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 1-8610001-8610
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. 1.050% Global Notes due September 5, 2023 | T 23E | New York Stock Exchange |
AT&T Inc. 1.300% Global Notes due September 5, 2023 | T 23A | New York Stock Exchange |
AT&T Inc. 1.950% Global Notes due September 15, 2023 | T 23F | New York Stock Exchange |
AT&T Inc. 2.400% Global Notes due March 15, 2024 | T 24A | New York Stock Exchange |
AT&T Inc. 3.500% Global Notes due December 17, 2025 | T 25 | New York Stock Exchange |
AT&T Inc. 0.250% Global Notes due March 4, 2026 | T 26E | New York Stock Exchange |
AT&T Inc. 1.800% Global Notes due September 5, 2026 | T 26D | New York Stock Exchange |
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| Name of each exchange |
Title of each class | Trading Symbol(s) | on which registered |
AT&T Inc. |
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| T 26A | New York Stock Exchange |
AT&T Inc. | 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 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. 1.800% Global Notes due September 14, 2039 | T 39B |
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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. 4.000% Global Notes due June 1, 2049 | ||
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| New York Stock Exchange |
AT&T Inc. 4.250% Global Notes due March 1, 2050 | T 50 | 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 | [X] |
| Accelerated | [ ] |
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 July 31, 2019,April 30, 2020, there were 7,3077,125 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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| Six months ended |
| Three months ended | |||||||||
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| June 30, |
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| June 30, |
| March 31, | |||||||||
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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 |
Operating Revenues |
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Service | $ | 41,023 |
| $ | 34,906 |
| $ | 81,707 |
| $ | 68,552 | $ | 38,883 |
| $ | 40,684 |
Equipment |
| 3,934 |
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| 4,080 |
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| 8,077 |
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| 8,472 |
| 3,896 |
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| 4,143 |
Total operating revenues |
| 44,957 |
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| 38,986 |
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| 89,784 |
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| 77,024 |
| 42,779 |
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| 44,827 |
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Operating Expenses |
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Cost of revenues |
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Equipment |
| 4,061 |
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| 4,377 |
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| 8,563 |
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| 9,225 |
| 4,092 |
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| 4,502 |
Broadcast, programming and operations |
| 7,730 |
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| 5,449 |
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| 15,382 |
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| 10,615 |
| 6,847 |
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| 7,652 |
Other cost of revenues (exclusive of depreciation and amortization shown separately below) |
| 8,721 |
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| 7,632 |
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| 17,306 |
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| 15,564 |
| 8,342 |
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| 8,585 |
Selling, general and administrative |
| 9,844 |
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| 8,684 |
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| 19,493 |
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| 16,581 |
| 8,790 |
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| 9,649 |
Depreciation and amortization |
| 7,101 |
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| 6,378 |
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| 14,307 |
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| 12,372 |
| 7,222 |
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| 7,206 |
Total operating expenses |
| 37,457 |
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| 32,520 |
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| 75,051 |
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| 64,357 |
| 35,293 |
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| 37,594 |
Operating Income |
| 7,500 |
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| 6,466 |
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| 14,733 |
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| 12,667 |
| 7,486 |
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| 7,233 |
Other Income (Expense) |
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Interest expense |
| (2,149) |
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| (2,023) |
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| (4,290) |
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| (3,794) |
| (2,018) |
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| (2,141) |
Equity in net income (loss) of affiliates |
| 40 |
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| (16) |
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| 33 |
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| (7) |
| (6) |
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| (7) |
Other income (expense) – net |
| (318) |
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| 2,353 |
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| (32) |
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| 4,055 |
| 803 |
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| 286 |
Total other income (expense) |
| (2,427) |
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| 314 |
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| (4,289) |
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| 254 |
| (1,221) |
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| (1,862) |
Income Before Income Taxes |
| 5,073 |
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| 6,780 |
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| 10,444 |
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| 12,921 |
| 6,265 |
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| 5,371 |
Income tax expense |
| 1,099 |
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| 1,532 |
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| 2,122 |
