5,616 and $5,752,$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 SeptemberJune 30, 2019,2020, the aggregate amount of the transaction price allocated to remaining performance obligations was $40,216,$36,362, of which we expect to recognize approximately 70%82% by the end of 2020,2021, with the balance recognized thereafter.
NOTE 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.
In first quarter of 2019, for certain management participants We do not have significant funding requirements in our pension plan who terminated employment before April 1, 2019, we offered the option of more favorable 2018 interest rates and mortality basis for determining lump-sum distributions. During the first nine months of 2019, we have recorded special termination benefits of $81 in “Other income (expense) – net.” During 2019, we also offered certain terminated vested pension plan participants the opportunity to receive their benefit in a lump-sum amount.2020.
We recognize actuarial gains and losses on pension and postretirement plan assets in our consolidated results as a component of “Other income (expense) – net” at our annual measurement date of December 31, unless earlier remeasurements are required. We anticipated total distributions from the pension plan would exceed the threshold of service and interest costs for 2019, requiring us to follow settlement accounting and remeasure our pension benefit obligation at each quarter-end, resulting in the recognition of actuarial losses of $432, $1,699, and $1,888 in the first, second and third quarters of 2019, respectively.
As part of our quarterly 2019 remeasurements, we decreased the weighted-average discount rate used to measure our pension benefit obligation from 4.50% at December 31, 2018 by 40 basis points each quarter to 3.30% at September 30, 2019. Our remeasurements also reflect actual returns on plan assets of 13.40% (nine-month rate). Our expected long-term rate of return on pension plan assets is an annualized 7.00% for 2019.
25
AT&T INC.
SEPTEMBER 30, 2019
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
The following table details pension and postretirement benefit costs included in the accompanying consolidated statements of income. The service cost component of net periodic pension cost (benefit) is recorded in operating expenses in the consolidated statements of income while the remaining components are recorded in “Other income (expense) – net.”
24
AT&T INC.
JUNE 30, 2020
| Three months ended |
| Nine months ended | ||||||||
| September 30, |
| September 30, | ||||||||
| 2019 |
| 2018 |
| 2019 |
| 2018 | ||||
Pension cost: |
|
|
|
|
|
|
|
|
|
|
|
Service cost – benefits earned during the period | $ | 260 |
| $ | 270 |
| $ | 743 |
| $ | 845 |
Interest cost on projected benefit obligation |
| 463 |
|
| 551 |
|
| 1,520 |
|
| 1,542 |
Expected return on assets |
| (905) |
|
| (761) |
|
| (2,636) |
|
| (2,276) |
Amortization of prior service credit |
| (28) |
|
| (28) |
|
| (85) |
|
| (87) |
Actuarial (gain) loss |
| 1,888 |
|
| - |
|
| 4,019 |
|
| (1,796) |
Net pension (credit) cost | $ | 1,678 |
| $ | 32 |
| $ | 3,561 |
| $ | (1,772) |
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement cost: |
|
|
|
|
|
|
|
|
|
|
|
Service cost – benefits earned during the period | $ | 19 |
| $ | 27 |
| $ | 55 |
| $ | 82 |
Interest cost on accumulated postretirement benefit obligation |
| 185 |
|
| 196 |
|
| 557 |
|
| 582 |
Expected return on assets |
| (57) |
|
| (76) |
|
| (169) |
|
| (228) |
Amortization of prior service credit |
| (425) |
|
| (412) |
|
| (1,277) |
|
| (1,222) |
Actuarial (gain) loss |
| - |
|
| - |
|
| - |
|
| (930) |
Net postretirement (credit) cost | $ | (278) |
| $ | (265) |
| $ | (834) |
| $ | (1,716) |
|
|
|
|
|
|
|
|
|
|
|
|
Combined net pension and postretirement (credit) cost | $ | 1,400 |
| $ | (233) |
| $ | 2,727 |
| $ | (3,488) |
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. Net supplemental pension benefits costs not included in the table above were $24$19 and $24$25 in the thirdsecond quarter and $74$38 and $65$50 for the first ninesix months of 2020 and 2019, and 2018, respectively. During the third quarter of 2019, we recorded an actuarial loss of $29.
NOTE 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 based on the reliability of the inputs used to determine fair value. Level 1 refers to fair values determined based on quoted prices in active markets for identical assets. Level 2 refers to fair values estimated using significant other observable inputs and Level 3 includes fair values estimated using significant unobservable inputs.
The level of an asset or liability within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Our valuation techniques maximize the use of observable inputs and minimize the use of unobservable inputs.
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, 2018.2019.
2625
AT&T INC.
SEPTEMBERJUNE 30, 20192020
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, 2019 |
| December 31, 2018 |
| June 30, 2020 |
| December 31, 2019 | ||||||||||||||||
|
| Carrying |
| Fair |
| Carrying |
| Fair |
| Carrying |
| Fair |
| Carrying |
| Fair | ||||||||
|
| Amount |
| Value |
| Amount |
| Value |
| Amount |
| Value |
| Amount |
| Value | ||||||||
Notes and debentures1 | Notes and debentures1 | $ | 160,758 |
| $ | 180,801 |
| $ | 171,529 |
| $ | 172,287 | Notes and debentures1 | $ | 164,099 |
| $ | 190,284 |
| $ | 161,109 |
| $ | 182,124 |
Commercial paper | Commercial paper |
| 2,439 |
|
| 2,439 |
|
| 3,048 |
|
| 3,048 | Commercial paper |
| 3,001 |
|
| 3,001 |
|
| - |
|
| - |
Bank borrowings | Bank borrowings |
| 4 |
|
| 4 |
|
| 4 |
|
| 4 | Bank borrowings |
| - |
|
| - |
|
| 4 |
|
| 4 |
Investment securities2 | Investment securities2 |
| 3,599 |
|
| 3,599 |
|
| 3,409 |
|
| 3,409 | Investment securities2 |
| 3,632 |
|
| 3,632 |
|
| 3,723 |
|
| 3,723 |
1 | Includes credit agreement borrowings. | Includes credit agreement borrowings. | ||||||||||||||||||||||
2 | Excludes investments accounted for under the equity method. | 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.
The following tables presentFollowing is the fair value leveling for investment securities and derivatives that are measured at fair value and derivatives as of SeptemberJune 30, 20192020 and December 31, 2018.2019. Derivatives designated as hedging instruments are reflected as “Other assets,” “Other noncurrent liabilities” and, for a portion of interest rate swaps,liabilities,” “Other current assets” and “Accounts payable and accrued liabilities” on our consolidated balance sheets.
|
| September 30, 2019 |
| June 30, 2020 | ||||||||||||||||||||
|
| Level 1 |
| Level 2 |
| Level 3 |
| Total |
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||||||
Equity Securities | Equity Securities |
|
|
|
|
|
|
|
|
|
|
| Equity Securities |
|
|
|
|
|
|
|
|
|
|
|
Domestic equities | Domestic equities | $ | 781 |
| $ | - |
| $ | - |
| $ | 781 | Domestic equities | $ | 832 |
| $ | - |
| $ | - |
| $ | 832 |
International equities | International equities |
| 171 |
|
| - |
|
| - |
|
| 171 | International equities |
| 141 |
|
| - |
|
| - |
|
| 141 |
Fixed income equities | Fixed income equities |
| 227 |
|
| - |
|
| - |
|
| 227 | Fixed income equities |
| 230 |
|
| - |
|
| - |
|
| 230 |
Available-for-Sale Debt Securities | Available-for-Sale Debt Securities |
| - |
|
| 1,380 |
|
| - |
|
| 1,380 | Available-for-Sale Debt Securities |
| - |
|
| 1,522 |
|
| - |
|
| 1,522 |
Asset Derivatives | Asset Derivatives |
|
|
|
|
|
|
|
|
|
|
| Asset Derivatives |
|
|
|
|
|
|
|
|
|
|
|
Cross-currency swaps | Cross-currency swaps |
| - |
|
| 67 |
|
| - |
|
| 67 | ||||||||||||
Foreign exchange contracts | Foreign exchange contracts |
| - |
|
| 14 |
|
| - |
|
| 14 | ||||||||||||
Liability Derivatives | Liability Derivatives |
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Interest rate swaps | Interest rate swaps |
| - |
|
| 2 |
|
| - |
|
| 2 | Interest rate swaps |
| - |
|
| (3) |
|
| - |
|
| (3) |
Cross-currency swaps | Cross-currency swaps |
| - |
|
| 70 |
|
| - |
|
| 70 | Cross-currency swaps |
| - |
|
| (6,767) |
|
| - |
|
| (6,767) |
Foreign exchange contracts | Foreign exchange contracts |
| - |
|
| 81 |
|
| - |
|
| 81 | Foreign exchange contracts |
| - |
|
| (10) |
|
| - |
|
| (10) |
Liability Derivatives |
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Cross-currency swaps |
| - |
|
| (4,553) |
|
| - |
|
| (4,553) | |||||||||||||
Interest rate locks |
| - |
|
| (225) |
|
| - |
|
| (225) | |||||||||||||
Foreign exchange contracts |
| - |
|
| (2) |
|
| - |
|
| (2) |
2726
AT&T INC.
SEPTEMBERJUNE 30, 20192020
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
|
| December 31, 2018 |
| December 31, 2019 | ||||||||||||||||||||
|
| Level 1 |
| Level 2 |
| Level 3 |
| Total |
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||||||
Equity Securities | Equity Securities |
|
|
|
|
|
|
|
|
|
|
| Equity Securities |
|
|
|
|
|
|
|
|
|
|
|
Domestic equities | Domestic equities | $ | 1,061 |
| $ | - |
| $ | - |
| $ | 1,061 | Domestic equities | $ | 844 |
| $ | - |
| $ | - |
| $ | 844 |
International equities | International equities |
| 256 |
|
| - |
|
| - |
|
| 256 | International equities |
| 183 |
|
| - |
|
| - |
|
| 183 |
Fixed income equities | Fixed income equities |
| 172 |
|
| - |
|
| - |
|
| 172 | Fixed income equities |
| 229 |
|
| - |
|
| - |
|
| 229 |
Available-for-Sale Debt Securities | Available-for-Sale Debt Securities |
| - |
|
| 870 |
|
| - |
|
| 870 | Available-for-Sale Debt Securities |
| - |
|
| 1,444 |
|
| - |
|
| 1,444 |
Asset Derivatives | Asset Derivatives |
|
|
|
|
|
|
|
|
|
|
| Asset Derivatives |
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps | Interest rate swaps |
| - |
|
| 2 |
|
| - |
|
| 2 | ||||||||||||
Cross-currency swaps | Cross-currency swaps |
| - |
|
| 472 |
|
| - |
|
| 472 | Cross-currency swaps |
| - |
|
| 172 |
|
| - |
|
| 172 |
Interest rate locks | Interest rate locks |
| - |
|
| 11 |
|
| - |
|
| 11 | ||||||||||||
Foreign exchange contracts | Foreign exchange contracts |
| - |
|
| 87 |
|
| - |
|
| 87 | Foreign exchange contracts |
| - |
|
| 89 |
|
| - |
|
| 89 |
Liability Derivatives | Liability Derivatives |
|
|
|
|
|
|
|
|
|
|
| Liability Derivatives |
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps |
| - |
|
| (39) |
|
| - |
|
| (39) | |||||||||||||
Cross-currency swaps | Cross-currency swaps |
| - |
|
| (2,563) |
|
| - |
|
| (2,563) | Cross-currency swaps |
| - |
|
| (3,187) |
|
| - |
|
| (3,187) |
Foreign exchange contracts |
| - |
|
| (2) |
|
| - |
|
| (2) | |||||||||||||
Interest rate locks | Interest rate locks |
| - |
|
| (95) |
|
| - |
|
| (95) |
Investment Securities
Our investment securities include both equity and 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 investment securities is 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.
The components comprising total gains and losses in the period on equity securities are as follows:
| Three months ended |
| Nine months ended | Three months ended |
| Six months ended | ||||||||||||||||
| September 30, |
| September 30, | June 30, |
| June 30, | ||||||||||||||||
| 2019 |
| 2018 |
| 2019 |
| 2018 | 2020 |
| 2019 |
| 2020 |
| 2019 | ||||||||
Total gains (losses) recognized on equity securities | $ | 21 |
| $ | 80 |
| $ | 231 |
| $ | 88 | $ | 161 |
| $ | 50 |
| $ | (42) |
| $ | 210 |
Gains (Losses) recognized on equity securities sold |
| 8 |
|
| (2) |
|
| 101 |
|
| (4) |
| 9 |
|
| 9 |
|
| (24) |
|
| 27 |
Unrealized gains (losses) recognized on equity securities held at end of period |
| 13 |
|
| 82 |
|
| 130 |
|
| 92 | |||||||||||
Unrealized gains (losses) recognized on equity securities |
|
|
|
|
|
|
|
|
|
|
| |||||||||||
held at end of period |
| 152 |
|
| 41 |
|
| (18) |
|
| 183 |
At SeptemberJune 30, 2019,2020, available-for-sale debt securities totaling $1,380$1,522 have maturities as follows - less than one year: $102;$64; one to three years: $177;$175; three to five years: $164;$156; five or more years: $937.$1,127.
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 current assets” and our investment securities are recorded in “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.
2827
AT&T INC.
SEPTEMBERJUNE 30, 20192020
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
Fair Value Hedging WePeriodically, we enter into and designate our fixed-to-floating interest rate swaps as fair value hedges. The purpose of these swaps is to manage interest rate risk by managing our mix of fixed-rate and floating-rate debt. These swaps involve the receipt of fixed-rate amounts for floating interest rate payments over the life of the swaps without exchange of the underlying principal amount.
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 fair value hedges impact the same category on the consolidated statements of income as the item being hedged. Unrealized gains on fair value hedges are recorded at fair market value as assets, and unrealized losses are recorded at fair market value as liabilities. Changes in the fair value of derivative instruments designated as fair value hedges are offset against the change in fair value of the hedged assets or liabilities through earnings. In the ninesix months ended SeptemberJune 30, 20192020 and 2018,2019, no ineffectiveness was measured on 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 our foreign-denominated debt. These agreements include initial and final exchanges of principal from fixed foreign currency denominated amounts to fixed U.S. dollar denominated amounts, to be exchanged at a specified rate that is usually determined by the market spot rate upon issuance. They also include an interest rate swap of a fixed or floating foreign currency-denominated interest rate to a fixed U.S. dollar denominated interest rate.
We also designate some of our foreign exchange contracts as cash flow hedges. The purpose of these contracts is to hedge currency risk associated with variability in anticipated foreign-currency-denominated cash flows, such as unremitted or forecasted royalty and license fees owed to WarnerMedia’s domestic companies for the sale or anticipated sale of U.S. copyrighted products abroad or cash flows for certain film production costs denominated in a foreign currency.currencies.
Unrealized gains on derivatives designated as cash flow hedges are recorded at fair value as assets, and unrealized losses 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 the 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 cash flow hedges each quarter. In the nine months ended September 30, 2019 and 2018, no ineffectiveness was measured on 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 from the settlement ofwhen 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 $62$98 from accumulated OCI to interest expense“Interest expense” due to the amortization of net losses on historical interest rate locks.
We settled all interest rate locks in May 2020 in conjunction with issuance of fixed rate debt obligations that the interest rate locks were hedging. We paid $731 that was largely offset by the return of collateral at the time of 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 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 OCI, net on the consolidated balance sheet. Net gainslosses on net investment hedges recognized in accumulated OCI in the thirdsecond quarter were $30 and for the first ninesix months of 2019 was $43.2020 were $5.
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. At SeptemberJune 30, 2019,2020, we had posted collateral of $407$694 (a deposit asset) and held collateral of $38$16 (a receipt liability). Under the agreements, if AT&T’s credit rating had been downgraded one rating level by Fitch Ratings, before the final collateral exchange in September,June, we would have been required to post additional collateral of $122.$76. If AT&T’s credit rating had been downgraded four ratings levels by Fitch Ratings, two levels by S&P, and two levels by Moody’s, we would have been required to post additional collateral of $5,487. If DIRECTV
2928
AT&T INC.
SEPTEMBERJUNE 30, 20192020
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
$4,502. If DIRECTV Holdings LLC’s credit rating had been downgraded below BBB- by S&P, we would have been required to post additional collateral of $288.$321. At December 31, 2018,2019, we had posted collateral of $1,675$204 (a deposit asset) and held collateral of $103$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, |
| June 30, |
| December 31, | ||||
| 2019 |
| 2018 |
| 2020 |
| 2019 | |||||
Interest rate swaps | Interest rate swaps | $ | 853 |
| $ | 3,483 | Interest rate swaps | $ | 21 |
| $ | 853 |
Cross-currency swaps | Cross-currency swaps |
| 42,792 |
|
| 42,192 | Cross-currency swaps |
| 45,606 |
|
| 42,325 |
Interest rate locks | Interest rate locks |
| 3,500 |
|
| - | Interest rate locks |
| - |
|
| 3,500 |
Foreign exchange contracts | Foreign exchange contracts |
| 473 |
|
| 2,094 | Foreign exchange contracts |
| 298 |
|
| 269 |
Total | Total | $ | 47,618 |
| $ | 47,769 | 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 | Effect of Derivatives on the Consolidated Statements of Income |
|
|
|
|
|
|
|
| Effect of Derivatives on the Consolidated Statements of Income |
|
|
|
|
|
|
|
| ||||
| Three months ended |
| Nine months ended | Three months ended |
| Six months ended | ||||||||||||||||
| September 30, |
| September 30, | June 30, |
| June 30, | ||||||||||||||||
Fair Value Hedging Relationships | 2019 |
| 2018 |
| 2019 |
| 2018 | 2020 |
| 2019 |
| 2020 |
| 2019 | ||||||||
Interest rate swaps (Interest expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss) on interest rate swaps | $ | - |
| $ | 2 |
| $ | 59 |
| $ | (60) | $ | (14) |
| $ | 35 |
| $ | (4) |
| $ | 59 |
Gain (Loss) on long-term debt |
| - |
|
| (2) |
|
| (59) |
|
| 60 |
| 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 |
| Nine months ended | Three months ended |
| Six months ended | ||||||||||||||||
| September 30, |
| September 30, | June 30, |
| June 30, | ||||||||||||||||
Cash Flow Hedging Relationships | 2019 |
| 2018 |
| 2019 |
| 2018 | 2020 |
| 2019 |
| 2020 |
| 2019 | ||||||||
Cross-currency swaps: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss) recognized in accumulated OCI | $ | (487) |
| $ | (13) |
| $ | (1,082) |
| $ | 308 | $ | 809 |
| $ | (763) |
| $ | (3,170) |
| $ | (595) |
Foreign exchange contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss) recognized in accumulated OCI |
| 5 |
|
| 17 |
|
| 2 |
|
| 17 |
| 2 |
|
| 4 |
|
| (11) |
|
| (3) |
Other income (expense) - net reclassified from accumulated OCI into income |
| 6 |
|
| - |
|
| 16 |
|
| - | |||||||||||
Other income (expense) - net reclassified from |
|
|
|
|
|
|
|
|
|
|
| |||||||||||
accumulated OCI into income |
| (3) |
|
| 7 |
|
| 13 |
|
| 10 | |||||||||||
Interest rate locks: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss) recognized in accumulated OCI |
| (202) |
|
| - |
|
| (225) |
|
| - |
| (12) |
|
| (23) |
|
| (648) |
|
| (23) |
Interest income (expense) reclassified from accumulated OCI into income |
| (15) |
|
| (15) |
|
| (47) |
|
| (44) | |||||||||||
Interest income (expense) reclassified from |
|
|
|
|
|
|
|
|
|
|
| |||||||||||
accumulated OCI into income |
| (18) |
|
| (16) |
|
| (34) |
|
| (32) |
3029
AT&T INC.