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| 2,914 |
| 1,302 |
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| 1,023 |
Net Income |
| 3,974 |
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| 5,248 |
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| 8,322 |
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| 10,007 |
| 4,963 |
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| 4,348 |
Less: Net Income Attributable to Noncontrolling Interest |
| (261) |
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| (116) |
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| (513) |
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| (213) |
| (353) |
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| (252) |
Net Income Attributable to AT&T | $ | 3,713 |
| $ | 5,132 |
| $ | 7,809 |
| $ | 9,794 | $ | 4,610 |
| $ | 4,096 |
Basic Earnings Per Share Attributable to AT&T | $ | 0.51 |
| $ | 0.81 |
| $ | 1.06 |
| $ | 1.56 | |||||
Diluted Earnings Per Share Attributable to AT&T | $ | 0.51 |
| $ | 0.81 |
| $ | 1.06 |
| $ | 1.56 | |||||
Less: Preferred Stock Dividends |
| (32) |
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| - | |||||||||||
Net Income Attributable to Common Stock | $ | 4,578 |
| $ | 4,096 | |||||||||||
Basic Earnings Per Share Attributable to Common Stock | $ | 0.63 |
| $ | 0.56 | |||||||||||
Diluted Earnings Per Share Attributable to Common Stock | $ | 0.63 |
| $ | 0.56 | |||||||||||
Weighted Average Number of Common Shares Outstanding – Basic (in millions) |
| 7,323 |
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| 6,351 |
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| 7,318 |
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| 6,257 |
| 7,187 |
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| 7,313 |
Weighted Average Number of Common Shares Outstanding – with Dilution (in millions) |
| 7,353 |
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| 6,374 |
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| 7,347 |
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| 6,277 |
| 7,214 |
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| 7,342 |
See Notes to Consolidated Financial Statements. |
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3
AT&T INC. |
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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 | ||||
| March 31, | ||||
| 2020 |
| 2019 | ||
Net income | $ | 4,963 |
| $ | 4,348 |
Other comprehensive income (loss), net of tax: |
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Foreign currency: |
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Translation adjustment (includes $(51) and $0 attributable to noncontrolling interest), |
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net of taxes of $(62) and $49 |
| (1,854) |
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| 288 |
Securities: |
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Net unrealized gains, net of taxes of $22 and $5 |
| 66 |
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| 16 |
Derivative instruments: |
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Net unrealized gains (losses), net of taxes of $(971) and $34 |
| (3,657) |
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| 127 |
Reclassification adjustment included in net income, net of taxes of $0 and $2 |
| - |
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| 11 |
Defined benefit postretirement plans: |
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Amortization of net prior service credit included in net income, net of taxes of $(151) |
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and $(113) |
| (461) |
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| (346) |
Other comprehensive income (loss) |
| (5,906) |
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| 96 |
Total comprehensive income (loss) |
| (943) |
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| 4,444 |
Less: Total comprehensive income attributable to noncontrolling interest |
| (302) |
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| (252) |
Total Comprehensive Income (Loss) Attributable to AT&T | $ | (1,245) |
| $ | 4,192 |
See Notes to Consolidated Financial Statements. |
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4
AT&T INC. |
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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 |
| Six months ended | ||||||||
| June 30, |
| June 30, | ||||||||
| 2019 |
| 2018 |
| 2019 |
| 2018 | ||||
Net income | $ | 3,974 |
| $ | 5,248 |
| $ | 8,322 |
| $ | 10,007 |
Other comprehensive income (loss), net of tax: |
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Foreign currency: |
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Translation adjustment (includes $2, $(32), $2 and $(30) attributable to noncontrolling interest), net of taxes of $(1), $(318), $48 and $(143) |
| (127) |
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| (918) |
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| 161 |
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| (810) |
Securities: |
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Net unrealized gains (losses), net of taxes of $10, $0, $15and $(4) |
| 26 |
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| - |
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| 42 |
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| (12) |
Derivative instruments: |
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Net unrealized gains (losses), net of taxes of $(165), $(112), $(131) and $68 |
| (617) |
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| (421) |
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| (490) |
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| 253 |
Reclassification adjustment included in net income, net of taxes of $3, $3, $5 and $6 |
| 6 |
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| 11 |
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| 17 |
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| 23 |
Defined benefit postretirement plans: |
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Net prior service (cost) credit arising during period, net of taxes of $0, $(12), $0 and $173 |
| - |
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| (37) |
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| - |
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| 530 |
Amortization of net prior service credit included in net income, net of taxes of $(107), $(109), $(220) and $(214) |
| (342) |
|
| (334) |
|
| (688) |
|
| (657) |
Other comprehensive income (loss) |
| (1,054) |
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| (1,699) |
|
| (958) |
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| (673) |
Total comprehensive income |
| 2,920 |
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| 3,549 |
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| 7,364 |
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| 9,334 |
Less: Total comprehensive income attributable to noncontrolling interest |
| (263) |
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| (84) |
|
| (515) |
|
| (183) |
Total Comprehensive Income Attributable to AT&T | $ | 2,657 |
| $ | 3,465 |
| $ | 6,849 |
| $ | 9,151 |
See Notes to Consolidated Financial Statements. |
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AT&T INC. | |||||
CONSOLIDATED BALANCE SHEETS | |||||
Dollars in millions except per share amounts | |||||
| March 31, |
| December 31, | ||
| 2020 |
| 2019 | ||
Assets | (Unaudited) |
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Current Assets |
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Cash and cash equivalents | $ | 9,955 |
| $ | 12,130 |
Accounts receivable - net of allowances for doubtful accounts of $1,651 and $1,235 |
| 19,908 |
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| 22,636 |
Prepaid expenses |
| 1,600 |
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| 1,631 |
Other current assets |
| 21,241 |
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| 18,364 |
Total current assets |
| 52,704 |
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| 54,761 |
Noncurrent inventories and theatrical film and television production costs |
| 13,276 |
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| 12,434 |
Property, Plant and Equipment |
| 329,187 |
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| 333,538 |
Less: accumulated depreciation and amortization |
| (200,266) |
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| (203,410) |
Property, Plant and Equipment – Net |
| 128,921 |
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| 130,128 |
Goodwill |
| 145,546 |
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| 146,241 |
Licenses – Net |
| 96,662 |
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| 97,907 |
Trademarks and Trade Names – Net |
| 23,293 |
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| 23,567 |
Distribution Networks – Net |
| 14,886 |
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| 15,345 |
Other Intangible Assets – Net |
| 19,623 |
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| 20,798 |
Investments in and Advances to Equity Affiliates |
| 3,606 |
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| 3,695 |
Operating lease right-of-use assets |
| 24,008 |
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| 24,039 |
Other Assets |
| 22,829 |
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| 22,754 |
Total Assets | $ | 545,354 |
| $ | 551,669 |
Liabilities and Stockholders’ Equity |
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Current Liabilities |
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Debt maturing within one year | $ | 17,067 |
| $ | 11,838 |
Accounts payable and accrued liabilities |
| 40,771 |
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| 45,956 |
Advanced billings and customer deposits |
| 5,960 |
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| 6,124 |
Accrued taxes |
| 2,169 |
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| 1,212 |
Dividends payable |
| 3,737 |
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| 3,781 |
Total current liabilities |
| 69,704 |
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| 68,911 |
Long-Term Debt |
| 147,202 |
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| 151,309 |
Deferred Credits and Other Noncurrent Liabilities |
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Deferred income taxes |
| 58,491 |
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| 59,502 |
Postemployment benefit obligation |
| 18,324 |
|
| 18,788 |
Operating lease liabilities |
| 21,584 |
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| 21,804 |
Other noncurrent liabilities |
| 34,600 |
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| 29,421 |
Total deferred credits and other noncurrent liabilities |
| 132,999 |
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| 129,515 |
Stockholders’ Equity |
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Preferred stock ($1 par value, 10,000,000 authorized): |
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Series A (48,000 issued and outstanding at March 31, 2020 and December 31, 2019) |
| - |
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| - |
Series B (20,000 issued and outstanding at March 31, 2020 |
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and 0 issued and outstanding at December 31, 2019) |
| - |
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| - |
Series C (70,000 issued and outstanding at March 31, 2020 |
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and 0 issued and outstanding at December 31, 2019) |
| - |
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| - |
Common stock ($1 par value, 14,000,000,000 authorized at March 31, 2020 and |
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December 31, 2019: issued 7,620,748,598 at March 31, 2020 and at December 31, 2019) |
| 7,621 |
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| 7,621 |
Additional paid-in capital |
| 129,966 |
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| 126,279 |
Retained earnings |
| 58,534 |
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| 57,936 |
Treasury stock (495,533,462 at March 31, 2020 and 366,193,458 at December 31, 2019, |
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at cost) |
| (17,957) |
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| (13,085) |
Accumulated other comprehensive income |
| (385) |
|
| 5,470 |
Noncontrolling interest |
| 17,670 |
|
| 17,713 |
Total stockholders’ equity |
| 195,449 |
|
| 201,934 |
Total Liabilities and Stockholders’ Equity | $ | 545,354 |
| $ | 551,669 |
See Notes to Consolidated Financial Statements. |
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5
AT&T INC. | |||||
CONSOLIDATED BALANCE SHEETS | |||||
Dollars in millions except per share amounts | |||||
| June 30, |
| December 31, | ||
| 2019 |
| 2018 | ||
Assets | (Unaudited) |
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Current Assets |
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Cash and cash equivalents | $ | 8,423 |
| $ | 5,204 |
Accounts receivable - net of allowances for doubtful accounts of $1,086 and $907 |
| 22,381 |
|
| 26,472 |
Prepaid expenses |
| 1,441 |
|
| 2,047 |
Other current assets |
| 14,973 |
|
| 17,704 |
Total current assets |
| 47,218 |
|
| 51,427 |
Noncurrent Inventories and Theatrical Film and Television Production Costs |
| 10,685 |
|
| 7,713 |
Property, plant and equipment |
| 334,916 |
|
| 330,690 |
Less: accumulated depreciation and amortization |
| (202,842) |
|
| (199,217) |
Property, Plant and Equipment – Net |