SEPTEMBERJUNE 30, 20192020
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
NOTE 8. ACQUISITIONS, DISPOSITIONS AND OTHER ADJUSTMENTS
Acquisitions
Time WarnerHBO Latin America Group (HBO LAG) On June 14, 2018,In May 2020, we completed ouracquired the remaining interest in HBO LAG for $141, net of cash acquired. At acquisition, of Time Warner, a leader in media and entertainment whose major businesses encompass an array of somewe remeasured the fair value of the most respected media brands. total business, which exceeded the carrying amount of our equity method investment and resulted in a pre-tax gain of $68. We paid Time Warner shareholders $36,599consolidated 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 AT&T stockthe WarnerMedia segment. These estimates are preliminary in nature and $42,100 in cash. Total consideration, including share-based payment arrangements and othersubject to adjustments, totaled $79,358, excluding Time Warner’s net debt atwhich will be finalized within one year from the date of acquisition.
The fair values of the assets acquired and liabilities assumed were determined using the income, cost and market approaches. The fair value measurements were primarily based on significant inputs that are not observable in the market and thus represent a Level 3 measurement as defined in ASC 820, other than cash and long-term debt acquired in the acquisition. The income approach was primarily used to value the intangible assets, consisting primarily of distribution network, released TV and film content, in-place advertising network, trade names, and franchises. The income approach estimates fair value for an asset based on the present value of cash flow projected to be generated by the asset. Projected cash flow is discounted at a required rate of return that reflects the relative risk of achieving the cash flow and the time value of money. The cost approach, which estimates value by determining the current cost of replacing an asset with another of equivalent economic utility, was used, as appropriate, for plant, property and equipment. The cost to replace a given asset reflects the estimated reproduction or replacement cost for the property, less an allowance for loss in value due to depreciation.
Goodwill is calculated as the difference between the acquisition date fair value of the consideration transferred and the fair value of the net assets acquired, and represents the future economic benefits that we expect to achieve as a result of the acquisition.
31
AT&T INC.
SEPTEMBER 30, 2019
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
The following table summarizes the fair values of the Time Warner assets acquired and liabilities assumed and related deferred income taxes as of the acquisition date:
Assets acquired |
|
|
|
Cash |
| $ | 1,889 |
Accounts receivable |
|
| 9,020 |
All other current assets |
|
| 2,913 |
Noncurrent inventory and theatrical film and television production costs |
|
| 5,591 |
Property, plant and equipment |
|
| 4,693 |
Intangible assets subject to amortization |
|
|
|
Distribution network |
|
| 18,040 |
Released television and film content |
|
| 10,806 |
Trademarks and trade names |
|
| 18,081 |
Other |
|
| 10,300 |
Investments and other assets |
|
| 9,438 |
Goodwill |
|
| 38,801 |
Total assets acquired |
|
| 129,572 |
|
|
|
|
Liabilities assumed |
|
|
|
Current liabilities, excluding current portion of long-term debt |
|
| 8,294 |
Debt maturing within one year |
|
| 4,471 |
Long-term debt |
|
| 18,394 |
Other noncurrent liabilities |
|
| 19,054 |
Total liabilities assumed |
|
| 50,213 |
Net assets acquired |
|
| 79,359 |
Noncontrolling interest |
|
| (1) |
Aggregate value of consideration paid |
| $ | 79,358 |
Purchased goodwill is not expected to be deductible for tax purposes. All of the goodwill was allocated to the WarnerMedia segment.
Dispositions
Hudson YardsSpectrum Auctions In June 20192020, we sold our ownership in Hudson Yards North Tower Holdings LLC under a sale-leaseback arrangement for cash proceedscompleted the acquisition of $2,0812,379 of 37/39 GHz spectrum in a Federal Communications Commission (FCC) auction. 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 loss of approximately $100 resulting from transaction costs (primarily real estate transfer taxes).
Hulu In April 2019, we sold our ownership in Hulu for cash proceeds of $1,430 and recorded a$900 gain of $740.
Held-for-Sale
In October 2019, we entered into an agreement to sell our wireless and wireline operations in Puerto Rico and the U.S. Virgin Islands for approximately $1,950. We expect the transaction to close in the first halfquarter of 2020. These vouchers yielded a value of approximately $1,200, which was applied toward our gross bids. In the second quarter of 2020, subjectwe made the final cash payment of $949, bringing the total cash payment to customary closing conditions.$1,186.
In the third quarter of 2019, we applied held-for-sale treatment to the assets and liabilities of these operations, and, accordingly, included the assets in “Other current assets,” and the related liabilities in “Accounts payable and accrued liabilities,” on our consolidated balance sheet at September 30, 2019.
32
AT&T INC.
SEPTEMBER 30, 2019
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
The assets and liabilities primarily consist of approximately $700 of net property, plant and equipment; $1,100 of FCC licenses; $300 of goodwill; and $400 of net tax liabilities.
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) receivables related to our WarnerMedia business.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 operations 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 WarnerMediarevolving receivable programs are discussed in detail below. AThe following table sets forth a summary of the receivables and accounts being serviced is as follows:serviced:
|
| September 30, 2019 |
| December 31, 2018 |
| June 30, 2020 |
| December 31, 2019 | ||||||||||||||||
|
| Equipment |
|
|
|
| Equipment |
|
|
|
| Equipment |
|
|
|
| Equipment |
|
|
| ||||
|
| Installment |
| WarnerMedia |
| Installment |
| WarnerMedia |
| Installment |
| Revolving |
| Installment |
| Revolving | ||||||||
Gross receivables: | Gross receivables: | $ | 4,425 |
| $ | 3,147 |
| $ | 5,994 |
| $ | - | Gross receivables: | $ | 3,931 |
| $ | 3,745 |
| $ | 4,576 |
| $ | 3,324 |
Balance sheet classification | Balance sheet classification |
|
|
|
|
|
|
|
|
|
|
| Balance sheet classification |
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable | Accounts receivable |
|
|
|
|
|
|
|
|
|
|
| Accounts receivable |
|
|
|
|
|
|
|
|
|
|
|
Notes receivable | Notes receivable |
| 2,528 |
|
| - |
|
| 3,457 |
|
| - | Notes receivable |
| 2,056 |
|
| - |
|
| 2,467 |
|
| - |
Trade receivables | Trade receivables |
| 460 |
|
| 2,626 |
|
| 438 |
|
| - | Trade receivables |
| 496 |
|
| 3,547 |
|
| 477 |
|
| 2,809 |
Other Assets | Other Assets |
|
|
|
|
|
|
|
|
|
|
| Other Assets |
|
|
|
|
|
|
|
|
|
|
|
Noncurrent notes and trade receivables | Noncurrent notes and trade receivables |
| 1,437 |
|
| 521 |
|
| 2,099 |
|
| - | Noncurrent notes and trade receivables |
| 1,379 |
|
| 198 |
|
| 1,632 |
|
| 515 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding portfolio of receivables derecognized from our consolidated balance sheets |
| 9,405 |
|
| 3,456 |
|
| 9,065 |
|
| - | |||||||||||||
Outstanding portfolio of receivables derecognized from | Outstanding portfolio of receivables derecognized from |
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
our consolidated balance sheets | our consolidated balance sheets |
| 8,917 |
|
| 5,300 |
|
| 9,713 |
|
| 4,300 | ||||||||||||
Cash proceeds received, net of remittances1 | Cash proceeds received, net of remittances1 |
| 6,920 |
|
| 3,456 |
|
| 6,508 |
|
| - | 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. | Represents amounts to which financial institutions remain entitled, excluding the deferred purchase price. |
30
AT&T INC.
JUNE 30, 2020
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars 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 time and, in many cases, once certain conditions are met, they may be eligible to trade in the original equipment for a new device and have the remaining unpaid balance paid or settled.
We maintain a program under which we transfer a portion of these receivables through our bankruptcy-remote subsidiary in exchange for cash and additional consideration upon settlement of the receivables, referred to as the deferred purchase price. In the event a customer trades in a device prior to the end of the installment contract period, we agree to make a payment to the financial institutions equal to any outstanding remaining installment receivable balance. Accordingly, we record a guarantee obligation for this estimated amount at the time the receivables are transferred.
33
AT&T INC.
SEPTEMBER 30, 2019
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
The following table sets forth a summary of equipment installment receivables sold under this program during the three and ninesix months ended SeptemberJune 30, 20192020 and 2018:2019:
|
| Three months ended |
| Nine months ended |
| Three months ended |
| Six months ended | ||||||||||||||||
|
| September 30, |
| September 30, |
| June 30, |
| June 30, | ||||||||||||||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||||||
Gross receivables sold | Gross receivables sold | $ | 2,098 |
| $ | 2,161 |
| $ | 7,043 |
| $ | 7,077 | Gross receivables sold | $ | 1,506 |
| $ | 2,244 |
| $ | 3,873 |
| $ | 4,945 |
Net receivables sold1 | Net receivables sold1 |
| 2,014 |
|
| 2,064 |
|
| 6,693 |
|
| 6,670 | Net receivables sold1 |
| 1,449 |
|
| 2,133 |
|
| 3,722 |
|
| 4,679 |
Cash proceeds received | Cash proceeds received |
| 1,700 |
|
| 1,752 |
|
| 5,895 |
|
| 5,679 | Cash proceeds received |
| 1,225 |
|
| 1,920 |
|
| 3,175 |
|
| 4,195 |
Deferred purchase price recorded | Deferred purchase price recorded |
| 352 |
|
| 335 |
|
| 922 |
|
| 1,161 | Deferred purchase price recorded |
| 232 |
|
| 261 |
|
| 585 |
|
| 570 |
Guarantee obligation recorded | Guarantee obligation recorded |
| 67 |
|
| 75 |
|
| 261 |
|
| 270 | Guarantee obligation recorded |
| 27 |
|
| 93 |
|
| 71 |
|
| 194 |
1 | Receivables net of allowance, imputed interest and equipment trade-in right guarantees. | 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 7).
The following table showspresents the previously transferred equipment installment receivables, which we repurchased in exchange for the associated deferred purchase price during the three and ninesix months ended SeptemberJune 30, 20192020 and 2018:2019:
|
| Three months ended |
| Nine months ended |
| Three months ended |
| Six months ended | ||||||||||||||||
|
| September 30, |
| September 30, |
| June 30, |
| June 30, | ||||||||||||||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||||||
Fair value of repurchased receivables | Fair value of repurchased receivables | $ | 268 |
| $ | - |
| $ | 926 |
| $ | 1,481 | Fair value of repurchased receivables | $ | 285 |
| $ | 235 |
| $ | 573 |
| $ | 658 |
Carrying value of deferred purchase price | Carrying value of deferred purchase price |
| 259 |
|
| - |
|
| 891 |
|
| 1,393 | Carrying value of deferred purchase price |
| 281 |
|
| 225 |
|
| 558 |
|
| 632 |
Gain (loss) on repurchases1 | $ | 9 |
| $ | - |
| $ | 35 |
| $ | 88 | |||||||||||||
Gain on repurchases1 | Gain on repurchases1 | $ | 4 |
| $ | 10 |
| $ | 15 |
| $ | 26 | ||||||||||||
1 | These gains (losses) are included in “Selling, general and administrative” in the consolidated statements of income. | These gains are included in “Selling, general and administrative” in the consolidated statements of income. |
At SeptemberJune 30, 20192020 and December 31, 2018,2019, our deferred purchase price receivable was $2,300$2,319 and $2,370,$2,336, respectively, of which $1,605$1,591 and $1,448$1,569 are included in “Other current assets” on our consolidated balance sheets, with the remainder in “Other Assets.” The guarantee obligation at SeptemberJune 30, 20192020 and December 31, 20182019 was $427$315 and $439,$384, respectively, of which $152$213 and $196$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.
WarnerMedia31
AT&T INC.
JUNE 30, 2020
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
Revolving Receivables Program
In March 2019, we entered into a one-year revolving agreement to transfer $1,400up to $4,300 of certain receivables fromthrough our WarnerMedia businessbankruptcy-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). In June 2019, we expanded the program another $2,600 for a total maximum outstanding amount of $4,000, of which approximately $3,456 is outstanding at September 30, 2019. The transferred receivables are fully guaranteed by our subsidiary,bankruptcy-remote subsidiaries, which holdshold additional receivables in the amount of $,3147$3,745 that are pledged as collateral under this agreement. The transfers are recorded at fair value of the 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 loss related to selling these receivables transferred is limited to the amount outstanding.
34
AT&T INC.
SEPTEMBER 30, 2019The fair value measurement used for the obligation is considered Level 3 under the Fair Value Measurement and Disclosure framework (see Note 7).
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
The following table sets forth a summary of WarnerMedia receivables sold during the three and nine months ended September 30, 2019 and 2018:sold:
|
| Three months ended |
| Nine months ended |
| Three months ended |
| Six months ended | ||||||||||||||||
|
| September 30, |
| September 30, |
| June 30, |
| June 30, | ||||||||||||||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||||||
Gross receivables sold/cash proceeds received1 | Gross receivables sold/cash proceeds received1 | $ | 2,873 |
| $ | - |
| $ | 8,725 |
| $ | - | Gross receivables sold/cash proceeds received1 | $ | 3,805 |
| $ | 4,452 |
| $ | 8,027 |
| $ | 5,852 |
Collections reinvested under revolving agreement | Collections reinvested under revolving agreement |
| 2,873 |
|
| - |
|
| 5,000 |
|
| - | Collections reinvested under revolving agreement |
| 3,805 |
|
| 2,127 |
|
| 7,027 |
|
| 2,127 |
Collections not reinvested |
| 269 |
|
| - |
|
| 269 |
|
| - | |||||||||||||
Net cash proceeds received (remitted) | Net cash proceeds received (remitted) | $ | (269) |
| $ | - |
| $ | 3,456 |
| $ | - | Net cash proceeds received (remitted) | $ | - |
| $ | 2,325 |
| $ | 1,000 |
| $ | 3,725 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net receivables sold2 | Net receivables sold2 | $ | 2,864 |
| $ | - |
| $ | 8,361 |
| $ | - | Net receivables sold2 | $ | 3,819 |
| $ | 4,134 |
| $ | 7,957 |
| $ | 5,497 |
Obligations recorded |
| 39 |
|
| - |
|
| 475 |
|
| - | |||||||||||||
Obligations recorded (reversed) | Obligations recorded (reversed) |
| (12) |
|
| 384 |
|
| 114 |
|
| 436 | ||||||||||||
1 | Includes initial sale of receivables of $0 for the three months ended and $3,725 for the nine months ended September 30, 2019. | 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 | 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 used in our operations. As of September 30, 2019, ourOur 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 yearyear..
Subsequent to the adoption of ASC 842 on January 1, 2019, we recognizeWe 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 iswill be updated on a quarterly basis for measurement of new lease obligations.liabilities.
The components of lease expense were as follows:
| Three months ended |
| Nine months ended | ||
| September 30, 2019 |
| September 30, 2019 | ||
Operating lease cost | $ | 1,481 |
| $ | 4,333 |
|
|
|
|
|
|
Finance lease cost: |
|
|
|
|
|
Amortization of right-of-use assets | $ | 67 |
| $ | 203 |
Interest on lease obligation |
| 42 |
|
| 126 |
Total finance lease cost | $ | 109 |
| $ | 329 |
3532
AT&T INC.
SEPTEMBERJUNE 30, 20192020
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
The components of lease expense were as 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 leases is as follows:
At September 30, 2019 |
| ||
|
| ||
Operating Leases |
|
|
|
Operating lease right-of-use assets | $ | 24,477 |
|
|
|
|
|
Accounts payable and accrued liabilities | $ | 3,453 |
|
Operating lease obligation |
| 22,288 |
|
Total operating lease obligation | $ | 25,741 |
|
|
|
|
|
Finance Leases |
|
|
|
Property, plant and equipment, at cost | $ | 3,438 |
|
Accumulated depreciation and amortization |
| (1,215) |
|
Property, plant and equipment, net | $ | 2,223 |
|
|
|
|
|
Current portion of long-term debt | $ | 153 |
|
Long-term debt |
| 1,823 |
|
Total finance lease obligation | $ | 1,976 |
|
|
|
|
|
Weighted-Average Remaining Lease Term |
|
|
|
Operating leases |
| 8.7 | yrs |
Finance leases |
| 10.4 | yrs |
|
|
|
|
Weighted-Average Discount Rate |
|
|
|
Operating leases |
| 4.3 | % |
Finance leases |
| 8.4 | % |
| 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 | % |
3633
AT&T INC.
SEPTEMBERJUNE 30, 20192020
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
Future minimum maturities of lease obligations are as follows:
At September 30, 2019 | Operating |
| Finance | |||||||
At June 30, 2020 | Operating |
| Finance | |||||||
| Leases |
| Leases | Leases |
| Leases | ||||
Remainder of 2019 | $ | 1,168 |
| $ | 100 | |||||
2020 |
| 4,643 |
|
| 306 | |||||
Remainder of 2020 | $ | 2,447 |
| $ | 190 | |||||
2021 |
| 4,258 |
|
| 287 |
| 4,582 |
|
| 309 |
2022 |
| 3,993 |
|
| 276 |
| 4,277 |
|
| 291 |
2023 |
| 3,609 |
|
| 264 |
| 3,889 |
|
| 262 |
2024 |
| 2,923 |
|
| 247 |
| 3,357 |
|
| 242 |
Thereafter |
| 11,706 |
|
| 1,591 |
| 13,031 |
|
| 1,632 |
Total lease payments |
| 32,300 |
|
| 3,071 |
| 31,583 |
|
| 2,926 |
Less imputed interest |
| (6,559) |
|
| (1,095) |
| (5,879) |
|
| (1,063) |
Total | $ | 25,741 |
| $ | 1,976 | $ | 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 limitations on our ability to declare a dividend on or repurchase AT&T common shares. The preferred shares are optionally redeemable by AT&T at the liquidation price generally on or after five years from the issuance date, or upon certain other contingent events.