| 132,074 |
|
| 131,473 |
Goodwill |
| 146,662 |
|
| 146,370 |
Licenses – Net |
| 97,125 |
|
| 96,144 |
Trademarks and Trade Names – Net |
| 24,088 |
|
| 24,345 |
Distribution Networks – Net |
| 16,262 |
|
| 17,069 |
Other Intangible Assets – Net |
| 23,284 |
|
| 26,269 |
Investments in and Advances to Equity Affiliates |
| 4,133 |
|
| 6,245 |
Operating lease right-of-use assets |
| 22,650 |
|
| - |
Other Assets |
| 22,733 |
|
| 24,809 |
Total Assets | $ | 546,914 |
| $ | 531,864 |
|
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Liabilities and Stockholders’ Equity |
|
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Current Liabilities |
|
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Debt maturing within one year | $ | 12,772 |
| $ | 10,255 |
Accounts payable and accrued liabilities |
| 42,082 |
|
| 43,184 |
Advanced billings and customer deposits |
| 5,734 |
|
| 5,948 |
Accrued taxes |
| 2,062 |
|
| 1,179 |
Dividends payable |
| 3,726 |
|
| 3,854 |
Total current liabilities |
| 66,376 |
|
| 64,420 |
Long-Term Debt |
| 157,790 |
|
| 166,250 |
Deferred Credits and Other Noncurrent Liabilities |
|
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Deferred income taxes |
| 58,713 |
|
| 57,859 |
Postemployment benefit obligation |
| 21,210 |
|
| 19,218 |
Operating lease liabilities |
| 20,568 |
|
| - |
Other noncurrent liabilities |
| 28,176 |
|
| 30,233 |
Total deferred credits and other noncurrent liabilities |
| 128,667 |
|
| 107,310 |
|
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Stockholders’ Equity |
|
|
|
|
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Common stock ($1 par value, 14,000,000,000 authorized at June 30, 2019 and December 31, 2018: issued 7,620,748,598 at June 30, 2019 and December 31, 2018) |
| 7,621 |
|
| 7,621 |
Additional paid-in capital |
| 125,109 |
|
| 125,525 |
Retained earnings |
| 59,389 |
|
| 58,753 |
Treasury stock (315,719,351 at June 30, 2019 and 339,120,073 at December 31, 2018, at cost) |
| (11,151) |
|
| (12,059) |
Accumulated other comprehensive income |
| 3,289 |
|
| 4,249 |
Noncontrolling interest |
| 9,824 |
|
| 9,795 |
Total stockholders’ equity |
| 194,081 |
|
| 193,884 |
Total Liabilities and Stockholders’ Equity | $ | 546,914 |
| $ | 531,864 |
See Notes to Consolidated Financial Statements. |
|
|
|
|
|
AT&T INC. | |||||
CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||
Dollars in millions | |||||
(Unaudited) |
|
|
| ||
| Three months ended | ||||
| March 31, | ||||
| 2020 |
| 2019 | ||
Operating Activities |
|
|
|
|
|
Net income | $ | 4,963 |
| $ | 4,348 |
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
Depreciation and amortization |
| 7,222 |
|
| 7,206 |
Amortization of television and film costs |
| 2,269 |
|
| 2,497 |
Undistributed earnings from investments in equity affiliates |
| 39 |
|
| 112 |
Provision for uncollectible accounts |
| 780 |
|
| 592 |
Deferred income tax expense |
| 259 |
|
| 753 |
Net (gain) loss on assets, net of impairments |
| (646) |
|
| (175) |
Pension and postretirement benefit expense (credit) |
| (748) |
|
| (369) |
Actuarial (gain) loss on pension and postretirement benefits |
| - |
|
| 432 |
Changes in operating assets and liabilities: |
|
|
|
|
|
Receivables |
| 1,695 |
|
| 2,125 |
Other current assets, inventories and theatrical film and television production costs |
| (3,267) |
|
| (2,510) |
Accounts payable and other accrued liabilities |
| (3,884) |
|
| (3,686) |
Equipment installment receivables and related sales |
| 535 |
|
| 652 |
Deferred customer contract acquisition and fulfillment costs |
| 105 |
|
| (375) |
Postretirement claims and contributions |
| (111) |
|
| (193) |
Other - net |
| (345) |
|
| (357) |
Total adjustments |
| 3,903 |
|
| 6,704 |
Net Cash Provided by Operating Activities |
| 8,866 |
|
| 11,052 |
Investing Activities |
|
|
|
|
|
Capital expenditures: |
|
|
|
|
|
Purchase of property and equipment |
| (4,938) |
|
| (5,121) |
Interest during construction |
| (28) |
|
| (61) |
Acquisitions, net of cash acquired |
| (100) |
|
| (117) |
Dispositions |
| 118 |
|
| 10 |
(Purchases), sales and settlement of securities and investments, net |
| (6) |
|
| (1) |
Advances to and investments in equity affiliates, net |
| (68) |
|
| (111) |
Net Cash Used in Investing Activities |
| (5,022) |
|
| (5,401) |
Financing Activities |
|
|
|
|
|
Net change in short-term borrowings with original maturities of three months or less |
| 1,742 |
|
| (256) |
Issuance of other short-term borrowings |
| 1,390 |
|
| 296 |
Repayment of other short-term borrowings |
| - |
|
| (176) |
Issuance of long-term debt |
| 4,357 |
|
| 9,182 |
Repayment of long-term debt |
| (4,422) |
|
| (9,840) |
Payment of vendor financing |
| (791) |
|
| (819) |
Issuance of preferred stock |
| 3,869 |
|
| - |
Purchase of treasury stock |
| (5,463) |
|
| (189) |
Issuance of treasury stock |
| 58 |
|
| 167 |
Dividends paid |
| (3,737) |
|
| (3,714) |
Other |
| (3,102) |
|
| 928 |
Net Cash Used in Financing Activities |
| (6,099) |
|
| (4,421) |
Net (decrease) increase in cash and cash equivalents and restricted cash |
| (2,255) |
|
| 1,230 |
Cash and cash equivalents and restricted cash beginning of year |
| 12,295 |
|
| 5,400 |
Cash and Cash Equivalents and Restricted Cash End of Period | $ | 10,040 |
| $ | 6,630 |
See Notes to Consolidated Financial Statements. |
6
AT&T INC. | |||||
CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||
Dollars in millions | |||||
(Unaudited) |
|
|
| ||
| Six months ended | ||||
| June 30, | ||||
| 2019 |
| 2018 | ||
|
|
|
|
| |
Operating Activities |
|
|
|
|
|
Net income | $ | 8,322 |
| $ | 10,007 |
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
Depreciation and amortization |
| 14,307 |
|
| 12,372 |
Amortization of television and film costs |
| 5,199 |
|
| 168 |
Undistributed earnings from investments in equity affiliates |
| 76 |
|
| 235 |
Provision for uncollectible accounts |
| 1,216 |
|
| 808 |
Deferred income tax expense |
| 1,080 |
|
| 2,285 |
Net (gain) loss from investments, net of impairments |
| (905) |
|
| (29) |
Actuarial (gain) loss on pension and postretirement benefits |
| 2,131 |
|
| (2,726) |
Changes in operating assets and liabilities: |
|
|
|
|
|
Accounts receivable |
| 3,540 |
|
| 233 |
Other current assets, inventories and theatrical film and television production costs |
| (5,422) |
|
| 1,039 |
Accounts payable and other accrued liabilities |
| (3,056) |
|
| (3,890) |
Equipment installment receivables and related sales |
| 1,144 |
|
| 490 |
Deferred customer contract acquisition and fulfillment costs |
| (614) |
|
| (1,725) |
Employee retirement benefits |
| (1,232) |
|
| (933) |
Other - net |
| (450) |
|
| 842 |
Total adjustments |
| 17,014 |
|
| 9,169 |
Net Cash Provided by Operating Activities |
| 25,336 |
|
| 19,176 |
|
|
|
|
|
|
Investing Activities |
|
|
|
|
|
Capital expenditures: |
|
|
|
|
|
Purchase of property and equipment |