NOTE 11.12. 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. The components comprising cash and cash equivalents and restricted cash are as follows:payments:
|
| September 30, |
| December 31, | ||||||||
|
|
| 2019 |
|
| 2018 |
|
| 2018 |
|
| 2017 |
Cash and cash equivalents |
| $ | 6,588 |
| $ | 8,657 |
| $ | 5,204 |
| $ | 50,498 |
Restricted cash in Other current assets |
|
| 15 |
|
| 56 |
|
| 61 |
|
| 6 |
Restricted cash in Other Assets |
|
| 179 |
|
| 75 |
|
| 135 |
|
| 428 |
Cash and cash equivalents and restricted cash |
| $ | 6,782 |
| $ | 8,788 |
| $ | 5,400 |
| $ | 50,932 |
Supplemental disclosures for the statement of cash flows related to operating leases are as follows:
|
| 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 |
|
| Nine months ended | ||||
|
| September 30, | ||||
|
| 2019 |
| 2018 | ||
Cash Flows from Operating Activities |
|
|
|
|
|
|
Cash paid for amounts included in lease obligations |
|
|
|
|
|
|
Operating cash flows from operating leases |
| $ | 3,338 |
| $ | 3,694 |
|
|
|
|
|
|
|
Supplemental Lease Cash Flow Disclosures |
|
|
|
|
|
|
Operating lease right-of-use assets obtained |
|
|
|
|
|
|
in exchange for new operating lease obligations |
|
| 7,068 |
|
| - |
3734
AT&T INC.
SEPTEMBERJUNE 30, 20192020
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
Cash paid (received) from interest and income taxes during the period are as follows:
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) |
| Nine months ended | ||||
| September 30, | ||||
|
| 2019 |
|
| 2018 |
Interest | $ | 6,938 |
| $ | 6,943 |
Income taxes, net of refunds |
| 420 |
|
| (537) |
|
| 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 2019, we recorded approximately $1,920 of new vendor financing commitments related to capital investments, and we have repaid $2,601 of such obligations during the year. In connection with capital improvements and the acquisition of other productive assets, we negotiate favorable payment terms (referred to as vendor financing), which are excluded from our investing activities and reported as financing activities.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.
Preferred Interests Issued by Subsidiary In September 2019, we issued $1,500 nonconvertible cumulative preferred interests in a wireless subsidiary that holds interests in various tower assets (Tower Holdings).
The membership interests in Tower Holdings consist of (1) common interests, which are held by a consolidated subsidiary of AT&T, and (2) these newly issued preferred interests (Tower preferred interests), which pay an initial preferred distribution of 5.0% annually, subject to declaration, resetting every five years. The declaration and payment of distributions on the preferred interests do not impose any limitation on cash movements between affiliates, or our ability to declare a dividend on or repurchase AT&T shares. We can call the Tower preferred interests beginning five years from the issuance date or upon the receipt of proceeds from the sale of the underlying assets. The preferred interests are included in “Noncontrolling interest” on the consolidated balance sheet.Financing Activities
The holdersDebt Transactions At June 30, 2020, our total long-term debt obligations totaled $168,964. Our debt activity primarily consisted of the Tower preferred interests have the option to require redemption upon the occurrencefollowing:
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 contingent events, suchcommercial banks and Bank of America, N.A., as the failurelead 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 pay the preferred distribution for two or more periods or2060.
Issuance of €3,000 million global notes ($3,281 at issuance) due 2028 to meet2038.
Redemptions of $12,689 of AT&T global notes due 2020 to 2047.
Redemptions of $1,800 under term loan credit agreements with certain other requirements, including a minimum credit rating. If notice is given upon such an event, all other holdersbanks.
Redemptions of equal or more subordinate classes of membership interests in Tower Holdings are entitled to receive the same form of consideration payable to the holders of the preferred interests, resulting in a deemed liquidation for accounting purposes.$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%.
3835
AT&T INC.
SEPTEMBERJUNE 30, 20192020
Item 2. Management’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 telecommunications, media and technology industries. You should read this discussion in conjunction with the consolidated financial statements and accompanying notes (Notes). We completed the acquisition of Time Warner Inc. (Time Warner) on June 14, 2018, and have included its results after that date. In accordance with U.S. generally accepted accounting principles (GAAP), operating results from Time Warner prior to the acquisition are excluded.
We have fourthree reportable segments: (1) Communications, (2) WarnerMedia and (3) Latin America and (4) Xandr.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 presented to excludeinclude our wireless and wireline operations in Puerto Rico and the U.S. Virgin Islands fromprior Xandr segment within our Mobility and Business Wireline business units of the Communications segment, instead reporting them with Corporate and Other (see Note 8).WarnerMedia segment.
| Third Quarter |
|
| Nine-Month Period |
| Second Quarter |
|
| Six-Month Period |
| ||||||||||||||||||||
|
|
|
|
|
| Percent |
|
|
|
|
|
|
| Percent |
|
|
|
|
|
| Percent |
|
|
|
|
|
|
| Percent |
|
| 2019 |
| 2018 | Change |
|
| 2019 |
| 2018 | Change |
| 2020 |
| 2019 | Change |
|
| 2020 |
| 2019 | Change |
| ||||||||
Operating Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Communications | $ | 35,401 |
| $ | 36,007 | (1.7) | % |
| $ | 105,837 |
| $ | 106,498 | (0.6) | % | $ | 33,592 |
| $ | 35,267 | (4.7) | % |
| $ | 67,841 |
| $ | 70,436 | (3.7) | % |
WarnerMedia |
| 7,846 |
|
| 8,204 | (4.4) |
|
|
| 24,575 |
|
| 9,709 | - |
|
| 6,814 |
|
| 8,835 | (22.9) |
|
|
| 14,662 |
|
| 17,640 | (16.9) |
|
Latin America |
| 1,730 |
|
| 1,833 | (5.6) |
|
|
| 5,205 |
|
| 5,809 | (10.4) |
|
| 1,232 |
|
| 1,757 | (29.9) |
|
|
| 2,822 |
|
| 3,475 | (18.8) |
|
Xandr |
| 504 |
|
| 445 | 13.3 |
|
|
| 1,415 |
|
| 1,174 | 20.5 |
| |||||||||||||||
Corporate and other |
| 407 |
|
| 531 | (23.4) |
|
|
| 1,218 |
|
| 1,636 | (25.6) |
|
| 437 |
|
| 420 | 4.0 |
|
|
| 825 |
|
| 811 | 1.7 |
|
Eliminations and consolidation |
| (1,300) |
|
| (1,281) | (1.5) |
|
|
| (3,878) |
|
| (2,063) | (88.0) |
|
| (1,125) |
|
| (1,322) | 14.9 |
|
|
| (2,421) |
|
| (2,578) | 6.1 |
|
AT&T Operating Revenues |
| 44,588 |
|
| 45,739 | (2.5) |
|
|
| 134,372 |
|
| 122,763 | 9.5 |
|
| 40,950 |
|
| 44,957 | (8.9) |
|
|
| 83,729 |
|
| 89,784 | (6.7) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Contribution |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Communications |
| 8,036 |
|
| 8,150 | (1.4) |
|
|
| 24,718 |
|
| 24,498 | 0.9 |
|
| 8,112 |
|
| 8,671 | (6.4) |
|
|
| 16,315 |
|
| 16,682 | (2.2) |
|
WarnerMedia |
| 2,544 |
|
| 2,528 | 0.6 |
|
|
| 6,879 |
|
| 2,992 | - |
|
| 1,917 |
|
| 2,350 | (18.4) |
|
|
| 3,930 |
|
| 4,913 | (20.0) |
|
Latin America |
| (166) |
|
| (201) | 17.4 |
|
|
| (548) |
|
| (462) | (18.6) |
|
| (201) |
|
| (209) | 3.8 |
|
|
| (385) |
|
| (382) | (0.8) |
|
Xandr |
| 327 |
|
| 333 | (1.8) |
|
|
| 905 |
|
| 952 | (4.9) |
| |||||||||||||||
Segment Operating Contribution | $ | 10,741 |
| $ | 10,810 | (0.6) | % |
| $ | 31,954 |
| $ | 27,980 | 14.2 | % | $ | 9,828 |
| $ | 10,812 | (9.1) | % |
| $ | 19,860 |
| $ | 21,213 | (6.4) | % |
The Communications segment provides services to businesses and consumers located in the U.S. and businesses globally. Our business strategies reflect bundled product offerings that cut across product lines and utilize shared assets. This segment contains the following business units:
Mobility provides nationwide wireless service and equipment.
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 DIRECTV and U-verse distribution platforms.
Business Wireline provides advanced IP-based services, as well as traditional voice and data services to business customers.
3936
AT&T INC.
SEPTEMBERJUNE 30, 20192020
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 WarnerMedia segment develops, produces and distributes feature films, television, gaming and other content overin various physical and digital formats.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 feature films, the distribution of home entertainment products and the production and distribution of games.
The Latin America segment provides entertainment and wireless services outside of the U.S. This segment contains the following business units:
Mexico provides wireless service and equipment to customers in Mexico.
Vrio provides video services primarily to residential customers using satellite technology in Latin America and the Caribbean.
TheMexico Xandrsegmentprovides advertising serviceswireless service and includes our recently acquired AppNexus. These services utilize data insightsequipment to develop and deliver targeted advertising across video and digital platforms.customers in Mexico.
RESULTS OF OPERATIONSCOVID-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 shutdowns.
Consolidated Results Our financialDisruptions caused by COVID-19 and measures taken to prevent its spread or mitigate its effects both domestically and internationally have impacted our results are summarizedof operations. We recorded approximately $320, or $0.03 per diluted share, in the following discussions. Additional analysis is discussed in our “Segment Results” section. Certain prior period amounts have been reclassifiedsecond quarter and $750, or $0.08 per diluted share, for the first six months of 2020, of incremental costs associated with voluntary corporate actions taken primarily to conform to the current period’s presentation.protect and compensate front-line employees and contractors, and WarnerMedia production disruption costs.
| Third Quarter |
|
| Nine-Month Period |
| ||||||||||
|
|
|
|
|
| Percent |
|
|
|
|
|
|
| Percent |
|
| 2019 |
| 2018 | Change |
|
| 2019 |
| 2018 | Change |
| ||||
Operating Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service | $ | 40,317 |
| $ | 41,297 | (2.4) | % |
| $ | 122,024 |
| $ | 109,849 | 11.1 | % |
Equipment |
| 4,271 |
|
| 4,442 | (3.8) |
|
|
| 12,348 |
|
| 12,914 | (4.4) |
|
Total Operating Revenues |
| 44,588 |
|
| 45,739 | (2.5) |
|
|
| 134,372 |
|
| 122,763 | 9.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations and support |
| 29,738 |
|
| 30,304 | (1.9) |
|
|
| 90,482 |
|
| 82,289 | 10.0 |
|
Depreciation and amortization |
| 6,949 |
|
| 8,166 | (14.9) |
|
|
| 21,256 |
|
| 20,538 | 3.5 |
|
Total Operating Expenses |
| 36,687 |
|
| 38,470 | (4.6) |
|
|
| 111,738 |
|
| 102,827 | 8.7 |
|
Operating Income |
| 7,901 |
|
| 7,269 | 8.7 |
|
|
| 22,634 |
|
| 19,936 | 13.5 |
|
Interest expense |
| 2,083 |
|
| 2,051 | 1.6 |
|
|
| 6,373 |
|
| 5,845 | 9.0 |
|
Equity in net income (loss) of affiliates |
| 3 |
|
| (64) | - |
|
|
| 36 |
|
| (71) | - |
|
Other income (expense) – net |
| (935) |
|
| 1,053 | - |
|
|
| (967) |
|
| 5,108 | - |
|
Income Before Income Taxes |
| 4,886 |
|
| 6,207 | (21.3) |
|
|
| 15,330 |
|
| 19,128 | (19.9) |
|
Net Income |
| 3,949 |
|
| 4,816 | (18.0) |
|
|
| 12,271 |
|
| 14,823 | (17.2) |
|
Net Income Attributable to AT&T | $ | 3,700 |
| $ | 4,718 | (21.6) | % |
| $ | 11,509 |
| $ | 14,512 | (20.7) | % |
In addition to these incremental costs, we estimate that our operations and comparability were impacted by approximately $510, or $0.06 per diluted share, in the second quarter and $470, or $0.05 per diluted share, for the first six months of 2020, for the following COVID-19 related pressures: (1) the cancellation and postponement of televised sporting events, resulting in lower advertising revenues and associated expenses, (2) the closure of movie theaters and postponement of theatrical releases, leading to lower content revenues and associated expenses, (3) the imposition of travel restrictions, driving significantly lower international wireless roaming services that do not have a directly correlated expense reduction and most significantly impact profitability and (4) closures of retail stores, contributing to lower wireless equipment sales, with a corresponding reduction in equipment expense.
Operating revenues 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 if they had disconnected, even though they are still receiving service:
decreasedPostpaid subscribers totaling 466,0000 (including 338,000 postpaid phone) in the thirdsecond quarter and increased521,000 (including 382,000 postpaid phone) for the first six months;
Premium TV connections totaling 91,000 in the second quarter and 157,000 for the first nine months of 2019. The decreasesix months; and
Broadband connections totaling 159,000 (including 48,000 fiber) in the thirdsecond quarter was primarily dueand 194,000 (including 58,000 fiber) for the first six months.
The economic effects of the pandemic and resulting societal changes are currently not predictable. There are a number of uncertainties that could impact our future results of operations, including the effectiveness of COVID-19 mitigation measures; the duration of the pandemic; global economic conditions; changes to declinesour operations; changes in consumer confidence, behaviors and spending; work from home trends; and the sustainability of supply chains. We expect operating results and cash flows to continue to be adversely impacted by COVID-19 for at least the duration of the pandemic. We expect our Communications, WarnerMedia and Latin America segments. Communications segment decreases were duethird-quarter results to continued declines in legacy and video services and lower wireless device upgrades, partially offsetbe impacted by growth in advanced data and wireless services. WarnerMedia segment declines were driven by lower theatricalthe following:
4037
AT&T INC.
SEPTEMBERJUNE 30, 20192020
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
product compared to a more favorable mixThe shift in timing of box officeadvertising revenues from the postponement, restarting or cancellation of sporting events and the related timing of the sports costs;
Lower revenues from the closure of movie theaters and postponement of theatrical releases, in the prior year, partially offset by higherlower production and marketing costs, and other programming expenses;
The decline in revenues from international licenses revenues at Home Box Office. Latin America revenues were negatively impacted by foreign exchange pressures.roaming wireless services due to reduced travel;
Higher expenses to protect front-line employees, contractors and customers; and
The continued transition of customers to our fiber broadband services and the acceleration of the disconnection of linear TV services due to the pandemic.
The increaseRESULTS OF OPERATIONS
Consolidated Results Our financial results are summarized in the discussions that follow. Additional analysis is discussed 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 ninesix months was primarilyof 2020, driven by declines in our WarnerMedia, Communications and Latin America segments. Lower WarnerMedia segment revenues reflect lower advertising revenue from cancelled and postponed live sports programming and lower revenue due to our 2018 acquisition of Time Warner. Partially offsetting the increase were declines in thepostponed theatrical releases. Communications segment revenue declines were driven by continued pressuredeclines in legacyvideo and videolegacy services, and lower wireless equipment upgrades thatrevenues from the imposition of international travel restrictions and closure of retail stores. Latin America segment revenue declines were offset by growth in advanced data and wireless services, andprimarily due to foreign exchange pressuresrate pressure and store closures related to COVID-19. Partially offsetting these decreases were revenue increases in strategic and managed business service in our Latin AmericaCommunications segment.
Operations and support expenses decreased in the thirdsecond quarter and increased in the first ninesix months of 2019.2020. The decrease in the third quarter was primarily due to declines in content costs reflecting continued declines in premium TV subscribersdecreases were driven by lower broadcast and postpaid smartphone volumes in the Communications segment. Lower film and television production costs in the WarnerMedia segment and foreign exchange rate impacts in the Latin America segment also contributed to lower expense in 2019.
The increase in the first nine months of 2019 was primarily due to our 2018 acquisition of Time Warner. The increase was partially offset by lowerprogramming costs in our Communications segment, including lower content 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 foreign exchange rate impacts in our Latin America segment, and lower expenses due to our continued focus on cost management.
Depreciation and amortization expense decreased in the third quarter and increased for the first nine months of 2019. Depreciation expense increased $5, or 0.1% in the third quarter and $168, or 1.1% for the first nine months of 2019. The increase in the nine-month period was primarily due to the Time Warner acquisition.
Amortization expense decreased $1,222, or 39.4% in the third quarter and increased $550, or 9.9% for the first nine months of 2019 primarily due to the amortization of intangibles associated with WarnerMedia. We expect continued quarterly declines in amortization expense, reflecting the accelerated method of amortization applied on the WarnerMedia intangibles.
Operatingincome increased in the third quarter and the first nine months of 2019. Our operating income margin for the third quarter increased from 15.9% in 2018 to 17.7% in 2019 and for the first nine months increased from 16.2% in 2018 to 16.8% in 2019.
Interest expense increased in the third quarter and first nine months of 2019. The increase was primarily due to lower capitalized interest associated with putting spectrum into network service. Higher debt balances related to our acquisition of Time Warner also contributed to higher expense for the nine-month period.
Equity in net income of affiliates increased in the third quarter and for the first nine months of 2019, primarily due to changes in our investment portfolio resulting from acquisitions and the second-quarter 2019 sale of Hulu.
Other income (expense) – net decreased in the third quarter and for the first nine months of 2019. The decrease in the quarter was primarily due to the recognition of a $1,917 actuarial loss in 2019 with no comparable remeasurement in 2018, and higher income in the prior year resulting from a gain on our third-quarter 2018 Otter Media transaction.
The decrease for the first nine months was primarily due to the recognition of an actuarial loss of $4,048 in 2019, compared to actuarial gain of $2,726 in 2018, and the prior-year gain on the Otter Media transaction. Partially offsetting the declines was a $740 gain on the second-quarter 2019 sale of our investment in Hulu and lower premiums on debt redemptions.
Income taxes decreased in the third quarter and for the first nine months of 2019. Our effective tax rate was 19.2% for the third quarter and 20.0% for the first nine months of 2019, versus 22.4% for the third quarter and 22.5% for the first nine months of 2018. The decrease in income tax expense and the effective tax rate for the third quarter was primarily due to tax benefits related to internal restructurings and lower income before income taxes. The decrease in income tax expense and the effective tax rate for the first nine months was primarily due to benefits from tax settlements, internal restructurings and lower income before income taxes, including impacts of actuarial losses of $1,917 in the third quarter and $4,048 for the first nine months of 2019, compared to actuarial gains of $2,726 for the first nine months of 2018.
4138
AT&T INC.
SEPTEMBERJUNE 30, 20192020
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
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 COVID-19, including increased first-quarter 2020 bad debt expense. As part of our cost and efficiency initiatives, we expect operations and support expense improvements to continue as we size our operations to reflect the new economic activity level.
COMMUNICATIONS SEGMENT | Third Quarter |
|
| Nine-Month Period |
| ||||||||||
|
|
|
|
|
| Percent |
|
|
|
|
|
|
| Percent |
|
| 2019 |
| 2018 | Change |
|
| 2019 |
| 2018 | Change |
| ||||
Segment Operating Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobility | $ | 17,701 |
| $ | 17,735 | (0.2) | % |
| $ | 52,356 |
| $ | 51,965 | 0.8 | % |
Entertainment Group |
| 11,197 |
|
| 11,589 | (3.4) |
|
|
| 33,893 |
|
| 34,498 | (1.8) |
|
Business Wireline |
| 6,503 |
|
| 6,683 | (2.7) |
|
|
| 19,588 |
|
| 20,035 | (2.2) |
|
Total Segment Operating Revenues |
| 35,401 |
|
| 36,007 | (1.7) |
|
|
| 105,837 |
|
| 106,498 | (0.6) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Operating Contribution |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobility |
| 5,742 |
|
| 5,575 | 3.0 |
|
|
| 16,817 |
|
| 16,144 | 4.2 |
|
Entertainment Group |
| 1,085 |
|
| 1,104 | (1.7) |
|
|
| 4,077 |
|
| 3,888 | 4.9 |
|
Business Wireline |
| 1,209 |
|
| 1,471 | (17.8) |
|
|
| 3,824 |
|
| 4,466 | (14.4) |
|
Total Segment Operating Contribution | $ | 8,036 |
| $ | 8,150 | (1.4) | % |
| $ | 24,718 |
| $ | 24,498 | 0.9 | % |
Selected Subscribers and Connections |
|
|
|
| September 30, | ||
(000s) | 2019 |
| 2018 |
Total domestic broadband connections | 15,575 |
| 15,747 |
Network access lines in service | 8,831 |
| 10,399 |
U-verse VoIP connections | 4,539 |
| 5,274 |
ResultsDepreciation and amortization expense increased in the Mobilitysecond quarter and Business Wireline business unitsfor the first six months of 2020.
Depreciation expense increased $36, or 0.7% in the second quarter and $65, or 0.6% for the first six months of 2020, primarily due to ongoing capital spend for network upgrades and expansion in our Communications segment have been recastsegment.
Amortization expense increased $148, or 7.1% in the second quarter and $135, or 3.2% for all prior periods presentedthe first six months of 2020 primarily due to remove operationsthe amortization of orbital slot licenses, which began in Puerto Rico and the U.S. Virgin Islandsfirst quarter of 2020 (see Note 8)1).
Operating revenuesincome decreased in the thirdsecond quarter and 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 ninesix months of 2019. The decrease2020, reflecting changes in our investment portfolio, including our second-quarter 2020 acquisition of the quarter was driven by declinesremaining interest in each of our business units, EntertainmentHBO Latin America Group Business Wireline and Mobility. Revenues reflect continued declines in legacy voice and data products, the shift to over-the-top (OTT) video offerings and decreased wireless equipment revenues, partially offset by growth in strategic and managed business services, wireless service and IP broadband.(HBO LAG).
The decreaseOther income (expense) – net increased in the second quarter and for the first ninesix months wasof 2020. The increases were primarily due to declinesthe recognition of actuarial losses in our Entertainment Group2019, with no comparable interim remeasurement in 2020, totaling $1,699 and Business Wireline business units,$2,131 in the second quarter and for the first six months of 2019, respectively, and higher prior service credit amortization in 2020 (see Note 6). The increase was partially offset by increasesthe write-off of certain investments in 2020 and the second-quarter 2019 gain on sale of our Mobility business unit. The decrease reflects the shift away from legacy communications and linear video offerings, and lower wireless equipment revenues, largely offset by higher wireless service and advanced data revenues.interest in Hulu.
Operating contribution
Income taxes decreased in the thirdsecond quarter and increased for the first ninesix months of 2019.2020. The decrease in income tax expense in the second quarter reflects declines in our Business Wirelinewas primarily attributable to lower income before tax.
Our effective tax rate was 37.5% for the second quarter and Entertainment Group business units, largely offset by improvement in our Mobility business unit. The increase25.5% for the first ninesix months includes improvementsof 2020, versus 21.7% and 20.3% for the comparable year-prior periods, respectively. The increases in our Mobility and Entertainment Group business units, partially offset by declines in our Business Wireline business unit. Our Communications segment operating income margin ineffective tax rates were primarily due to the third quarter increased from 22.6% in 2018 to 22.7% in 2019 andVrio goodwill impairment, which is not deductible for the first nine months increased from 23.0% in 2018 to 23.4% in 2019.tax purposes.
4239
AT&T INC.
SEPTEMBERJUNE 30, 20192020
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
Communications Business Unit Discussion | |||||||||||||||
Mobility Results |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Third Quarter |
| Nine-Month Period | ||||||||||||
|
|
|
|
|
| Percent |
|
|
|
|
|
| Percent | ||
| 2019 |
| 2018 | Change |
| 2019 |
| 2018 | Change | ||||||
Operating revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service | $ | 13,930 |
| $ | 13,828 | 0.7 | % |
| $ | 41,383 |
| $ | 40,594 | 1.9 | % |
Equipment |
| 3,771 |
|
| 3,907 | (3.5) |
|
|
| 10,973 |
|
| 11,371 | (3.5) |
|
Total Operating Revenues |
| 17,701 |
|
| 17,735 | (0.2) |
|
|
| 52,356 |
|
| 51,965 | 0.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations and support |
| 9,948 |
|
| 10,104 | (1.5) |
|
|
| 29,511 |
|
| 29,603 | (0.3) |
|
Depreciation and amortization |
| 2,011 |
|
| 2,057 | (2.2) |
|
|
| 6,027 |
|
| 6,218 | (3.1) |
|
Total Operating Expenses |
| 11,959 |
|
| 12,161 | (1.7) |
|
|
| 35,538 |
|
| 35,821 | (0.8) |
|
Operating Income |
| 5,742 |
|
| 5,574 | 3.0 |
|
|
| 16,818 |
|
| 16,144 | 4.2 |
|
Equity in Net Income (Loss) of Affiliates |
| - |
|
| 1 | - |
|
|
| (1) |
|
| - | - |
|
Operating Contribution | $ | 5,742 |
| $ | 5,575 | 3.0 | % |
| $ | 16,817 |
| $ | 16,144 | 4.2 | % |
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 decreased in the second quarter and for the first six months of 2020, driven by declines in each of our business units, Entertainment Group, Business Wireline and Mobility. The following tables highlight other key measuresdecreases reflect the continued shift away from linear video and legacy services, lower wireless service revenues from a decline in international travel and waived fees, and suppressed equipment sales in the first quarter of performance for Mobility:2020 attributable to store closures. Partially offsetting these declines was growth in our prepaid subscriber base.
|
|
|
|
|
|
|
| September 30, | Percent | ||||
(in 000s) |
|
|
|
|
|
| 2019 |
| 2018 | Change | |||
Mobility Subscribers |
|
|
|
|
|
|
|
|
|
|
|
| |
Postpaid smartphones |
|
|
|
|
|
|
| 60,306 |
| 59,829 | 0.8 | % | |
Postpaid feature phones and data-centric devices |
|
|
|
|
|
|
| 14,846 |
| 16,344 | (9.2) |
| |
Postpaid |
|
|
|
|
|
|
| 75,152 |
| 76,173 | (1.3) |
| |
Prepaid |
|
|
|
|
|
|
| 17,740 |
| 16,721 | 6.1 |
| |
Reseller |
|
|
|
|
|
|
| 7,120 |
| 8,079 | (11.9) |
| |
Connected devices1 |
|
|
|
|
|
|
| 62,288 |
| 48,177 | 29.3 |
| |
Total Mobility Subscribers |
|
|
|
|
|
|
| 162,300 |
| 149,150 | 8.8 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postpaid Phone Subscribers |
|
|
|
|
|
|
| 62,812 |
| 62,850 | (0.1) |
| |
Total Phone Subscribers |
|
|
|
|
|
|
| 79,462 |
| 78,639 | 1.0 | % | |
1 | Includes data-centric devices such as wholesale automobile systems, monitoring devices, fleet management, and session-based tablets. |
Operating contribution decreased in the second quarter and for the first six months of 2020, 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 second quarter decreased from 24.6% in 2019 to 24.1% in 2020 and for the first six months increased from 23.7% in 2019 to 24.0% in 2020.
4340
AT&T INC.
SEPTEMBERJUNE 30, 20192020
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
| Third Quarter |
|
|
|
| Nine-Month Period |
| ||||||
|
|
|
| Percent |
|
|
|
|
| Percent | |||
(in 000s) | 2019 |
| 2018 | Change |
|
| 2019 |
| 2018 | Change | |||
Mobility Net Additions2 |
|
|
|
|
|
|
|
|
|
|
|
| |
Postpaid | (217) |
| (231) | 6.1 | % |
|
| (570) |
| (105) | - | % | |
Prepaid | 227 |
| 570 | (60.2) |
|
|
| 669 |
| 1,275 | (47.5) |
| |
Reseller | (231) |
| (366) | 36.9 |
|
|
| (677) |
| (1,175) | 42.4 |
| |
Connected devices1 | 3,900 |
| 3,459 | 12.7 |
|
|
| 10,947 |
| 9,171 | 19.4 |
| |
Mobility Net Subscriber Additions | 3,679 |
| 3,432 | 7.2 |
|
|
| 10,369 |
| 9,166 | 13.1 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Postpaid Phone Net Additions | 101 |
| 67 | 50.7 |
|
|
| 254 |
| 63 | - |
| |
Total Phone Net Additions | 255 |
| 547 | (53.4) | % |
|
| 780 |
| 1,104 | (29.3) | % | |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Postpaid Churn3 | 1.19 |
| 1.16 | 3 | BP |
|
| 1.14 |
| 1.08 | 6 | BP | |
Postpaid Phone-Only Churn3 | 0.95 |
| 0.93 | 2 | BP |
|
| 0.91 |
| 0.86 | 5 | BP | |
1 | Includes data-centric devices such as wholesale automobile systems, monitoring devices, fleet management, and session-based tablets. | ||||||||||||
2 | Excludes acquisition-related additions during the period. | ||||||||||||
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. |
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 increaseddecreased in the thirdsecond quarter and increased for the first ninesix months of 2019 largely2020. 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 higher postpaid phone average revenue per subscriber (ARPU) and gains in prepaid subscribers.subscribers, largely offset by impacts of the pandemic for the first six months.
ARPU
Postpaid ARPU increaseddecreased in the thirdsecond quarter and increased for the first nine months primarily due to price actions that were notsix months. ARPU during 2020 has been pressured by the decline in effect in the comparative periods of the prior year.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. Postpaid churn was higherand postpaid phone-only churn were lower in the first six months due to tabletmigrations to unlimited plans, continued network improvements and involuntary churn. Postpaid phone-only churn wasindustry-wide store closures from COVID-19, partially offset by higher due to involuntary churn. Also contributing to higher churnaccrual for subscriber disconnections under the first nine months was continued competitive pricing in the industry.“Keep Americans Connected Pledge.”
Equipment revenue decreasedwas stable in the thirdsecond quarter and decreased for the first ninesix months of 20192020 driven by lower postpaid smartphone sales resulting from the continuing trend of customers choosing to upgrade devices less frequently or bring their own.reflecting store closures.
Operations and support expenses decreased in the thirdsecond quarter and for the first ninesix months of 2019.2020. The decreases were primarily due to higher bad debt expense in 2019 resulting from prior-year charges in response to credit easing policies, cost initiatives and asset optimization, and lower postpaid smartphone volumesmarketing and increased operational efficiencies,sales costs, partially offset by higher bad debt expense, commission deferral amortization and handset insurance costs. In the second quarter of 2019, we extended the estimated economic life of our customers, which will result in a decline of commission deferral amortization in the second half of 2019.
Depreciation expense decreased in the third quarter and for the first nine months of 2019 primarily due to fully depreciated assets, partially offset by ongoing capital spending for network upgrades and expansion.
Operating income increased in the third quarter and for the first nine months of 2019. Our Mobility operating income margin in the third quarter increased from 31.4% in 2018 to 32.4% in 2019, and for the first nine months increased from 31.1% in 2018 to 32.1% in 2019. Our Mobility EBITDA margin in the third quarter increased from 43.0% in 2018 to 43.8%
4442
AT&T INC.
SEPTEMBERJUNE 30, 20192020
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
amortization, including the impacts of second-quarter 2020 updates to extend the expected economic life of our Mobility customers.
Depreciation expense increased in 2019,the second quarter and for the first ninesix months of 2020 primarily due to ongoing capital spending for network upgrades and expansion partially offset by fully depreciated assets.
Operating income increased in the second quarter and for the first six months of 2020. Our Mobility operating income margin in the second quarter increased from 33.4% in 2019 to 33.9% in 2020, and for the first six months increased from 43.0%32.0% in 20182019 to 43.6%33.6% in 2019.2020. Our Mobility EBITDA margin in the second quarter increased from 44.9% in 2019 to 45.6% in 2020, and for the first six months increased from 43.5% in 2019 to 45.3% in 2020. EBITDA is defined as operating contribution excluding equity in net income (loss) of affiliates and depreciation and amortization.
Subscriber Relationships
As the wireless industry has matured, future wireless growth will increasingly depend 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 with our video and broadband services.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 video and 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 mature and highly competitive market, we have launched a wide variety of plans,. including our FirstNet and prepaid products, and arrangements that bundle our video services. Virtually all of our postpaid smartphone subscribers are on plans that provide for service on multiple devices at reduced rates, and such subscribers tend to have higher retention and lower churn rates. SuchWe offer unlimited data plans and such subscribers also tend to have higher retention and lower churn rates. Our offerings are intended to encourage existing subscribers to upgrade their current services and/or add devices, attract subscribers from other providers and/or minimize subscriber churn.
Connected Devices
Connected devices include data-centric devices such as wholesale automobile systems, monitoring devices, fleet management and session-based tablets. The number of connected Connected device subscribers increased in 2019,2020, and during the thirdsecond quarter and for the first ninesix months of 2019,2020, we added approximately 2.11.3 million and 6.23.6 million wholesale connected cars through agreements with various carmakers, and experienced strong growth in other Internet of Things (IoT) connections. We believe that these connected car agreements give us the opportunity to create future retail relationships with the car owners.
Entertainment Group Results |
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|
|
|
|
|
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|
|
|
|
|
|
|
|
| Third Quarter |
|
| Nine-Month Period |
| ||||||||||
|
|
|
|
|
| Percent |
|
|
|
|
|
| Percent | ||
| 2019 |
| 2018 | Change |
| 2019 |
| 2018 | Change | ||||||
Operating revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Video entertainment | $ | 7,933 |
| $ | 8,283 | (4.2) | % |
| $ | 24,042 |
| $ | 24,681 | (2.6) | % |
High-speed internet |
| 2,117 |
|
| 2,045 | 3.5 |
|
|
| 6,296 |
|
| 5,904 | 6.6 |
|
Legacy voice and data services |
| 628 |
|
| 739 | (15.0) |
|
|
| 1,969 |
|
| 2,317 | (15.0) |
|
Other service and equipment |
| 519 |
|
| 522 | (0.6) |
|
|
| 1,586 |
|
| 1,596 | (0.6) |
|
Total Operating Revenues |
| 11,197 |
|
| 11,589 | (3.4) |
|
|
| 33,893 |
|
| 34,498 | (1.8) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations and support |
| 8,797 |
|
| 9,155 | (3.9) |
|
|
| 25,839 |
|
| 26,623 | (2.9) |
|
Depreciation and amortization |
| 1,316 |
|
| 1,331 | (1.1) |
|
|
| 3,978 |
|
| 3,986 | (0.2) |
|
Total Operating Expenses |
| 10,113 |
|
| 10,486 | (3.6) |
|
|
| 29,817 |
|
| 30,609 | (2.6) |
|
Operating Income |
| 1,084 |
|
| 1,103 | (1.7) |
|
|
| 4,076 |
|
| 3,889 | 4.8 |
|
Equity in Net Income (Loss) of Affiliates |
| 1 |
|
| 1 | - |
|
|
| 1 |
|
| (1) | - |
|
Operating Contribution | $ | 1,085 |
| $ | 1,104 | (1.7) | % |
| $ | 4,077 |
| $ | 3,888 | 4.9 | % |
4543
AT&T INC.