| (10,542) |
|
| (10,959) |
Interest during construction |
| (112) |
|
| (267) |
Acquisitions, net of cash acquired |
| (320) |
|
| (40,715) |
Dispositions |
| 3,593 |
|
| 59 |
(Purchases), sales and settlements of securities and investments, net |
| 396 |
|
| (218) |
Advances to and investments in equity affiliates, net |
| (314) |
|
| (1,035) |
Cash collections of deferred purchase price |
| - |
|
| 500 |
Net Cash Used in Investing Activities |
| (7,299) |
|
| (52,635) |
|
|
|
|
|
|
Financing Activities |
|
|
|
|
|
Net change in short-term borrowings with original maturities of three months or less |
| 119 |
|
| 2,227 |
Issuance of other short-term borrowings |
| 3,067 |
|
| 4,839 |
Repayment of other short-term borrowings |
| (3,148) |
|
| - |
Issuance of long-term debt |
| 10,030 |
|
| 26,478 |
Repayment of long-term debt |
| (16,124) |
|
| (29,447) |
Purchase of treasury stock |
| (240) |
|
| (564) |
Issuance of treasury stock |
| 455 |
|
| 12 |
Dividends paid |
| (7,436) |
|
| (6,144) |
Other |
| (1,506) |
|
| (1,121) |
Net Cash Used in Financing Activities |
| (14,783) |
|
| (3,720) |
Net increase (decrease) in cash and cash equivalents and restricted cash |
| 3,254 |
|
| (37,179) |
Cash and cash equivalents and restricted cash beginning of year |
| 5,400 |
|
| 50,932 |
Cash and Cash Equivalents and Restricted Cash End of Period | $ | 8,654 |
| $ | 13,753 |
See Notes to Consolidated Financial Statements. |
AT&T INC. | |||||||||
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY | |||||||||
Dollars and shares in millions except per share amounts | |||||||||
(Unaudited) |
|
|
|
|
|
|
|
|
|
| March 31, 2020 |
| March 31, 2019 | ||||||
| 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 year | 7,621 |
| $ | 7,621 |
| 7,621 |
| $ | 7,621 |
Issuance of stock | - |
|
| - |
| - |
|
| - |
Balance at end of period | 7,621 |
| $ | 7,621 |
| 7,621 |
| $ | 7,621 |
Additional Paid-In Capital |
|
|
|
|
|
|
|
|
|
Balance at beginning of year |
|
| $ | 126,279 |
|
|
| $ | 125,525 |
Repurchase and acquisition of common stock |
|
|
| 67 |
|
|
|
| - |
Issuance of preferred stock |
|
|
| 3,869 |
|
|
|
| - |
Issuance of treasury stock |
|
|
| (47) |
|
|
|
| (77) |
Share-based payments |
|
|
| (202) |
|
|
|
| (274) |
Balance at end of period |
|
| $ | 129,966 |
|
|
| $ | 125,174 |
Retained Earnings |
|
|
|
|
|
|
|
|
|
Balance at beginning of year |
|
| $ | 57,936 |
|
|
| $ | 58,753 |
Net income attributable to AT&T ($0.63 and $0.56 |
|
|
|
|
|
|
|
|
|
per diluted share) |
|
|
| 4,610 |
|
|
|
| 4,096 |
Preferred stock dividends |
|
|
| (32) |
|
|
|
| - |
Common stock dividends ($0.52 and $0.51 per share) |
|
|
| (3,687) |
|
|
|
| (3,741) |
Cumulative effect of accounting changes |
|
|
|
|
|
|
|
|
|
and other adjustments |
|
|
| (293) |
|
|
|
| 316 |
Balance at end of period |
|
| $ | 58,534 |
|
|
| $ | 59,424 |
See Notes to Consolidated Financial Statements. |
|
|
|
7
AT&T INC. | |||||||||
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY | |||||||||
Dollars and shares in millions except per share amounts | |||||||||
(Unaudited) | |||||||||
| Three months ended | ||||||||
| June 30, 2019 |
| June 30, 2018 | ||||||
| Shares |
| Amount |
| Shares |
| Amount | ||
Common Stock |
|
|
|
|
|
|
|
|
|
Balance at beginning of quarter | 7,621 |
| $ | 7,621 |
| 6,495 |
| $ | 6,495 |
Issuance of stock | - |
|
| - |
| 1,126 |
|
| 1,126 |
Balance at end of period | 7,621 |
| $ | 7,621 |
| 7,621 |
| $ | 7,621 |
|
|
|
|
|
|
|
|
|
|
Additional Paid-In Capital |
|
|
|
|
|
|
|
|
|
Balance at beginning of quarter |
|
| $ | 125,174 |
|
|
| $ | 89,404 |
Issuance of common stock |
|
|
| - |
|
|
|
| 35,473 |
Issuance of treasury stock |
|
|
| (50) |
|
|
|
| - |
Share-based payments |
|
|
| (15) |
|
|
|
| 1,083 |
Balance at end of period |
|
| $ | 125,109 |
|
|
| $ | 125,960 |
|
|
|
|
|
|
|
|
|
|
Retained Earnings |
|
|
|
|
|
|
|
|
|
Balance at beginning of quarter |
|
| $ | 59,424 |
|
|
| $ | 55,067 |
Net income attributable to AT&T ($0.51 and $0.81 per diluted share) |
|
|
| 3,713 |
|
|
|
| 5,132 |
Dividends to stockholders ($0.51 and $0.50 per share) |
|
|
| (3,748) |
|
|
|
| (3,647) |
Cumulative effect of accounting changes |
|
|
| - |
|
|
|
| 3 |
Balance at end of period |
|
| $ | 59,389 |
|
|
| $ | 56,555 |
|
|
|
|
|
|
|
|
|
|
Treasury Stock |
|
|
|
|
|
|
|
|
|
Balance at beginning of quarter | (324) |
| $ | (11,452) |
| (348) |
| $ | (12,432) |
Repurchase and acquisition of common stock | (2) |
|
| (72) |
| (14) |
|
| (443) |
Issuance of treasury stock | 10 |
|
| 373 |
| 1 |
|
| 3 |
Balance at end of period | (316) |
| $ | (11,151) |
| (361) |
| $ | (12,872) |
|
|
|
|
|
|
|
|
|
|
Accumulated Other Comprehensive Income Attributable to AT&T, net of tax |
|
|
|
|
|
|
|
|
|
Balance at beginning of quarter |
|
| $ | 4,345 |
|
|
| $ | 7,386 |
Other comprehensive income attributable to AT&T |
|
|
| (1,056) |
|
|
|
| (1,667) |
Amounts reclassified to retained earnings |
|
|
| - |
|
|
|
| (3) |
Balance at end of period |
|
| $ | 3,289 |
|
|
| $ | 5,716 |
|
|
|
|
|
|
|
|
|
|
Noncontrolling Interest |
|
|
|
|
|
|
|
|
|
Balance at beginning of quarter |
|
| $ | 9,839 |
|
|
| $ | 1,156 |
Net income attributable to noncontrolling interest |
|
|
| 261 |
|
|
|
| 116 |
Interest acquired by noncontrolling owners |
|
|
| 1 |
|
|
|
| 8 |
Acquisition of noncontrolling interest |
|
|
| - |
|
|
|
| 1 |
Distributions |
|
|
| (279) |
|
|
|
| (99) |
Translation adjustments attributable to noncontrolling interest, net of taxes |
|
|
| 2 |
|
|
|
| (32) |
Cumulative effect of accounting changes |
|
|
| - |
|
|
|
| - |
Balance at end of period |
|
| $ | 9,824 |
|
|
| $ | 1,150 |
|
|
|
|
|
|
|
|
|
|
Total Stockholders’ Equity at beginning of quarter |
|
| $ | 194,951 |
|
|
| $ | 147,076 |
Total Stockholders’ Equity at end of period |
|
| $ | 194,081 |
|
|
| $ | 184,130 |
See Notes to Consolidated Financial Statements. |
|
|
|
8
AT&T INC. | |||||||||
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY - continued | |||||||||
Dollars and shares in millions except per share amounts | |||||||||
(Unaudited) |
|
|
|
|
|
|
|
|
|
| March 31, 2020 |
| March 31, 2019 | ||||||
| Shares |
| Amount |
| Shares |
| Amount | ||
Treasury Stock |
|
|
|
|
|
|
|
|
|
Balance at beginning of year | (366) |
| $ | (13,085) |
| (339) |
| $ | (12,059) |
Repurchase and acquisition of common stock | (148) |
|
| (5,547) |
| (7) |
|
| (208) |
Issuance of treasury stock | 18 |
|
| 675 |
| 22 |
|
| 815 |
Balance at end of period | (496) |
| $ | (17,957) |
| (324) |
| $ | (11,452) |
Accumulated Other Comprehensive Income (Loss) |
|
|
|
|
|
|
|
|
|
Attributable to AT&T, net of tax |
|
|
|
|
|
|
|
|
|
Balance at beginning of year |
|
| $ | 5,470 |
|
|
| $ | 4,249 |
Other comprehensive income (loss) attributable to AT&T |
|
|
| (5,855) |
|
|
|
| 96 |
Balance at end of period |
|
| $ | (385) |
|
|
| $ | 4,345 |
Noncontrolling Interest |
|
|
|
|
|
|
|
|
|