SEPTEMBERJUNE 30, 20192020
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
Entertainment Group Results |
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|
|
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|
|
|
|
|
|
|
|
| Second Quarter |
|
| Six-Month Period |
| ||||||||||
|
|
|
|
|
| Percent |
|
|
|
|
|
| Percent | ||
| 2020 |
| 2019 | Change |
| 2020 |
| 2019 | Change | ||||||
Operating revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Video entertainment | $ | 6,976 |
| $ | 8,035 | (13.2) | % |
| $ | 14,371 |
| $ | 16,109 | (10.8) | % |
High-speed internet |
| 2,092 |
|
| 2,109 | (0.8) |
|
|
| 4,201 |
|
| 4,179 | 0.5 |
|
Legacy voice and data services |
| 560 |
|
| 658 | (14.9) |
|
|
| 1,141 |
|
| 1,341 | (14.9) |
|
Other service and equipment |
| 441 |
|
| 566 | (22.1) |
|
|
| 871 |
|
| 1,067 | (18.4) |
|
Total Operating Revenues |
| 10,069 |
|
| 11,368 | (11.4) |
|
|
| 20,584 |
|
| 22,696 | (9.3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 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 Entertainment Group:
|
|
|
|
|
|
|
| September 30, | Percent | ||||
|
|
|
|
|
|
| 2019 |
| 2018 | Change | |||
Video Connections |
|
|
|
|
|
|
|
|
|
|
|
| |
Premium TV |
|
|
|
|
|
|
| 20,418 |
| 23,294 | (12.3) | % | |
AT&T Now1 |
|
|
|
|
|
|
| 1,145 |
| 1,858 | (38.4) |
| |
Total Video Connections |
|
|
|
|
|
|
| 21,563 |
| 25,152 | (14.3) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Broadband Connections |
|
|
|
|
|
|
|
|
|
|
|
| |
IP |
|
|
|
|
|
|
| 13,739 |
| 13,723 | 0.1 |
| |
DSL |
|
|
|
|
|
|
| 562 |
| 718 | (21.7) |
| |
Total Broadband Connections |
|
|
|
|
|
|
| 14,301 |
| 14,441 | (1.0) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail Consumer Switched Access Lines |
|
|
|
|
|
|
| 3,467 |
| 4,144 | (16.3) |
| |
U-verse Consumer VoIP Connections |
|
|
|
|
|
|
| 3,973 |
| 4,757 | (16.5) |
| |
Total Retail Consumer Voice Connections |
|
|
|
|
|
|
| 7,440 |
| 8,901 | (16.4) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiber Broadband Connections (included in IP) |
|
|
|
|
|
|
| 3,696 |
| 2,504 | 47.6 | % | |
1 | Consistent with industry practice, connections that are on a free-trial are included. | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Third Quarter |
|
|
|
| Nine-Month Period |
|
| ||||
|
|
|
|
| Percent |
|
|
|
|
| Percent | ||
(in 000s) | 2019 |
| 2018 | Change |
|
| 2019 |
| 2018 | Change | |||
Video Net Additions |
|
|
|
|
|
|
|
|
|
|
|
| |
Premium TV2 | (1,163) |
| (346) | - | % |
|
| (2,485) |
| (795) | - | % | |
AT&T Now1 | (195) |
| 49 | - |
|
|
| (446) |
| 703 | - |
| |
Net Video Additions | (1,358) |
| (297) | - |
|
|
| (2,931) |
| (92) | - |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Broadband Net Additions |
|
|
|
|
|
|
|
|
|
|
|
| |
IP | (83) |
| 31 | - |
|
|
| 10 |
| 261 | (96.2) |
| |
DSL | (36) |
| (45) | 20.0 |
|
|
| (118) |
| (170) | 30.6 |
| |
Net Broadband Additions | (119) |
| (14) | - |
|
|
| (108) |
| 91 | - |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Fiber Broadband Net Additions (included in IP) | 318 |
| 300 | 6.0 | % |
|
| 933 |
| 775 | 20.4 | % | |
1 | Consistent with industry practice, connections that are on a free-trial are included. | ||||||||||||
2 | Includes disconnections for customers that migrated to AT&T Now. |
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 advertising revenues. Revenues decreased in the thirdsecond quarter and for the first ninesix months of 2019,2020, largely driven by an 12.3%a decline in premium TV and OTT subscribers as we continue to focus on retention of existing subscribers with a particular focus on our high-value customers. Our customers continue to shift, consistentsubscribers, and lower subscription-based advertising revenues driven by impacts of the pandemic. Consistent with the rest of the industry, our customers continue to shift from a premium linear service to our more economically priced OTT and subscription video service, or to competitors,on demand services, which has pressured our video revenues. Churn rose
High-speed internet revenues decreased in the second quarter and increased for subscribers with premium TV-onlythe first six months of 2020. The decrease in the 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 pricing.
Legacy voice and data service partiallyrevenues decreased in the second quarter and for the first six months of 2020, reflecting price increasesthe continued decline in the number of customers.
. We also experienced
4645
AT&T INC.
SEPTEMBERJUNE 30, 20192020
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
increased churn in video (including customers who bundled broadband service) due to carriage disputes during the third quarter of 2019.
Revenue declines in our premium TV products were partially offset by growth in revenues from our OTT service, AT&T Now, which were primarily attributable to pricing actions. AT&T Now subscriber net additions declined in the third quarter and for the first nine months due to price increases and fewer promotions.
High-speed internet revenues increased in the third quarter and for the first nine months of 2019 reflecting the continued shift of subscribers to our higher-speed fiber services. Our bundling strategy is helping to lower churn with subscribers who bundle broadband with another AT&T service.
Legacy voice and data servicerevenues decreased in the third quarter and for the first nine months of 2019, reflecting the continued migration of customers to our more advanced IP-based offerings or to competitors.
Operations and support expenses decreased in the thirdsecond quarter and for the first ninesix months of 2019.2020. Contributing to the decreases were lower content and selling costs largely due to fewer subscribers, lower subscribersmarketing costs and our ongoing focus on cost initiatives. Partially offsetting the decreases were increased costs associated with NFL SUNDAY TICKET andannual content rate increases, higher amortization of fulfillment cost deferrals, including the impact of second-quarter 20192020 updates to decrease the estimated economic life for our Entertainment Group customers.customers, and pandemic-related compassion payments.
Depreciation expense decreased in the thirdsecond quarter and for the first ninesix months of 2019. The decreases were2020 due to network assets becoming fully depreciated assets, largely offset bydepreciated. Partially offsetting the decreases was ongoing capital spending for network upgrades and expansion.
Operating income decreased in the thirdsecond quarter and increased for the first ninesix months of 2019.2020. Our Entertainment Group operating income margin in the thirdsecond quarter increaseddecreased from 9.5%13.3% in 20182019 to 9.7%10.2% in 2019,2020, and for the first ninesix months increaseddecreased from 11.3%13.2% in 20182019 to 12.0%11.5% in 2019.2020. Our Entertainment Group EBITDA margin in the thirdsecond quarter increaseddecreased from 21.0%25.1% in 20182019 to 21.4%23.2% in 2019,2020, and for the first ninesix months increaseddecreased from 22.8%24.9% in 20182019 to 23.8%24.1% in 2019.2020.
Business Wireline Results |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Third Quarter |
|
| Nine-Month Period |
| Second Quarter |
|
| Six-Month Period |
| ||||||||||||||||||||
|
|
|
|
|
| Percent |
|
|
|
|
|
| Percent |
|
|
|
|
| Percent |
|
|
|
|
|
| Percent | ||||
| 2019 |
| 2018 | Change |
| 2019 |
| 2018 | Change | 2020 |
| 2019 | Change |
| 2020 |
| 2019 | Change | ||||||||||||
Operating revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Strategic and managed services | $ | 3,900 |
| $ | 3,677 | 6.1 | % |
| $ | 11,513 |
| $ | 10,849 | 6.1 | % | $ | 3,943 |
| $ | 3,834 | 2.8 | % |
| $ | 7,822 |
| $ | 7,613 | 2.7 | % |
Legacy voice and data services |
| 2,252 |
|
| 2,602 | (13.5) |
|
|
| 6,973 |
|
| 8,176 | (14.7) |
|
| 2,067 |
|
| 2,324 | (11.1) |
|
|
| 4,196 |
|
| 4,721 | (11.1) |
|
Other service and equipment |
| 351 |
|
| 404 | (13.1) |
|
|
| 1,102 |
|
| 1,010 | 9.1 |
|
| 364 |
|
| 449 | (18.9) |
|
|
| 688 |
|
| 751 | (8.4) |
|
Total Operating Revenues |
| 6,503 |
|
| 6,683 | (2.7) |
|
|
| 19,588 |
|
| 20,035 | (2.2) |
|
| 6,374 |
|
| 6,607 | (3.5) |
|
|
| 12,706 |
|
| 13,085 | (2.9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations and support |
| 4,022 |
|
| 4,022 | - |
|
|
| 12,029 |
|
| 12,047 | (0.1) |
|
| 3,779 |
|
| 3,975 | (4.9) |
|
|
| 7,730 |
|
| 8,007 | (3.5) |
|
Depreciation and amortization |
| 1,271 |
|
| 1,187 | 7.1 |
|
|
| 3,735 |
|
| 3,520 | 6.1 |
|
| 1,318 |
|
| 1,242 | 6.1 |
|
|
| 2,619 |
|
| 2,464 | 6.3 |
|
Total Operating Expenses |
| 5,293 |
|
| 5,209 | 1.6 |
|
|
| 15,764 |
|
| 15,567 | 1.3 |
|
| 5,097 |
|
| 5,217 | (2.3) |
|
|
| 10,349 |
|
| 10,471 | (1.2) |
|
Operating Income |
| 1,210 |
|
| 1,474 | (17.9) |
|
|
| 3,824 |
|
| 4,468 | (14.4) |
|
| 1,277 |
|
| 1,390 | (8.1) |
|
|
| 2,357 |
|
| 2,614 | (9.8) |
|
Equity in Net Income (Loss) of Affiliates |
| (1) |
|
| (3) | 66.7 |
|
|
| - |
|
| (2) | - |
| |||||||||||||||
Equity in Net Income (Loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
of Affiliates |
| - |
|
| - | - |
|
|
| - |
|
| - | - |
| |||||||||||||||
Operating Contribution | $ | 1,209 |
| $ | 1,471 | (17.8) | % |
| $ | 3,824 |
| $ | 4,466 | (14.4) | % | $ | 1,277 |
| $ | 1,390 | (8.1) | % |
| $ | 2,357 |
| $ | 2,614 | (9.8) | % |
Strategic and managed services revenues increased in the thirdsecond quarter and for the first ninesix months of 2019.2020. 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
47
AT&T INC.
SEPTEMBER 30, 2019
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
outsourcing services. Revenue increases were primarily attributable to growth in our security and cloud solutions, dedicated internet and managed services.services and also includes the impact of higher demand for connectivity due to the pandemic.
Legacy voice and data service revenues decreased in the thirdsecond quarter and for the first ninesix months of 2019,2020, primarily due to lower demand as customers continue to shift to our more advanced IP-based offerings or our competitors.
Other service and equipment revenues decreased in the thirdsecond quarter and increased for the first ninesix months of 2019.2020, 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. In the third quarter, intellectual property revenues in 2018 exceeded 2019, which contributed to the revenue decline. During the first nine months, intellectual property revenues driven by second-quarter 2019 license sales, exceeded revenues recorded for the comparable 2018 period, which contributed to the revenue increase. Other service revenues include project-based revenue, which is nonrecurring in nature, as well as revenues from customer premises equipment.
Operations and support expenses were flatdecreased in the thirdsecond quarter and decreased for the first ninesix months of 2019,2020, primarily due to our continued efforts to shift to a software-baseddrive efficiencies in our network operations through automation and automate and digitize ourreductions in customer support activities, partially offset by higher fulfillment deferral amortization.
Depreciation expense increased in the third quarter and for the first nine months of 2019, primarily due to increases in capital spending for network upgrades and expansion.
Operating income decreased in the third quarter and for the first nine months of 2019. Our Business Wireline operating income margin in the third quarter decreased from 22.1% in 2018 to 18.6% in 2019, and for the first nine months decreased from 22.3% in 2018 to 19.5% in 2019. Our Business Wireline EBITDA margin in the third quarter decreased from 39.8% in 2018 to 38.2% in 2019, and for the first nine months decreased from 39.9% in 2018 to 38.6% in 2019.
WARNERMEDIA SEGMENT | Third Quarter |
| Nine-Month Period |
| |||||||||||
|
|
|
|
|
| Percent |
|
|
|
|
|
| Percent | ||
| 2019 |
| 2018 | Change |
| 2019 |
| 2018 | Change | ||||||
Segment Operating Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Turner | $ | 3,007 |
| $ | 2,988 | 0.6 | % |
| $ | 9,860 |
| $ | 3,767 | - | % |
Home Box Office |
| 1,819 |
|
| 1,644 | 10.6 |
|
|
| 5,045 |
|
| 1,925 | - |
|
Warner Bros. |
| 3,333 |
|
| 3,720 | (10.4) |
|
|
| 10,240 |
|
| 4,227 | - |
|
Eliminations & Other |
| (313) |
|
| (148) | - |
|
|
| (570) |
|
| (210) | - |
|
Total Segment Operating Revenues |
| 7,846 |
|
| 8,204 | (4.4) |
|
|
| 24,575 |
|
| 9,709 | - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Operating Contribution |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Turner |
| 1,489 |
|
| 1,449 | 2.8 |
|
|
| 3,926 |
|
| 1,802 | - |
|
Home Box Office |
| 724 |
|
| 630 | 14.9 |
|
|
| 1,894 |
|
| 734 | - |
|
Warner Bros. |
| 563 |
|
| 553 | 1.8 |
|
|
| 1,556 |
|
| 642 | - |
|
Eliminations & Other |
| (232) |
|
| (104) | - |
|
|
| (497) |
|
| (186) | - |
|
Total Segment Operating Contribution | $ | 2,544 |
| $ | 2,528 | 0.6 | % |
| $ | 6,879 |
| $ | 2,992 | - | % |
Our WarnerMedia segment consists of our Turner, Home Box Office 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. WarnerMedia also includes our financial results for RSNs.
The WarnerMedia segment does not include results from Time Warner operations for the periods prior to our June 14, 2018 acquisition. Otter Media is included as an equity method investment for periods prior to our August 7, 2018 acquisition of the remaining interest and is in the segment operating results following the acquisition. Consistent with our past practice, many of the impacts of the fair value adjustments from the application of purchase accounting required under GAAP have not been allocated to the segment, instead they are reported as acquisition-related items in the reconciliation to consolidated results.expenses through digitization.
4846
AT&T INC.
SEPTEMBERJUNE 30, 20192020
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
SegmentDepreciation expense increased in the second quarter and business unit results for the first ninesix months are not comparableof 2020, primarily due to increases in capital spending for network upgrades and expansion.
Operating income decreased in the prior periodsecond quarter and therefore not discussed. Comparative results for the thirdfirst six months of 2020. Our Business Wireline operating income margin in the second quarter are discussed below.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 thirdsecond quarter and for the first six months of 2019,2020, primarily due to lower Warner Bros. revenues, partially offset by increasedadvertising revenues from Home Box Officethe postponement or cancellation of televised sporting events at Turner; lower theatrical product revenues, reflecting the pandemic-related closure of movie theaters and Turner.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 increaseddecreased in the thirdsecond quarter and for the first six months of 2019.2020. The WarnerMedia segment operating income margin in the thirdsecond quarter increased from 31.3%26.0% in 20182019 to 32.2%28.1% in 2019.
WarnerMedia Business Unit Discussion | |||||||||||||||
Turner Results |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Third Quarter |
| Nine-Month Period | ||||||||||||
|
|
|
|
|
| Percent |
|
|
|
|
|
| Percent | ||
| 2019 |
| 2018 | Change |
| 2019 |
| 2018 | Change | ||||||
Operating revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription | $ | 1,927 |
| $ | 1,855 | 3.9 | % |
| $ | 5,835 |
| $ | 2,363 | - | % |
Advertising |
| 913 |
|
| 944 | (3.3) |
|
|
| 3,440 |
|
| 1,181 | - |
|
Content and other |
| 167 |
|
| 189 | (11.6) |
|
|
| 585 |
|
| 223 | - |
|
Total Operating Revenues |
| 3,007 |
|
| 2,988 | 0.6 |
|
|
| 9,860 |
|
| 3,767 | - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations and support |
| 1,460 |
|
| 1,487 | (1.8) |
|
|
| 5,813 |
|
| 1,933 | - |
|
Depreciation and amortization |
| 68 |
|
| 59 | 15.3 |
|
|
| 167 |
|
| 71 | - |
|
Total Operating Expenses |
| 1,528 |
|
| 1,546 | (1.2) |
|
|
| 5,980 |
|
| 2,004 | - |
|
Operating Income |
| 1,479 |
|
| 1,442 | 2.6 |
|
|
| 3,880 |
|
| 1,763 | - |
|
Equity in Net Income of Affiliates |
| 10 |
|
| 7 | 42.9 |
|
|
| 46 |
|
| 39 | 17.9 |
|
Operating Contribution | $ | 1,489 |
| $ | 1,449 | 2.8 | % |
| $ | 3,926 |
| $ | 1,802 | - | % |
Turner includes2020 and for the WarnerMedia businesses managed by Turner as well as our RSNs.
Operating revenues increasedfirst six months decreased from 27.2% in the third quarter of 2019 reflecting higher subscription revenues driven by higher domestic affiliate rates and growth at Turner’s international networks. These increases were partially offset by lower advertising revenues, resulting from lower audience deliveryto 26.7% in the domestic entertainment networks, reduced content revenue and foreign exchange pressure.
Operations and support expenses decreased in the third quarter of 2019 due to lower programming, marketing and direct operating costs.
Operating income increased in the third quarter of 2019. Our Turner operating income margin in the third quarter increased from 48.3% in 2018 to 49.2% in 2019. Our Turner EBITDA margin increased from 50.2% in 2018 to 51.4% in 2019.2020.
4947
AT&T INC.
SEPTEMBERJUNE 30, 20192020
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
WarnerMedia Business Unit Discussion | WarnerMedia Business Unit Discussion | |||||||||||||||||||||||||||||
Turner Results |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
| Third Quarter |
| Nine-Month Period | Second Quarter |
| Six-Month Period | ||||||||||||||||||||||||
|
|
|
|
|
| Percent |
|
|
|
|
|
| Percent |
|
|
|
|
| Percent |
|
|
|
|
|
| Percent | ||||
| 2019 |
| 2018 | Change |
| 2019 |
| 2018 | Change | 2020 |
| 2019 | Change |
| 2020 |
| 2019 | Change | ||||||||||||
Operating revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription | $ | 1,533 |
| $ | 1,517 | 1.1 | % |
| $ | 4,383 |
| $ | 1,787 | - | % | $ | 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 |
| 286 |
|
| 127 | - |
|
|
| 662 |
|
| 138 | - |
|
| 388 |
|
| 201 | 93.0 |
|
|
| 544 |
|
| 418 | 30.1 |
|
Total Operating Revenues |
| 1,819 |
|
| 1,644 | 10.6 |
|
|
| 5,045 |
|
| 1,925 | - |
|
| 2,988 |
|
| 3,410 | (12.4) |
|
|
| 6,150 |
|
| 6,853 | (10.3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations and support |
| 1,072 |
|
| 991 | 8.2 |
|
|
| 3,124 |
|
| 1,162 | - |
| |||||||||||||||
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 |
| 33 |
|
| 25 | 32.0 |
|
|
| 67 |
|
| 30 | - |
|
| 69 |
|
| 39 | 76.9 |
|
|
| 138 |
|
| 99 | 39.4 |
|
Total Operating Expenses |
| 1,105 |
|
| 1,016 | 8.8 |
|
|
| 3,191 |
|
| 1,192 | - |
|
| 1,416 |
|
| 2,256 | (37.2) |
|
|
| 3,195 |
|
| 4,452 | (28.2) |
|
Operating Income |
| 714 |
|
| 628 | 13.7 |
|
|
| 1,854 |
|
| 733 | - |
|
| 1,572 |
|
| 1,154 | 36.2 |
|
|
| 2,955 |
|
| 2,401 | 23.1 |
|
Equity in Net Income of Affiliates |
| 10 |
|
| 2 | - |
|
|
| 40 |
|
| 1 | - |
| |||||||||||||||
Equity in Net Income (Loss) of Affiliates |
| - |
|
| 11 | - |
|
|
| 6 |
|
| 36 | (83.3) |
| |||||||||||||||
Operating Contribution | $ | 724 |
| $ | 630 | 14.9 | % |
| $ | 1,894 |
| $ | 734 | - | % | $ | 1,572 |
| $ | 1,165 | 34.9 | % |
| $ | 2,961 |
| $ | 2,437 | 21.5 | % |
Operating revenues increaseddecreased in the thirdsecond 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 2019, driven2020. Subscription revenue declines reflect lower regional sports network revenue and unfavorable exchange rates. These decreases were partially offset by higher content and other revenues duerevenue, including internal sales to an increaseHBO Max, which are eliminated in international licensing. Subscription revenues also increased as a result of growth in digital and international subscriptions, partially offset by lower domestic linear subscribers.consolidation within the WarnerMedia segment.
Operations and supportCost of revenues expenses increaseddecreased in the thirdsecond quarter and for the first six months of 20192020, primarily due to higherlower programming distributioncosts, 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 expenses.costs.
Operating income increased in the thirdsecond quarter and for the first six months of 2019.2020. Our Home Box OfficeTurner operating income margin in the thirdsecond quarter increased from 38.2%33.8% in 20182019 to 39.3%52.6% in 2019. Our Home Box Office EBITDA margin2020, and for the first six months increased from 39.7%35.0% in 20182019 to 41.1%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.
Warner Bros. Results |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Third Quarter |
| Nine-Month Period | ||||||||||||
|
|
|
|
|
| Percent |
|
|
|
|
|
| Percent | ||
| 2019 |
| 2018 | Change |
| 2019 |
| 2018 | Change | ||||||
Operating revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Theatrical product | $ | 1,375 |
| $ | 1,694 | (18.8) | % |
| $ | 4,408 |
| $ | 1,917 | - | % |
Television product |
| 1,461 |
|
| 1,591 | (8.2) |
|
|
| 4,384 |
|
| 1,794 | - |
|
Games and other |
| 497 |
|
| 435 | 14.3 |
|
|
| 1,448 |
|
| 516 | - |
|
Total Operating Revenues |
| 3,333 |
|
| 3,720 | (10.4) |
|
|
| 10,240 |
|
| 4,227 | - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations and support |
| 2,706 |
|
| 3,104 | (12.8) |
|
|
| 8,543 |
|
| 3,507 | - |
|
Depreciation and amortization |
| 39 |
|
| 40 | (2.5) |
|
|
| 122 |
|
| 54 | - |
|
Total Operating Expenses |
| 2,745 |
|
| 3,144 | (12.7) |
|
|
| 8,665 |
|
| 3,561 | - |
|
Operating Income |
| 588 |
|
| 576 | 2.1 |
|
|
| 1,575 |
|
| 666 | - |
|
Equity in Net Income (Loss) of Affiliates |
| (25) |
|
| (23) | (8.7) |
|
|
| (19) |
|
| (24) | 20.8 |
|
Operating Contribution | $ | 563 |
| $ | 553 | 1.8 | % |
| $ | 1,556 |
| $ | 642 | - | % |
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.
SEPTEMBERJUNE 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 third quarter of 2019, primarily due to lower theatrical product resulting from a more favorable mix of box office releases in the prior-yearsecond quarter and lower television licensing revenues. These decreases were partially offsetfor the first six months of 2020, primarily driven by increases in gamesforeign exchange and initial telecast revenues.COVID-19 pressures.
Operations and support expenses decreased in the thirdsecond quarter and for the first six months of 20192020, 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 lower film and television production costs.changes in foreign exchange rates.
Operating income increaseddecreased in the thirdsecond quarter and for the first six months of 2019.2020. Our Warner Bros.Vrio operating income margin in the thirdsecond quarter increaseddecreased from 15.5% in 2018 to 17.6% in 2019. Our Warner Bros. EBITDA margin increased from 16.6% in 2018 to 18.8% in 2019.
LATIN AMERICA SEGMENT | Third Quarter |
| Nine-Month Period | ||||||||||||
|
|
|
|
|
| Percent |
|
|
|
|
|
| Percent | ||
| 2019 |
| 2018 | Change |
| 2019 |
| 2018 | Change | ||||||
Segment Operating Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vrio | $ | 1,013 |
| $ | 1,102 | (8.1) | % |
| $ | 3,112 |
| $ | 3,710 | (16.1) | % |
Mexico |
| 717 |
|
| 731 | (1.9) |
|
|
| 2,093 |
|
| 2,099 | (0.3) |
|
Total Segment Operating Revenues |
| 1,730 |
|
| 1,833 | (5.6) |
|
|
| 5,205 |
|
| 5,809 | (10.4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Operating Contribution |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vrio |
| 13 |
|
| 66 | (80.3) |
|
|
| 43 |
|
| 281 | (84.7) |
|
Mexico |
| (179) |
|
| (267) | 33.0 |
|
|
| (591) |
|
| (743) | 20.5 |
|
Total Segment Operating Contribution | $ | (166) |
| $ | (201) | 17.4 | % |
| $ | (548) |
| $ | (462) | (18.6) | % |
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.
Operating revenues decreased in the third quarter and for the nine months of 2019 driven by lower revenues for Vrio, primarily resulting from foreign exchange pressures related to Argentina’s hyperinflationary economy.
Operating contribution increased in the third quarter and decreased for the first nine months of 2019, reflecting foreign exchange pressure. Our Latin America segment operating income margin in the third quarter increased from (11.5)% in 2018 to (10.3)(1.4)% in 2019 to (4.8)% in 2020, and for the first ninesix months decreased from (8.4)0.9% in 2019 to (4.8)% in 2018 to (11.0)% in 2019.
51
AT&T INC.
SEPTEMBER 30, 2019
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 Business Unit Discussion |
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Mexico Results |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Third Quarter |
|
| Nine-Month Period |
| ||||||||||
| 2019 |
| 2018 | Percent Change |
| 2019 |
| 2018 | Percent Change | ||||||
Operating revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service | $ | 455 |
| $ | 440 | 3.4 | % |
| $ | 1,376 |
| $ | 1,261 | 9.1 | % |
Equipment |
| 262 |
|
| 291 | (10.0) |
|
|
| 717 |
|
| 838 | (14.4) |
|
Total Operating Revenues |
| 717 |
|
| 731 | (1.9) |
|
|
| 2,093 |
|
| 2,099 | (0.3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations and support |
| 774 |
|
| 869 | (10.9) |
|
|
| 2,312 |
|
| 2,459 | (6.0) |
|
Depreciation and amortization |
| 122 |
|
| 129 | (5.4) |
|
|
| 372 |
|
| 383 | (2.9) |
|
Total Operating Expenses |
| 896 |
|
| 998 | (10.2) |
|
|
| 2,684 |
|
| 2,842 | (5.6) |
|
Operating Income (Loss) |
| (179) |
|
| (267) | 33.0 |
|
|
| (591) |
|
| (743) | 20.5 |
|
Equity in Net Income of Affiliates |
| - |
|
| - | - |
|
|
| - |
|
| - | - |
|
Operating Contribution | $ | (179) |
| $ | (267) | 33.0 | % |
| $ | (591) |
| $ | (743) | 20.5 | % |
The following tables highlight other key measures of performance for Mexico:
|
|
|
|
|
|
|
|
|
| September 30, | Percent | |||||
(in 000s) |
|
|
|
|
|
|
|
| 2019 |
|
| 2018 | Change | |||
Mexico Wireless Subscribers1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Postpaid |
|
|
|
|
|
|
|
|
| 5,352 |
|
| 5,822 | (8.1) | % | |
Prepaid |
|
|
|
|
|
|
|
|
| 12,848 |
|
| 11,270 | 14.0 |
| |
Reseller |
|
|
|
|
|
|
|
|
| 419 |
|
| 213 | 96.7 |
| |
Total Mexico Wireless Subscribers |
|
|
|
|
|
|
|
|
| 18,619 |
|
| 17,305 | 7.6 | % | |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Third Quarter |
|
| Nine-Month Period | |||||||||||
|
|
|
|
|
|
| Percent |
|
|
|
|
|
| Percent | ||
(in 000s) |
| 2019 |
|
| 2018 | Change |
|
| 2019 |
|
| 2018 | Change | |||
Mexico Wireless Net Additions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Postpaid |
| (137) |
|
| 73 | - | % |
|
| (359) |
|
| 324 | - | % | |
Prepaid |
| 668 |
|
| 802 | (16.7) |
|
|
| 1,183 |
|
| 1,873 | (36.8) |
| |
Reseller |
| 67 |
|
| 32 | - |
|
|
| 166 |
|
| 9 | - |
| |
Mexico Wireless Net Subscriber Additions |
| 598 |
|
| 907 | (34.1) | % |
|
| 990 |
|
| 2,206 | (55.1) | % | |
1 | 2019 excludes the impact of 692 subscriber disconnections resulting from the churn of customers related to sales by certain third-party | |||||||||||||||
| distributors and the sunset of 2G services in Mexico, which are reflected in beginning of period subscribers. |
Service revenues increased2020. Our Vrio EBITDA margin in the thirdsecond quarter decreased from 14.6% in 2019 to 12.1% in 2020, and for the first ninesix months ofdecreased from 16.8% in 2019 primarily due to growth11.9% in our subscriber base.2020.
Equipment revenues decreased in the third quarter and for the first nine months of 2019, reflecting higher demand in the prior year for our initial offering of equipment installment programs.
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.
SEPTEMBERJUNE 30, 20192020
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 thirdsecond quarter and for the first ninesix months of 2019,2020, primarily due to changes in foreign exchange rates and lower equipment sales, partially offset by higher bad debt expenses.sales. Approximately 6%8% of Mexico expenses are U.S. dollar based, with the remainder in the local currency.
Depreciation and amortization expense decreased in the thirdsecond quarter and for the first ninesix months of 2019,2020, primarily due to changes in the useful lives of certain assets, partially offset by the amortization of spectrum licenses and higher in-service assets.foreign exchange pressures.
Operating income increased in the thirdsecond quarter and first ninesix months of 2019.2020. Our Mexico operating income margin in the thirdsecond quarter increaseddecreased from (36.5)% in 2018 to (25.0)(28.6)% in 2019 to (36.0)% in 2020, and for the first ninesix months increased from (35.4)(29.9)% in 20182019 to (28.2)(26.9)% in 2019.2020. Our Mexico EBITDA margin in the thirdsecond quarter increased from (18.9)% in 2018 to (7.9)was stable at (12.1)% in 2019 and for the first nine months increased from (17.2)% in 2018 to (10.5)% in 2019.
Vrio Results |
|
|
|
|
|
|
|
|
|
|
|
|
| ||
| Third Quarter |
| Nine-Month Period | ||||||||||||
|
|
|
|
|
| Percent |
|
|
|
|
|
| Percent | ||
| 2019 |
| 2018 | Change |
| 2019 |
| 2018 | Change | ||||||
Operating revenues | $ | 1,013 |
| $ | 1,102 | (8.1) | % |
| $ | 3,112 |
| $ | 3,710 | (16.1) | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations and support |
| 851 |
|
| 877 | (3.0) |
|
|
| 2,598 |
|
| 2,894 | (10.2) |
|
Depreciation and amortization |
| 162 |
|
| 168 | (3.6) |
|
|
| 496 |
|
| 559 | (11.3) |
|
Total Operating Expenses |
| 1,013 |
|
| 1,045 | (3.1) |
|
|
| 3,094 |
|
| 3,453 | (10.4) |
|
Operating Income |
| - |
|
| 57 | - |
|
|
| 18 |
|
| 257 | (93.0) |
|
Equity in Net Income of Affiliates |
| 13 |
|
| 9 | 44.4 |
|
|
| 25 |
|
| 24 | 4.2 |
|
Operating Contribution | $ | 13 |
| $ | 66 | (80.3) | % |
| $ | 43 |
| $ | 281 | (84.7) | % |
The following tables highlight other key measures of performance for Vrio:
|
|
|
|
|
|
|
|
| September 30, | Percent | |||||
(in 000s) |
|
|
|
|
|
|
| 2019 |
|
| 2018 | Change | |||
Vrio Video Subscribers1,2 |
|
|
|
|
|
|
|
| 13,306 |
|
| 13,640 | (2.4) | % | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Third Quarter |
| Nine -Month Period | ||||||||||
|
|
|
|
|
|
| Percent |
|
|
|
|
| Percent | ||
(in 000s) |
| 2019 |
|
| 2018 | Change |
| 2019 |
|
| 2018 | Change | |||
Vrio Video Net Subscriber Additions3 |
| (167) |
|
| (73) | - | % |
| (310) |
|
| 52 | - | % | |
1 | Excludes subscribers of our equity investment in SKY Mexico, in which we own a 41.3% stake. SKY Mexico had 7.4 million | ||||||||||||||
| subscribers at June 30, 2019 and 7.8 million subscribers at September 30, 2018. | ||||||||||||||
2 | 2019 excludes the impact of 222 subscriber disconnections resulting from conforming our video credit policy across the region, which is | ||||||||||||||
| reflected in beginning of period subscribers. | ||||||||||||||
3 | Excludes SKY Mexico net subscriber additions of 7 and losses of 126 for the quarter ended June 30, 2019 and September 30, 2018, | ||||||||||||||
| respectively. |
Operating revenues decreased in the third quarter2020, and for the first ninesix months ofincreased from (11.8)% in 2019 primarily due to foreign exchange pressures.
(5.8)% in 2020.
53
AT&T INC.
SEPTEMBERJUNE 30, 2019
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
Operations and support expenses decreased in the third quarter and for the first nine months of 2019, primarily due to changes in foreign currency exchange rates. Approximately 19% of Vrio expenses are U.S. dollar based, with the remainder in the local currency.
Depreciation expense decreased in the third quarter and for the first nine months of 2019, primarily due to changes in foreign currency exchange rates.
Operating income decreased in the third quarter and for the first nine months of 2019. Our Vrio operating income was $0, compared to an operating income of $57, or an operating income margin of 5.2%, in the year-earlier quarter. For the first nine months our operating income margin decreased from 6.9% in 2018 to 0.6% in 2019. Our Vrio EBITDA margin in the third quarter decreased from 20.4% in 2018 to 16.0% in 2019, and for the first nine months decreased from 22.0% in 2018 to 16.5% in 2019.
XANDR SEGMENT | Third Quarter |
|
| Nine-Month Period |
| ||||||||||
|
|
|
|
|
| Percent |
|
|
|
|
|
| Percent | ||
| 2019 |
| 2018 | Change |
| 2019 |
| 2018 | Change | ||||||
Operating revenues | $ | 504 |
| $ | 445 | 13.3 | % |
| $ | 1,415 |
| $ | 1,174 | 20.5 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations and support |
| 162 |
|
| 109 | 48.6 |
|
|
| 469 |
|
| 218 | - |
|
Depreciation and amortization |
| 15 |
|
| 3 | - |
|
|
| 41 |
|
| 4 | - |
|
Total Operating Expenses |
| 177 |
|
| 112 | 58.0 |
|
|
| 510 |
|
| 222 | - |
|
Operating Income |
| 327 |
|
| 333 | (1.8) |
|
|
| 905 |
|
| 952 | (4.9) |
|
Equity in Net Income of Affiliates |
| - |
|
| - | - |
|
|
| - |
|
| - | - |
|
Operating Contribution | $ | 327 |
| $ | 333 | (1.8) | % |
| $ | 905 |
| $ | 952 | (4.9) | % |
Operating revenues increased in the third quarter and for the first nine months of 2019 primarily due to our acquisition of AppNexus in August 2018.
Operations and support expenses increased in the third quarter and for the first nine months of 2019, primarily due to our acquisition of AppNexus and our ongoing development of the platform supporting Xandr’s business.
Operating income decreased in the third quarter and for the first nine months of 2019. Our Xandr segment operating income margin in the third quarter decreased from 74.8% in 2018 to 64.9% in 2019, and for the first nine months decreased from 81.1% in 2018 to 64.0% in 2019.
54
AT&T INC.
SEPTEMBER 30, 20192020
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, to our Xandr segment operating results, we are providing a view of total advertising revenues generated by AT&T. This combined view presents the entire portfolio of advertising revenues reported across all operating segments and represents a significant strategic initiative and growth opportunity for AT&T. See revenue categories tables in Note 5 for a reconciliation.