Balance at beginning of year |
|
| $ | 17,713 |
|
|
| $ | 9,795 |
Net income attributable to noncontrolling interest |
|
|
| 353 |
|
|
|
| 252 |
Issuance and acquisition of noncontrolling interests |
|
|
| 1 |
|
|
|
| 9 |
Distributions |
|
|
| (339) |
|
|
|
| (246) |
Translation adjustments attributable to noncontrolling |
|
|
|
|
|
|
|
|
|
interest, net of taxes |
|
|
| (51) |
|
|
|
| - |
Cumulative effect of accounting changes |
|
|
|
|
|
|
|
|
|
and other adjustments |
|
|
| (7) |
|
|
|
| 29 |
Balance at end of period |
|
| $ | 17,670 |
|
|
| $ | 9,839 |
Total Stockholders’ Equity at beginning of year |
|
| $ | 201,934 |
|
|
| $ | 193,884 |
Total Stockholders’ Equity at end of period |
|
| $ | 195,449 |
|
|
| $ | 194,951 |
See Notes to Consolidated Financial Statements. |
|
|
|
AT&T INC. | |||||||||
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY | |||||||||
Dollars and shares in millions except per share amounts | |||||||||
(Unaudited) | |||||||||
| Six months ended | ||||||||
| June 30, 2019 |
| June 30, 2018 | ||||||
| Shares |
| Amount |
| Shares |
| Amount | ||
Common Stock |
|
|
|
|
|
|
|
|
|
Balance at beginning of year | 7,621 |
| $ | 7,621 |
| 6,495 |
| $ | 6,495 |
Issuance of stock | - |
|
| - |
| 1,126 |
|
| 1,126 |
Balance at end of period | 7,621 |
| $ | 7,621 |
| 7,621 |
| $ | 7,621 |
|
|
|
|
|
|
|
|
|
|
Additional Paid-In Capital |
|
|
|
|
|
|
|
|
|
Balance at beginning of year |
|
| $ | 125,525 |
|
|
| $ | 89,563 |
Issuance of common stock |
|
|
| - |
|
|
|
| 35,473 |
Issuance of treasury stock |
|
|
| (127) |
|
|
|
| (4) |
Share-based payments |
|
|
| (289) |
|
|
|
| 928 |
Balance at end of period |
|
| $ | 125,109 |
|
|
| $ | 125,960 |
|
|
|
|
|
|
|
|
|
|
Retained Earnings |
|
|
|
|
|
|
|
|
|
Balance at beginning of year |
|
| $ | 58,753 |
|
|
| $ | 50,500 |
Net income attributable to AT&T ($1.06 and $1.56 per diluted share) |
|
|
| 7,809 |
|
|
|
| 9,794 |
Dividends to stockholders ($1.02 and $1.00 per share) |
|
|
| (7,489) |
|
|
|
| (6,739) |
Cumulative effect of accounting changes |
|
|
| 316 |
|
|
|
| 3,000 |
Balance at end of period |
|
| $ | 59,389 |
|
|
| $ | 56,555 |
|
|
|
|
|
|
|
|
|
|
Treasury Stock |
|
|
|
|
|
|
|
|
|
Balance at beginning of year | (339) |
| $ | (12,059) |
| (356) |
| $ | (12,714) |
Repurchase and acquisition of common stock | (9) |
|
| (280) |
| (18) |
|
| (607) |
Issuance of treasury stock | 32 |
|
| 1,188 |
| 13 |
|
| 449 |
Balance at end of period | (316) |
| $ | (11,151) |
| (361) |
| $ | (12,872) |
|
|
|
|
|
|
|
|
|
|
Accumulated Other Comprehensive Income Attributable to AT&T, net of tax |
|
|
|
|
|
|
|
|
|
Balance at beginning of year |
|
| $ | 4,249 |
|
|
| $ | 7,017 |
Other comprehensive income attributable to AT&T |
|
|
| (960) |
|
|
|
| (643) |
Amounts reclassified to retained earnings |
|
|
| - |
|
|
|
| (658) |
Balance at end of period |
|
| $ | 3,289 |
|
|
| $ | 5,716 |
|
|
|
|
|
|
|
|
|
|
Noncontrolling Interest |
|
|
|
|
|
|
|
|
|
Balance at beginning of year |
|
| $ | 9,795 |
|
|
| $ | 1,146 |
Net income attributable to noncontrolling interest |
|
|
| 513 |
|
|
|
| 213 |
Interest acquired by noncontrolling owners |
|
|
| 10 |
|
|
|
| 8 |
Acquisition on noncontrolling interest |
|
|
| - |
|
|
|
| 1 |
Distributions |
|
|
| (525) |
|
|
|
| (223) |
Translation adjustments attributable to noncontrolling interest, net of taxes |
|
|
| 2 |
|
|
|
| (30) |
Cumulative effect of accounting changes |
|
|
| 29 |
|
|
|
| 35 |
Balance at end of period |
|
| $ | 9,824 |
|
|
| $ | 1,150 |
|
|
|
|
|
|
|
|
|
|
Total Stockholders’ Equity at beginning of year |
|
| $ | 193,884 |
|
|
| $ | 142,007 |
Total Stockholders’ Equity at end of period |
|
| $ | 194,081 |
|
|
| $ | 184,130 |
See Notes to Consolidated Financial Statements. |
|
|
|
98
AT&T INC.
JUNE 30, 2019MARCH 31, 2020
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.
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, “Leases (Topic 842)” (ASC 842), which replaces existing leasing rules with a comprehensive lease measurement and recognition standard and expanded disclosure requirements (see Note 10). ASC 842 requires lessees to recognize most leases 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.
The key change upon adoption of the standard was balance sheet recognition, given that the recognition of lease expense on our income statement is similar 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 all the 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.
The adoption of ASC 842 resulted in the recognition of an operating lease liability of $22,121 and an operating right-of-use asset of the same amount. Existing prepaid and deferred rent accruals were recorded as an offset to the right-of-use asset, resulting in a net asset of $20,960. The cumulative effect of the adoption to retained earnings was an increase of $316 reflecting the reclassification of deferred gains related to sale/leaseback transactions. We do not believe the standard will materially impact our future income statements or have a notable impact on our liquidity. The standard will have no impact on our debt-covenant compliance under our current agreements.
10
AT&T INC.
JUNE 30, 2019
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
Deferral of Episodic Television and Film Costs In March 2019, the FASB issued ASU No. 2019-02, “Entertainment—Films—Other Assets—Film Costs (Subtopic 926-20) 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 existed in prior guidance for film production costs and programming inventory were eliminated. As of January 1, 2019, we reclassified $2,274 of 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.
Spectrum Licenses in MexicoDuring the first quarter of 2019, in conjunction with the renewal process of certain spectrum licenses in Mexico, we reassessed the estimated economic lives and renewal assumptions for these licenses. As a result, we have changed the life of these licenses from indefinite to finite-lived. On January 1, 2019, we began amortizing our spectrum licenses in Mexico over their average remaining economic life of 25 years. This change in accounting does not materially impact our income statement.
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.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. The amendments underUnder the expected credit loss model, we are required to consider future economic trends to estimate expected credit losses over the lifetime of the asset. Upon adoption, we recorded a $293 reduction to “Retained earnings,” $395 increase to “allowances for doubtful accounts” applicable to our trade and loan receivables, $10 reduction of contract assets, $105 reduction of net deferred income tax liability and $7 reduction of “Noncontrolling interest” as an opening adjustment. Our adoption of 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 dodid not anticipate it will have a material impact on our financial statements.