Total Advertising Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Third Quarter |
|
| Nine-Month Period |
| Second Quarter |
|
| Six-Month Period |
| ||||||||||||||||||||
|
|
|
|
|
| Percent |
|
|
|
|
|
| Percent |
|
|
|
|
| Percent |
|
|
|
|
|
| Percent | ||||
| 2019 |
| 2018 | Change |
| 2019 |
| 2018 | Change | 2020 |
| 2019 | Change |
| 2020 |
| 2019 | Change | ||||||||||||
Operating Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WarnerMedia | $ | 945 |
| $ | 983 | (3.9) | % |
| $ | 3,509 |
| $ | 1,222 | - | % | |||||||||||||||
Communications |
| 495 |
|
| 478 | 3.6 |
|
|
| 1,382 |
|
| 1,284 | 7.6 |
| |||||||||||||||
Turner | $ | 796 |
| $ | 1,266 | (37.1) | % |
| $ | 1,753 |
| $ | 2,527 | (30.6) | % | |||||||||||||||
Entertainment Group |
| 294 |
|
| 399 | (26.3) |
|
|
| 707 |
|
| 749 | (5.6) |
| |||||||||||||||
Xandr |
| 504 |
|
| 445 | 13.3 |
|
|
| 1,415 |
|
| 1,174 | 20.5 |
|
| 362 |
|
| 485 | (25.4) |
|
|
| 851 |
|
| 911 | (6.6) |
|
Other |
| 75 |
|
| 90 | (16.7) |
|
|
| 173 |
|
| 175 | (1.1) |
| |||||||||||||||
Eliminations |
| (421) |
|
| (401) | (5.0) |
|
|
| (1,170) |
|
| (1,122) | (4.3) |
|
| (294) |
|
| (399) | 26.3 |
|
|
| (707) |
|
| (749) | 5.6 |
|
Total Advertising Revenues | $ | 1,523 |
| $ | 1,505 | 1.2 | % |
| $ | 5,136 |
| $ | 2,558 | - | % | $ | 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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Third Quarter |
|
| Nine-Month Period |
| Second Quarter |
|
| Six-Month Period |
| ||||||||||||||||||||
| 2019 |
| 2018 | Percent Change |
| 2019 |
| 2018 | Percent Change | 2020 |
| 2019 | Percent Change |
| 2020 |
| 2019 | Percent Change | ||||||||||||
|
|
|
|
|
|
| ||||||||||||||||||||||||
Operating revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wireless service | $ | 2,009 |
| $ | 1,857 | 8.2 | % |
| $ | 5,901 |
| $ | 5,440 | 8.5 | % | $ | 1,884 |
| $ | 1,881 | 0.2 | % |
| $ | 3,833 |
| $ | 3,658 | 4.8 | % |
Strategic and managed services |
| 3,900 |
|
| 3,677 | 6.1 |
|
|
| 11,513 |
|
| 10,849 | 6.1 |
|
| 3,943 |
|
| 3,834 | 2.8 |
|
|
| 7,822 |
|
| 7,613 | 2.7 |
|
Legacy voice and data services |
| 2,252 |
|
| 2,602 | (13.5) |
|
|
| 6,973 |
|
| 8,176 | (14.7) |
|
| 2,067 |
|
| 2,324 | (11.1) |
|
|
| 4,196 |
|
| 4,721 | (11.1) |
|
Other service and equipment |
| 351 |
|
| 404 | (13.1) |
|
|
| 1,102 |
|
| 1,010 | 9.1 |
|
| 364 |
|
| 449 | (18.9) |
|
|
| 688 |
|
| 751 | (8.4) |
|
Wireless equipment |
| 694 |
|
| 586 | 18.4 |
|
|
| 1,902 |
|
| 1,737 | 9.5 |
|
| 585 |
|
| 617 | (5.2) |
|
|
| 1,295 |
|
| 1,207 | 7.3 |
|
Total Operating Revenues |
| 9,206 |
|
| 9,126 | 0.9 |
|
|
| 27,391 |
|
| 27,212 | 0.7 |
|
| 8,843 |
|
| 9,105 | (2.9) |
|
|
| 17,834 |
|
| 17,950 | (0.6) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations and support |
| 5,643 |
|
| 5,575 | 1.2 |
|
|
| 16,770 |
|
| 16,724 | 0.3 |
|
| 5,424 |
|
| 5,512 | (1.6) |
|
|
| 11,134 |
|
| 11,126 | 0.1 |
|
Depreciation and amortization |
| 1,573 |
|
| 1,485 | 5.9 |
|
|
| 4,643 |
|
| 4,408 | 5.3 |
|
| 1,637 |
|
| 1,545 | 6.0 |
|
|
| 3,262 |
|
| 3,070 | 6.3 |
|
Total Operating Expenses |
| 7,216 |
|
| 7,060 | 2.2 |
|
|
| 21,413 |
|
| 21,132 | 1.3 |
|
| 7,061 |
|
| 7,057 | 0.1 |
|
|
| 14,396 |
|
| 14,196 | 1.4 |
|
Operating Income |
| 1,990 |
|
| 2,066 | (3.7) |
|
|
| 5,978 |
|
| 6,080 | (1.7) |
|
| 1,782 |
|
| 2,048 | (13.0) |
|
|
| 3,438 |
|
| 3,754 | (8.4) |
|
Equity in Net Income (Loss) of Affiliates |
| (1) |
|
| (3) | 66.7 |
|
|
| - |
|
| (2) | - |
| |||||||||||||||
Equity in Net Income (Loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
of Affiliates |
| - |
|
| - | - |
|
|
| - |
|
| - | - |
| |||||||||||||||
Operating Contribution | $ | 1,989 |
| $ | 2,063 | (3.6) | % |
| $ | 5,978 |
| $ | 6,078 | (1.6) | % | $ | 1,782 |
| $ | 2,048 | (13.0) | % |
| $ | 3,438 |
| $ | 3,754 | (8.4) | % |
5554
AT&T INC.
SEPTEMBERJUNE 30, 20192020
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
Unlimited Data Plan Claims Spectrum AuctionIn October 2014,March 2020, we were the FTC filedwinning 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 civil suitbook 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 U.S. District Courtfirst 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 Northern District of California against AT&T Mobility, LLC seeking injunctive relief and unspecified money damages under Section 5 ofAuction 103 payment in April 2020. The FCC granted the Federal Trade Commission Act. The FTC’s allegations concern the application of AT&T’s Maximum Bit Rate (MBR) program to customers who enrolled licenses in our Unlimited Data Plan from 2007-2010. MBR temporarily reduces in certain instances the download speeds of a small portion of our legacy Unlimited Data Plan customers each month after the customer exceeds a designated amount of data during the customer’s billing cycle. MBR is an industry-standard practice that is designed to affect only the most data-intensive applications (such as video streaming). Texts, emails, tweets, social media posts, internet browsing and many other applications are typically unaffected. Contrary to the FTC’s allegations, our MBR program is permitted by our customer contracts, was fully disclosed in advance to our Unlimited Data Plan customers, and was implemented to protect the network for the benefit of all customers. We reached a tentative agreement with the FTC staff in August 2019, pending FTC approval. We do not expect the resolution of the matter to have a material adverse impact on our financial results. We are not admitting culpability in the tentative agreement. In addition to the FTC case, several class actions were filed challenging our MBR program. We secured dismissals in each of these cases except Roberts v. AT&T Mobility LLC, which is ongoing.
June 2020.
Labor Contracts As of SeptemberJune 30, 2019,2020, we employed approximately 252,000243,000 persons. Approximately 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 contract covering approximately 8,000 traditional wireline7,000 Mobility employees in our Midwest region expired in April 2018.February 2020. In August 2019,March 2020, a new four-year4-year contract was ratified by employees and will expire in April 2022.February 2024.
A contract covering approximately 3,000 traditional13,000 wireline employees in our legacy AT&T Corp. businessWest region expired in April 2018.2020. In August 2019,March 2020, a tentative agreement was reached on a new four-year contract was ratified4-year contract. The tentative agreement is subject to ratification by employees and will expire in April 2022.employees.
A contract covering approximately 20,000 traditional wireline14,000 employees in our Southeastthe Southwest region expiredscheduled to expire in August 2019. In October 2019, a new five-year contractApril 2021 was ratified by employeesextended 4 years and will now expire in August 2024.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. The leadership atMore recently, the FCC is chartinghas pursued a more predictablederegulatory agenda, eliminating a variety of antiquated and balanced regulatory course that will encourage long-term investment and benefit consumers. Based on its public statements, we expect the FCC to continue to eliminate antiquated, unnecessary regulations and streamline processes.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.
We have organized the following discussion by reportable segment.
56
AT&T INC.
SEPTEMBER 30, 2019
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
Communications Segment
Internet In February 2015, theThe FCC released an order classifying both fixed and mobile consumer broadband internet access services as telecommunications services, subject to Title II of the Communications Act. The Order, which represented a departure from longstanding bipartisan precedent, significantly expanded the FCC’s authority to regulate broadband internet access services, as well as internet interconnection arrangements. In December 2017, the FCC reversed its 2015 decision by reclassifyingcurrently classifies fixed and mobile consumer broadband services as information services, and repealing most of the rules that were adopted in 2015. In lieu of broad conduct prohibitions, the order requires internet service providerssubject to disclose information about their network practices and terms of service, including whether they block or throttle internet traffic or offer paid prioritization. Several parties appealedlight-touch regulation. The D.C. Circuit upheld the FCC’s December 2017 decision and the D.C. Circuit heard oral argument on the appeals on February 1, 2019. On October 1, 2019, the court issued a unanimous opinion upholding the FCC’s reclassification of broadband as an information service, and its reliance on transparency requirements and competitive marketplace dynamics to safeguard net neutrality. While the court vacated the FCC’s express preemption of any state regulation of net neutrality,current classification, although it nevertheless stressed that its ruling does not prevent the FCC or ISPs from relying on conflict preemption to invalidate particular state laws that are inconsistent with the FCC’s regulatory objectives and framework. The court also concluded that the FCC failed to satisfy its obligation under the Administrative Procedure Act (APA) to consider the impact of its 2017 order inremanded three discrete areas—public safety, the Lifeline program, and pole attachment regulation—and thus remanded itissues to the FCC for further proceedings on those issues, but without disturbing the operative effect of that order. A number of states have adopted legislation that would reimpose the very rules the FCC repealed, and in some cases, established additional requirements that go beyond the FCC’s February 2015 order. Additionally, some state governors have issued executive orders that effectively reimpose the repealed requirements. Suits have recently been filed concerning laws in California and Vermont, and other lawsuits are possible. The California and Vermont suits have been stayed pursuant to agreements by those states not to enforce their laws pending resolution of appeals of the FCC’s December 2017 order. If no one seeks rehearing orconsideration. No party sought Supreme Court review of the D.C. Circuit’s decision, so that decision is final, although the foregoing litigation will recommence. We expect that additional states may seek to regulate net neutrality based onFCC’s consideration of the D.C. Circuit’s decision. We will continue to support congressional action to codify a set of standard consumer rules for the internet.three issues remains pending.
Some states have adopted legislation or issued executive orders that would reimpose net neutrality rules repealed by the FCC. Suits have been filed concerning such laws in two states. In October 2016, a sharply dividedthe FCC adopted new rules governing the use of customer information by providers of broadband internet access service. Those rules were more restrictive in certain respects than those governing other participants in the internet economy, including so-called “edge” providers such as Google and
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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. In April 2017, the presidentPresident signed a resolution passed by Congress repealing the new rules under the Congressional Review Act.
Privacy-related legislation has been considered or adopted in a number of states. Legislative and regulatory action and ballot initiatives could result in increased costs of compliance, claims against broadband internet access service providers and others, and increased uncertainty in the value and availability of data. On June 28, 2018, the state of California enacted comprehensive privacy legislation that, effectiveEffective as of January 1, 2020, a California state law gives California consumers the right to know what personal information is being collected about them, and whether and to whom it is sold or disclosed, and to access and request deletion of this information. Subject to certain exceptions, it also gives California consumers the right to opt-outopt out of the sale of personal information. The law applies the same rules to all companies that collect consumer information.
Wireless The 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” equipment and therefore increase the need for local permitting processes that allow for the placement of small cell equipment on reasonable timelines and terms. Federal regulations also can delay and impede the deployment of infrastructure used to provide telecommunications and broadband services, including small cell equipment. In March, August and September 2018, the FCC adopted orders to streamline thefederal and local wireless infrastructure review processprocesses in order to facilitate deployment of next-generation wireless facilities. Specifically, the FCC’s March 2018 Order streamlined historical, tribal, and environmental review requirements for wireless infrastructure, including by excluding most small cell facilities from such review. The Order was appealed and in August 2019, the D.C. Circuit Court of Appeals vacated the FCC’s finding that most small cell facilities are excluded from review, but otherwise upheld the FCC’s Order. The FCC’s August and September 2018 Orders simplified the regulations for attaching telecommunications equipment to utility poles and clarified when local government right-of-way access and use restrictions can be preempted because they unlawfully prohibit the provision of telecommunications services. Those orders have beenwere appealed andto the various appeals remain pending in the DC Circuit and 9th Circuit Court of Appeals.Appeals, where they remain pending. In addition to the FCC’s actions, to date, 28 states and Puerto Rico have adopted legislation to facilitate small cell deployment.
In December 2018, we introduced the nation’s first commercial mobile 5G service. In July 2020, we announced nationwide 5G coverage. We currently have mobileanticipate the introduction of 5G handsets and devices will contribute to a renewed interest in parts of 21 U.S. cities and we plan to roll out mobile 5G service in parts of at least 29 cities by the end of the year. We expect to have mobile 5G service nationwide to more than 200 million people by the first half of 2020.equipment upgrades.
5756
AT&T INC.
SEPTEMBERJUNE 30, 20192020
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
LIQUIDITY AND CAPITAL RESOURCES
We had $6,588$16,941 in cash“Cash and cash equivalentsequivalents” available at SeptemberJune 30, 2019. Cash2020. “Cash and cash equivalentsequivalents” included cash of $3,765$3,781 and money market funds and other cash equivalents of $2,823.$13,160. Approximately $2,200$2,529 of our cash“Cash and cash equivalentsequivalents” were held by our foreign entities in accounts predominantly outside of the U.S. and may be subject to restrictions on repatriation.
The Company's liquidity and capital resources were not materially impacted by COVID-19 and related economic conditions during the first six months of 2020. We will continue to monitor impacts on the COVID-19 pandemic on our liquidity and capital resources.
“Cash and cash equivalentsequivalents” increased $1,384$4,811 since December 31, 2018.2019. In the first ninesix months of 2019,2020, cash inflows were primarily provided by the cash receipts from operations, including cash from our sale and transfer of certain wireless equipment installment and WarnerMediaour receivables to third parties, sale of investments, issuanceand the issuances of commercial paper, and long-term debt collateral received from banks and other participants in our derivative arrangements and issuance of perpetual nonconvertiblecumulative preferred interests in a subsidiary.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 and vendor financing payments, spectrum depositscollateral posted to banks and other participants in derivative arrangements, share repurchase and dividends to stockholders.
Cash Provided by or Used in Operating Activities
During the first ninesix months of 2019,2020, cash provided by operating activities was $36,725,$20,925, compared to $31,522$25,336 for the first ninesix months of 2018. Higher2019. Lower operating cash flows in 20192020 were primarily due to contributions from WarnerMedia and higher cash flows from working capital initiatives, including sales of receivablesdriven by lower incremental receivable securitization (see Note 9), partly offset by higher spend on film and television production and net tax payments in 2019 compared to net tax refunds in 2018..
We actively manage the timing of our supplier payments for non-capital items to optimize 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 operating activities was to reducedecrease working capital $345$1,452 and $496 for the first ninesix months ofended June 30, 2020 and 2019, and to improve working capital $284 for the first nine months of 2018.respectively. All supplier financing payments are due within one year.
Cash Used in or Provided by Investing Activities
For the first ninesix months of 2019,2020, cash used in investing activities totaled $13,002,$10,278, and consisted primarily of $15,843$9,432 (including interest during construction) for capital expenditures, ($1,256 lower thanfinal payment of approximately $950 for wireless spectrum licenses won in Auction 103, and $141 for acquiring the prior-year comparable period), offset by proceeds from the sales of our ownership interestsremaining interest in Hulu and WarnerMedia’s headquarters (Hudson Yards) under a sale-leaseback arrangement (see Note 8).HBO LAG.
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 first ninesix months of 2019, these2020, vendor financing payments were $2,601,$1,354, compared to $1,836 for the first six months of 2019. Capital expenditures in the first six months of 2020 were $9,432, and when combined with $15,843including $1,354 cash paid for vendor financing and excluding $79 of capital expenditures, totalFirstNet reimbursements, gross capital investment was $18,444$10,865 ($998 higher1,728 lower than the prior-year comparable period). In the first nine months of 2019, we placed $1,917 of equipment in service under vendor financing arrangements.
The vast majority of our capital expenditures are spent on our networks, including product development and related support systems. During the first ninesix months, we placed $1,681 of equipment in service under vendor financing arrangements (compared to $1,265 in the prior-year comparable period) and approximately $850$640 of assets related to the FirstNet build were placed into service. Total reimbursements from(compared to $600 in the government for FirstNet during the first nine months were $134 for 2019 and $336 for 2018, predominantly for capital expenditures.
prior-year comparable period). The amount of capital expenditures is influenced by demand for services and products, capacity needs and network enhancements. In July 2019, we completed our DIRECTV merger commitment, marketing fiber-to-the-premises network to nearly 14 million customer locations.
Cash Provided by or Used in Financing Activities
For the first ninesix months of 2019,2020, cash used in financing activities totaled $22,341$5,911 and included net proceedswas comprised of $15,034, which consisted primarilydebt issuances and repayments, issuances of the following issuances:preferred stock, share repurchase, payments of dividends and required collateral deposits.
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AT&T INC.
SEPTEMBERJUNE 30, 20192020
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
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 20192020:
January draw of $2,850 on an 11-month syndicated term loan agreement (repaid in the third quarter).
JanuaryMarch draw of $750 on a private financing agreement (repaid in the firstsecond quarter).
August borrowingsApril draw of $400 under$5,500 on a private financingterm loan credit agreement with certain commercial banks and Bank of America, N.A., as lead agent (repaid in the thirdsecond quarter).
Issued and outstanding at September 30, 2019in 2020:
February issuance of $3,000$2,995 of 4.350%4.000% global notes due 2029.2049.
February issuanceMarch borrowings of $2,000$665 from loan programs with export agencies of 4.850% global notes due 2039.
Borrowings of $725 in January and $525 in June that are supported by government agenciesforeign governments to support network equipment purchases.purchases in those countries.
June drawMay issuances totaling $12,500 in global notes, comprised of $300 on U.S. Bank credit agreement.$2,500 of 2.300% global notes due 2027, $3,000 of 2.750% global notes due 2031, $2,500 of 3.500% global notes due 2041, $3,000 of 3.650% global notes due 2051 and $1,500 of 3.850% global notes due 2060.
September issuanceMay issuances totaling €3,000 million in global notes (approximately $3,281 at issuance), comprised of €1,000€1,750 million of 0.25%1.600% global notes due 2026, €1,2502028, €750 million of 0.80%2.050% global notes due 20302032 and €750€500 million of 1.80%2.600% global notes due 2039 (when combined, $3,308 at issuance).2038.
September drawJune issuance of $1,300 on a Bank$1,050 of America term loan credit agreement.3.750% global notes due 2050.
During the first ninesix months of 2019, repayment2020, repayments of debt included $5,975 of short-term borrowings and $17,284 of long-term debt totaled $24,368.debt. Repayments primarily consistedwere comprised of $475 in commercial paper and the following:
Notes redeemed at maturity:
$1,850 of 2.300% AT&T global notes in the first quarter.
$400800 of AT&T floating-rate notes in the first quarter.
€1,500$687 of AT&T floating-rate notes in the second quarter ($1,882 at maturity).
$650 of 2.100% WarnerMedia, LLC notes in the second quarter.
Notes redeemed prior to maturity:
$2,0102,619 of 4.600% AT&T global notes with interest rates ranging from 4.750% to 5.200% and original maturitiesmaturity in 2020 and 2021,2045, in the first quarter.
$2,0002,750 of Warner Media, LLC2.450% AT&T global notes with interest rates ranging from 4.700% to 5.200% and original maturitiesmaturity in 2021,2020, in the first quarter.second quarter
$5901,000 of Warner Media, LLC and/or Historic TW Inc. notes that were tendered for cash in our May 2019 obligor debt exchange. The notes had interest rates ranging between 6.500% and 9.150% and original maturities ranging from 2023 to 2036.
$243 of open market redemptions of AT&T notes, with interest rates ranging from 7.125% to 8.750% and original maturities in 2031,annual put reset securities issued by BellSouth, in the second quarter.
$154683 of open market redemptions of WarnerMedia, LLC, Historic TW Inc., BellSouth LLC and4.600% AT&T Mobility LLCglobal notes with interest rates ranging from 2.95% to 7.625% and original maturities ranging from 2022 to 2097,maturity in 2021, in the thirdsecond 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 redemptions:borrowings:
$2,625 of final amounts outstanding under our Acquisition Term Loan (defined below) in the first quarter.
$750 of January borrowings under a private financing agreement, in the first quarter.