Reference 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 ASU 2020-04, including optional expedients, for impact to our financial statements.
Intangible Assets During the first quarter of 2020, in conjunction with the nationwide launch of AT&T TV and our customers’ continued shift from linear to streaming video services, we reassessed the estimated economic lives and renewal assumptions for our orbital slot licenses. As a result, we have changed the estimated lives of these licenses from indefinite to finite-lived, effective January 1, 2020, and began amortizing our orbital slot licenses using the sum-of-months-digits method over their average remaining economic life of 15 years. This change in accounting increased amortization expense $386, or $0.04 per diluted share available to common stock during the first quarter of 2020.
9
AT&T INC.
MARCH 31, 2020
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
We also 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.
NOTE 2. EARNINGS PER SHARE
A reconciliation of the numerators and denominators of basic and diluted earnings per share for the three months ended March 31, 2020 and six months ended June 30, 2019, and 2018, is shown in the table below:
| Three months ended |
| Six months ended | Three months ended | ||||||||||||
| June 30, |
| June 30, | March 31, | ||||||||||||
| 2019 |
| 2018 |
| 2019 |
| 2018 | 2020 |
| 2019 | ||||||
Numerators |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator for basic earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income | $ | 3,974 |
| $ | 5,248 |
| $ | 8,322 |
| $ | 10,007 | |||||
Net income | $ | 4,963 |
| $ | 4,348 | |||||||||||
Less: Net income attributable to noncontrolling interest |
| (261) |
|
| (116) |
|
| (513) |
|
| (213) |
| (353) |
|
| (252) |
Net Income attributable to AT&T |
| 3,713 |
|
| 5,132 |
|
| 7,809 |
|
| 9,794 | |||||
Net income attributable to AT&T |
| 4,610 |
|
| 4,096 | |||||||||||
Less: Preferred stock dividends |
| (32) |
|
| - | |||||||||||
Net income attributable to common stock |
| 4,578 |
|
| 4,096 | |||||||||||
Dilutive potential common shares: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based payment |
| 4 |
|
| 4 |
|
| 10 |
|
| 9 |
| 6 |
|
| 6 |
Numerator for diluted earnings per share | $ | 3,717 |
| $ | 5,136 |
| $ | 7,819 |
| $ | 9,803 | $ | 4,584 |
| $ | 4,102 |
Denominators (000,000) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding |
| 7,323 |
|
| 6,351 |
|
| 7,318 |
|
| 6,257 |
| 7,187 |
|
| 7,313 |
Dilutive potential common shares: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based payment (in shares) |
| 30 |
|
| 23 |
|
| 29 |
|
| 20 |
| 27 |
|
| 29 |
Denominator for diluted earnings per share |
| 7,353 |
|
| 6,374 |
|
| 7,347 |
|
| 6,277 |
| 7,214 |
|
| 7,342 |
Basic earnings per share attributable to AT&T | $ | 0.51 |
| $ | 0.81 |
| $ | 1.06 |
| $ | 1.56 | |||||
Diluted earnings per share attributable to AT&T | $ | 0.51 |
| $ | 0.81 |
| $ | 1.06 |
| $ | 1.56 | |||||
Basic earnings per share attributable to Common Stock | $ | 0.63 |
| $ | 0.56 | |||||||||||
Diluted earnings per share attributable to Common Stock | $ | 0.63 |
| $ | 0.56 |
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.
JUNE 30, 2019MARCH 31, 2020
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 |
| 159 |
|
| 42 |
|
| (490) |
|
| - |
|
| (289) | |
Amounts reclassified from accumulated OCI |
| - |
|
| - |
|
| 17 | 1 |
| (688) | 2 |
| (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 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 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 |
| (780) |
|
| (12) |
|
| 253 |
|
| 530 |
|
| (9) | |
Amounts reclassified from accumulated OCI |
| - |
|
| - |
|
| 23 | 1 |
| (657) | 2 |
| (634) | |
Net other comprehensive income (loss) |
| (780) |
|
| (12) |
|
| 276 |
|
| (127) |
|
| (643) | |
Amounts reclassified to retained earnings |
| - |
|
| (658) | 3 |
| - |
|
| - |
|
| (658) | |
Balance as of June 30, 2018 | $ | (2,834) |
| $ | (10) |
| $ | 1,678 |
| $ | 6,882 |
| $ | 5,716 | |
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, 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 |
| (1,803) |
|
| 66 |
|
| (3,657) |
|
| - |
|
| (5,394) | |
Amounts reclassified from accumulated OCI |
| - | 1 |
| - | 1 |
| - | 2 |
| (461) | 3 |
| (461) | |
Net other comprehensive |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
income (loss) |
| (1,803) |
|
| 66 |
|
| (3,657) |
|
| (461) |
|
| (5,855) | |
Balance as of March 31, 2020 | $ | (4,859) |
| $ | 114 |
| $ | (3,694) |
| $ | 8,054 |
| $ | (385) | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 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 |
| 288 |
|
| 16 |
|
| 127 |
|
| - |
|
| 431 | |
Amounts reclassified from accumulated OCI |
| - | 1 |
| - | 1 |
| 11 | 2 |
| (346) | 3 |
| (335) | |
Net other comprehensive |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
income (loss) |
| 288 |
|
| 16 |
|
| 138 |
|
| (346) |
|
| 96 | |
Balance as of March 31, 2019 | $ | (2,796) |
| $ | 14 |
| $ | 956 |
| $ | 6,171 |
| $ | 4,345 | |
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). |
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 four4 reportable segments: (1) Communications, (2) WarnerMedia, (3) Latin America, and (4) Xandr.
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
12
AT&T INC.
JUNE 30, 2019
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
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
11
AT&T INC.
MARCH 31, 2020
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
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.
The Communications segment provides wireless and wireline telecom, video and broadband services to consumers located in the U.S. or in U.S. territories 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), previously included in Entertainment Group, have been reclassified into the WarnerMedia segment and are combined with the Time Warner operations for the period subsequent to our acquisition on June 14, 2018. This segment contains the following business units:
Turner is comprised of the historic Turner division as well as the financial results of our RSNs. This business unit 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.
Mexico provides wireless service and equipment to customers in Mexico.
The Xandr segment
provides advertising services and includes AppNexus, an advertising technology company we acquired in August 2018. Xandrservices. These 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
.consolidation.
13
AT&T INC.
JUNE 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 $112 in the second quarter and $262 for the first six months of 2019. – net.”
Acquisition-related items which consists of items associated with the merger and integration of acquired businesses, including amortization of intangible assets.