$1,500 of four-year and five-year borrowings under the Nova Scotia Credit Agreement (defined below) in the second quarter and $750 of three-year borrowings in the third quarter.
$600 of borrowings under our credit agreement with Canadian Imperial Bank of Commerce in the second quarter.
$500 of advances under our November 2018 Term Loan (defined below) in the second quarter, with payment of the remaining $3,050 of advances in the third quarter.
$250 of borrowings under a U.S. Bank credit agreement in the second quarter.
$750 of borrowings under a private credit agreement in the third quarter.
$400 of borrowings under a private financing agreement, in the thirdsecond quarter.
$2,850 of borrowings5,500 under an 11-month syndicatedour April 2020 term loan credit agreement from January 2019with certain commercial banks and Bank of America, in the thirdsecond 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 4.3% as of June 30, 2020 and 4.4% as of December 31, 2019. We had $164,099 of total notes and debentures outstanding at June 30, 2020, which included Euro, British pound sterling, Canadian dollar, Swiss franc, Australian dollar, Brazilian real, and Mexican peso denominated debt that totaled approximately $44,798.
5958
AT&T INC.
SEPTEMBERJUNE 30, 20192020
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
Our weighted average interest rate of our entire long-term debt portfolio, including the impact of derivatives, was approximately 4.4% as of SeptemberAt June 30, 2019 and 4.4% as of December 31, 2018. We had $160,758 of total notes and debentures outstanding at September 30, 2019, which included Euro, British pound sterling, Swiss franc, Brazilian real, Mexican peso, Canadian dollar and Australian dollar denominated debt that totaled approximately $41,399.
At September 30, 2019,2020, we had $11,608$15,576 of debt maturing within one year, consisting of $2,443$3,001 of commercial paper and other short-term borrowings and $9,165$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:
$1,000 of annual put reset securities issued by BellSouth that may be put back to us each April until maturity in 2021.
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 ninesix months of 2019,2020, we paid $2,601$1,354 of cash under our vendor financing program, compared to $347$1,836 in the first ninesix months of 2018.2019. Total vendor financing payables included in our SeptemberJune 30, 20192020 consolidated balance sheet were approximately $1,800,$1,556, with $1,350$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”).
In September 2019, we contributed certain tower assets to a wireless subsidiary and then generated $1,500Financing activities in the first six months of capital from2020 also included $3,869 for the February issuance of nonconvertibleSeries B and Series C preferred interests, which we reported as financing activitiesstock (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 SeptemberJune 30, 2019,2020, we had approximately 371178 million shares remaining from our share repurchase authorizations approved by the Board of Directors in 2013 and 2014.
We paid dividends on common and preferred shares of $11,162$7,474 during the first ninesix months of 2019,2020, compared with $9,775$7,436 for the first ninesix months of 2018,2019. Dividends were higher in 2020, primarily reflectingdue to dividend payments to preferred stockholders and the increase in the number of shares outstanding related to our June 2018 acquisition of Time Warner as well as an increase in our quarterly dividend on common stock approved by our Board of Directors in December 2018. 2019, partially offset by fewer shares outstanding.
Dividends on common stock declared by our Board of Directors totaled $1.53$1.04 per share in the first ninesix months of 20192020 and $1.50$1.02 per share for the first ninesix months of 2018.2019. 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 completed 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 due 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 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 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 SeptemberJune 30, 2019.
In September 2017, we entered into a $2,250 syndicated term loan credit agreement (the “Nova Scotia Credit Agreement”) containing (i) a three-year $750 term loan facility (the “2021 facility”), (ii) a four-year $750 term loan facility (the “2022 facility”) and (iii) a five-year $750 term loan facility (the “2023 facility”), with certain investment and commercial banks and The Bank of Nova Scotia, as administrative agent. We drew on all three facilities during the first quarter of 2018, paid the 2022 and 2023 facilities during the second quarter of 2019 and paid the 2021 facility during the third quarter of 2019. No amounts were outstanding under the Nova Scotia Credit Agreement as of September 30, 2019.
On November 20, 2018, we entered into and drew on a 4.5 year $3,550 term loan credit agreement (the “November 2018 Term Loan”) with Bank of America, N.A., as agent. We used the proceeds to finance the repayment, in part, of loans
60
AT&T INC.
SEPTEMBER 30, 2019
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
outstanding under the Acquisition Term Loan. We paid $500 of these borrowings in the second quarter of 2019, and paid the remaining $3,050 in the third quarter. No amounts were outstanding under this agreement as of September 30, 2019.
On January 31, 2019, we entered into and drew on an 11-month $2,850 syndicated term loan credit agreement (the “Citibank Term Loan”), with certain investment and commercial banks and Citibank, N.A., as administrative agent. We paid the borrowings under the Citibank Term Loan during the third quarter. As of September 30, 2019, no amounts were outstanding under this agreement.2020.
In September 2019, we entered into and drew on a $1,300 term loan credit agreement containing (i) a 1.25 year $400 facility due in 2020 (BAML Tranche A Facility), (ii) a 2.25 year $400 facility due in 2021 (BAML Tranche B Facility), and (iii) a 3.25 year $500 facility due in 2022 (BAML Tranche C Facility), with Bank of America, N.A., as agent. No payment had been made under theseThese 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 Bank of America, N.A. as of September 30, 2019.lead agent. We repaid and terminated the Term Loan in May 2020.
We also utilize other external financing sources, which include various credit arrangements supported by government agencies to support network equipment purchases as well as a commercial paper program.
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, 2019,2020, we were in compliance with the covenants for our credit facilities.
Collateral Arrangements
During the year,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 2019,2020, we received $1,204deposited approximately $518 of cash collateral, on a net basis primarily driven byas we exceeded the amended arrangements.market value thresholds with some of the counterparties. Cash postings under these arrangements vary with changes in credit ratings and netting agreements. (See Note 7)
Other
Our total capital consists of debt (long-term debt and debt maturing within one year) and stockholders’ equity. Our capital structure does not include debt issued by our equity method investments. At SeptemberJune 30, 2019,2020, our debt ratio was 45.9%46.6%, compared to 49.8%46.8% at SeptemberJune 30, 20182019 and 47.7%44.7% at December 31, 2018.2019. Our net debt ratio was 44.1%41.9% at SeptemberJune 30, 2020, compared to 44.5% at June 30, 2019 compared to 47.4% at September 30, 2018 and 46.2%41.4% at December 31, 2018.2019. The debt ratio is affected by the same factors that affect total capital, and reflects our recent debt issuances and repayments.repayments and debt acquired in business combinations.
During the first ninesix months of 2019,2020, we have received $3,775$347 from the disposition of assets, and when combined with capital received from the external investors in a wireless tower subsidiary, an amendment of collateral arrangements, and working capital monetization initiatives, which include the sale of receivables, total cash received from monetization efforts, net of $1,046 of spectrum acquisitions, was approximately $10,800.$300. We plan to continue to explore similar opportunities. In October 2019, we entered into an agreement to sell our wireless and wireline operations in Puerto Rico and the U.S. Virgin Islands for approximately $1,950, which we expect to close in the first half of 2020 (Note 8). Also in October, we entered into a sale-leaseback of certain domestic company-owned wireless towers for approximately $680, with a substantial number of the towers expected to close by year-end 2019, and an agreement to sell our stake in Central European Media Enterprises Ltd. for approximately $1,100, which we expect to close in the second quarter ofopportunities throughout 2020.
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AT&T INC.
SEPTEMBERJUNE 30, 20192020
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
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 Business Solutions operations that is calculated by combining our Mobility and Business Wireline business units, and then adjusting to remove non-business operations. The following table presents a reconciliation of our supplemental Business Solutions results.
|
| Three Months Ended |
| Three Months Ended | ||||||||||||||||||||||||||||||
|
| September 30, 2019 |
|
| September 30, 2018 |
| June 30, 2020 |
|
| June 30, 2019 | ||||||||||||||||||||||||
|
| Mobility |
| Business Wireline |
| Adjustments1 |
| Business Solutions |
|
| Mobility |
| Business Wireline |
| Adjustments1 |
| Business Solutions |
| Mobility |
| Business Wireline |
| Adjustments1 |
| Business Solutions |
|
| Mobility |
| Business Wireline |
| Adjustments1 |
| Business Solutions |
Operating Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wireless service | $ | 13,930 | $ | - | $ | (11,921) | $ | 2,009 |
| $ | 13,828 | $ | - | $ | (11,971) | $ | 1,857 | $ | 13,669 | $ | - | $ | (11,785) | $ | 1,884 |
| $ | 13,824 | $ | - | $ | (11,943) | $ | 1,881 |
Strategic and managed services |
| - |
| 3,900 |
| - |
| 3,900 |
|
| - |
| 3,677 |
| - |
| 3,677 |
| - |
| 3,943 |
| - |
| 3,943 |
|
| - |
| 3,834 |
| - |
| 3,834 |
Legacy voice and data services |
| - |
| 2,252 |
| - |
| 2,252 |
|
| - |
| 2,602 |
| - |
| 2,602 |
| - |
| 2,067 |
| - |
| 2,067 |
|
| - |
| 2,324 |
| - |
| 2,324 |
Other service and equipment |
| - |
| 351 |
| - |
| 351 |
|
| - |
| 404 |
| - |
| 404 |
| - |
| 364 |
| - |
| 364 |
|
| - |
| 449 |
| - |
| 449 |
Wireless equipment |
| 3,771 |
| - |
| (3,077) |
| 694 |
|
| 3,907 |
| - |
| (3,321) |
| 586 |
| 3,480 |
| - |
| (2,895) |
| 585 |
|
| 3,468 |
| - |
| (2,851) |
| 617 |
Total Operating Revenues |
| 17,701 |
| 6,503 |
| (14,998) |
| 9,206 |
|
| 17,735 |
| 6,683 |
| (15,292) |
| 9,126 |
| 17,149 |
| 6,374 |
| (14,680) |
| 8,843 |
|
| 17,292 |
| 6,607 |
| (14,794) |
| 9,105 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations and support |
| 9,948 |
| 4,022 |
| (8,327) |
| 5,643 |
|
| 10,104 |
| 4,022 |
| (8,551) |
| 5,575 |
| 9,332 |
| 3,779 |
| (7,687) |
| 5,424 |
|
| 9,522 |
| 3,975 |
| (7,985) |
| 5,512 |
EBITDA |
| 7,753 |
| 2,481 |
| (6,671) |
| 3,563 |
|
| 7,631 |
| 2,661 |
| (6,741) |
| 3,551 |
| 7,817 |
| 2,595 |
| (6,993) |
| 3,419 |
|
| 7,770 |
| 2,632 |
| (6,809) |
| 3,593 |
Depreciation and amortization |
| 2,011 |
| 1,271 |
| (1,709) |
| 1,573 |
|
| 2,057 |
| 1,187 |
| (1,759) |
| 1,485 |
| 2,012 |
| 1,318 |
| (1,693) |
| 1,637 |
|
| 2,003 |
| 1,242 |
| (1,700) |
| 1,545 |
Total Operating Expense |
| 11,959 |
| 5,293 |
| (10,036) |
| 7,216 |
|
| 12,161 |
| 5,209 |
| (10,310) |
| 7,060 |
| 11,344 |
| 5,097 |
| (9,380) |
| 7,061 |
|
| 11,525 |
| 5,217 |
| (9,685) |
| 7,057 |
Operating Income |
| 5,742 |
| 1,210 |
| (4,962) |
| 1,990 |
|
| 5,574 |
| 1,474 |
| (4,982) |
| 2,066 |
| 5,805 |
| 1,277 |
| (5,300) |
| 1,782 |
|
| 5,767 |
| 1,390 |
| (5,109) |
| 2,048 |
Equity in net income (loss) of affiliates |
| - |
| (1) |
| - |
| (1) |
|
| 1 |
| (3) |
| (1) |
| (3) |
| - |
| - |
| - |
| - |
|
| - |
| - |
| - |
| - |
Operating Contribution | $ | 5,742 | $ | 1,209 | $ | (4,962) | $ | 1,989 |
| $ | 5,575 | $ | 1,471 | $ | (4,983) | $ | 2,063 | $ | 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. | 1Non-business wireless reported in the Communications segment under the Mobility business unit. | 1Non-business wireless reported in the Communications segment under the Mobility business unit. |
6261
AT&T INC.
SEPTEMBERJUNE 30, 20192020
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
|
| Nine Months Ended |
| Six Months Ended | ||||||||||||||||||||||||||||||
|
| September 30, 2019 |
|
| September 30, 2018 |
| June 30, 2020 |
|
| June 30, 2019 | ||||||||||||||||||||||||
|
| Mobility |
| Business Wireline |
| Adjustments1 |
| Business Solutions |
|
| Mobility |
| Business Wireline |
| Adjustments1 |
| Business Solutions |
| Mobility |
| Business Wireline |
| Adjustments1 |
| Business Solutions |
|
| Mobility |
| Business Wireline |
| Adjustments1 |
| Business Solutions |
Operating Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wireless service | $ | 41,383 | $ | - | $ | (35,482) | $ | 5,901 |
| $ | 40,594 | $ | - | $ | (35,154) | $ | 5,440 | $ | 27,637 | $ | - | $ | (23,804) | $ | 3,833 |
| $ | 27,453 | $ | - | $ | (23,795) | $ | 3,658 |
Strategic and managed services |
| - |
| 11,513 |
| - |
| 11,513 |
|
| - |
| 10,849 |
| - |
| 10,849 |
| - |
| 7,822 |
| - |
| 7,822 |
|
| - |
| 7,613 |
| - |
| 7,613 |
Legacy voice and data services |
| - |
| 6,973 |
| - |
| 6,973 |
|
| - |
| 8,176 |
| - |
| 8,176 |
| - |
| 4,196 |
| - |
| 4,196 |
|
| - |
| 4,721 |
| - |
| 4,721 |
Other service and equipment |
| - |
| 1,102 |
| - |
| 1,102 |
|
| - |
| 1,010 |
| - |
| 1,010 |
| - |
| 688 |
| - |
| 688 |
|
| - |
| 751 |
| - |
| 751 |
Wireless equipment |
| 10,973 |
| - |
| (9,071) |
| 1,902 |
|
| 11,371 |
| - |
| (9,634) |
| 1,737 |
| 6,914 |
| - |
| (5,619) |
| 1,295 |
|
| 7,202 |
| - |
| (5,995) |
| 1,207 |
Total Operating Revenues |
| 52,356 |
| 19,588 |
| (44,553) |
| 27,391 |
|
| 51,965 |
| 20,035 |
| (44,788) |
| 27,212 |
| 34,551 |
| 12,706 |
| (29,423) |
| 17,834 |
|
| 34,655 |
| 13,085 |
| (29,790) |
| 17,950 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations and support |
| 29,511 |
| 12,029 |
| (24,770) |
| 16,770 |
|
| 29,603 |
| 12,047 |
| (24,926) |
| 16,724 |
| 18,901 |
| 7,730 |
| (15,497) |
| 11,134 |
|
| 19,563 |
| 8,007 |
| (16,444) |
| 11,126 |
EBITDA |
| 22,845 |
| 7,559 |
| (19,783) |
| 10,621 |
|
| 22,362 |
| 7,988 |
| (19,862) |
| 10,488 |
| 15,650 |
| 4,976 |
| (13,926) |
| 6,700 |
|
| 15,092 |
| 5,078 |
| (13,346) |
| 6,824 |
Depreciation and amortization |
| 6,027 |
| 3,735 |
| (5,119) |
| 4,643 |
|
| 6,218 |
| 3,520 |
| (5,330) |
| 4,408 |
| 4,057 |
| 2,619 |
| (3,414) |
| 3,262 |
|
| 4,016 |
| 2,464 |
| (3,410) |
| 3,070 |
Total Operating Expense |
| 35,538 |
| 15,764 |
| (29,889) |
| 21,413 |
|
| 35,821 |
| 15,567 |
| (30,256) |
| 21,132 |
| 22,958 |
| 10,349 |
| (18,911) |
| 14,396 |
|
| 23,579 |
| 10,471 |
| (19,854) |
| 14,196 |
Operating Income |
| 16,818 |
| 3,824 |
| (14,664) |
| 5,978 |
|
| 16,144 |
| 4,468 |
| (14,532) |
| 6,080 |
| 11,593 |
| 2,357 |
| (10,512) |
| 3,438 |
|
| 11,076 |
| 2,614 |
| (9,936) |
| 3,754 |
Equity in net income (loss) of affiliates |
| (1) |
| - |
| 1 |
| - |
|
| - |
| (2) |
| - |
| (2) |
| - |
| - |
| - |
| - |
|
| - |
| - |
| - |
| - |
Operating Contribution | $ | 16,817 | $ | 3,824 | $ | (14,663) | $ | 5,978 |
| $ | 16,144 | $ | 4,466 | $ | (14,532) | $ | 6,078 | $ | 11,593 | $ | 2,357 | $ | (10,512) | $ | 3,438 |
| $ | 11,076 | $ | 2,614 | $ | (9,936) | $ | 3,754 |
1Non-business wireless reported in the Communications segment under the Mobility business unit. | 1Non-business wireless reported in the Communications segment under the Mobility business unit. | 1Non-business wireless reported in the Communications segment under the Mobility business unit. |
6362
AT&T INC.
SEPTEMBERJUNE 30, 20192020
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Dollars in millions except per share amounts
At SeptemberJune 30, 2019,2020, we had interest rate swaps with a notional value of $853$21 and a fair value of $2.$(3).
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 $42,792$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 $(4,483)$(6,700) at SeptemberJune 30, 2019.2020. We have no rate locks with a notional value of $3,500 and a fair value of $(225) at SeptemberJune 30, 2019.2020.
We have foreign exchange contracts with a U.S. dollar notional value of $473$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 $79$4 at SeptemberJune 30, 2019.2020.
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’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’s disclosure controls and procedures as of SeptemberJune 30, 2019.2020. Based on that evaluation, the chief executive officer and chief financial officer concluded that the registrant’s disclosure controls and procedures were effective as of SeptemberJune 30, 2019.2020.
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.
6463
AT&T INC.
SEPTEMBERJUNE 30, 20192020
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” 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, special access and business data services; 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;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 impactadverse 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;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.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.
64
AT&T INC.
JUNE 30, 2020
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
65
AT&T INC.
SEPTEMBER 30, 2019
CAUTIONARY LANGUAGE CONCERNING FORWARD-LOOKING STATEMENTS
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.
•Our ability to take advantage of the desire of advertisers to change traditional video advertising models.
Our increased exposure to foreign economies, including foreign exchange fluctuations as well as regulatory and political uncertainty.
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.
6665
AT&T INC.
SEPTEMBERJUNE 30, 20192020
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 of 2019,2020, there were no such material developments.
6766
AT&T INC.
SEPTEMBERJUNE 30, 20192020
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.
68 |