Certain significant items includes (1) employee separation charges associated with voluntary and/or strategic offers, (2) losses resulting from abandonment or impairment of assets 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.
1412
AT&T INC.
JUNE 30, 2019MARCH 31, 2020
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
For the three months ended March 31, 2020 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Equity in Net |
|
|
|
|
|
|
|
| Operations |
|
|
|
|
| Depreciation |
|
| Operating |
|
| Income |
|
|
|
|
|
|
|
| and Support |
|
|
|
|
| and |
|
| Income |
|
| (Loss) |
|
| Segment |
|
| Revenues |
|
| Expenses |
|
| EBITDA |
|
| Amortization |
|
| (Loss) |
|
| Affiliates |
|
| Contribution |
Communications |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobility | $ | 17,402 |
| $ | 9,569 |
| $ | 7,833 |
| $ | 2,045 |
| $ | 5,788 |
| $ | - |
| $ | 5,788 |
Entertainment Group |
| 10,515 |
|
| 7,891 |
|
| 2,624 |
|
| 1,289 |
|
| 1,335 |
|
| - |
|
| 1,335 |
Business Wireline |
| 6,332 |
|
| 3,951 |
|
| 2,381 |
|
| 1,301 |
|
| 1,080 |
|
| - |
|
| 1,080 |
Total Communications |
| 34,249 |
|
| 21,411 |
|
| 12,838 |
|
| 4,635 |
|
| 8,203 |
|
| - |
|
| 8,203 |
WarnerMedia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Turner |
| 3,162 |
|
| 1,710 |
|
| 1,452 |
|
| 69 |
|
| 1,383 |
|
| 6 |
|
| 1,389 |
Home Box Office |
| 1,497 |
|
| 1,053 |
|
| 444 |
|
| 21 |
|
| 423 |
|
| 20 |
|
| 443 |
Warner Bros. |
| 3,240 |
|
| 2,950 |
|
| 290 |
|
| 41 |
|
| 249 |
|
| (8) |
|
| 241 |
Other |
| (540) |
|
| (196) |
|
| (344) |
|
| 12 |
|
| (356) |
|
| (3) |
|
| (359) |
Total WarnerMedia |
| 7,359 |
|
| 5,517 |
|
| 1,842 |
|
| 143 |
|
| 1,699 |
|
| 15 |
|
| 1,714 |
Latin America |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vrio |
| 887 |
|
| 783 |
|
| 104 |
|
| 147 |
|
| (43) |
|
| 4 |
|
| (39) |
Mexico |
| 703 |
|
| 714 |
|
| (11) |
|
| 134 |
|
| (145) |
|
| - |
|
| (145) |
Total Latin America |
| 1,590 |
|
| 1,497 |
|
| 93 |
|
| 281 |
|
| (188) |
|
| 4 |
|
| (184) |
Xandr |
| 489 |
|
| 170 |
|
| 319 |
|
| 20 |
|
| 299 |
|
| - |
|
| 299 |
Segment Total |
| 43,687 |
|
| 28,595 |
|
| 15,092 |
|
| 5,079 |
|
| 10,013 |
| $ | 19 |
| $ | 10,032 |
Corporate and Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate |
| 388 |
|
| 874 |
|
| (486) |
|
| 87 |
|
| (573) |
|
|
|
|
|
|
Acquisition-related items |
| - |
|
| 182 |
|
| (182) |
|
| 2,056 |
|
| (2,238) |
|
|
|
|
|
|
Certain significant items |
| - |
|
| (658) |
|
| 658 |
|
| - |
|
| 658 |
|
|
|
|
|
|
Eliminations and consolidations |
| (1,296) |
|
| (922) |
|
| (374) |
|
| - |
|
| (374) |
|
|
|
|
|
|
AT&T Inc. | $ | 42,779 |
| $ | 28,071 |
| $ | 14,708 |
| $ | 7,222 |
| $ | 7,486 |
|
|
|
|
|
|
1513
AT&T INC.
JUNE 30, 2019MARCH 31, 2020
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
For the three months ended June 30, 2019 | ||||||||||||||||||||||||||||||||||||||||
For the three months ended March 31, 2019 | For the three months ended March 31, 2019 | |||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| Equity in Net |
|
| ||||||||||||||||||||||||||
|
|
|
| Operations |
|
|
| Depreciation |
| Operating |
| Income |
|
| ||||||||||||||||||||||||||
|
|
|
| and Support |
|
|
| and |
| Income |
| (Loss) |
| Segment | ||||||||||||||||||||||||||
|
| Revenues |
| Operations and Support Expenses |
| EBITDA |
| Depreciation and Amortization |
| Operating Income (Loss) |
| Equity in Net Income (Loss) of Affiliates |
| Segment Contribution |
| Revenues |
| Expenses |
| EBITDA |
| Amortization |
| (Loss) |
| Affiliates |
| Contribution | ||||||||||||
Communications |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Mobility | $ | 17,512 |
| $ | 9,654 |
| $ | 7,858 |
| $ | 2,025 |
| $ | 5,833 |
| $ | - |
| $ | 5,833 | $ | 17,363 |
| $ | 10,041 |
| $ | 7,322 |
| $ | 2,013 |
| $ | 5,309 |
| $ | - |
| $ | 5,309 |
Entertainment Group |
| 11,368 |
|
| 8,515 |
|
| 2,853 |
|
| 1,339 |
|
| 1,514 |
|
| - |
|
| 1,514 |
| 11,328 |
| 8,527 |
|
| 2,801 |
| 1,323 |
| 1,478 |
| - |
| 1,478 | |||||
Business Wireline |
| 6,628 |
|
| 3,982 |
|
| 2,646 |
|
| 1,256 |
|
| 1,390 |
|
| - |
|
| 1,390 |
| 6,478 |
| 4,032 |
|
| 2,446 |
|
| 1,222 |
|
| 1,224 |
|
| - |
|
| 1,224 | |
Total Communications |
| 35,508 |
| 22,151 |
| 13,357 |
| 4,620 |
| 8,737 |
| - |
| 8,737 |
| 35,169 |
| 22,600 |
| 12,569 |
| 4,558 |
| 8,011 |
| - |
| 8,011 | ||||||||||||
WarnerMedia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Turner |
| 3,410 |
|
| 2,217 |
|
| 1,193 |
|
| 39 |
|
| 1,154 |
|
| 11 |
|
| 1,165 |
| 3,443 |
| 2,136 |
|
| 1,307 |
| 60 |
| 1,247 |
| 25 |
| 1,272 | |||||
Home Box Office |
| 1,716 |
|
| 1,131 |
|
| 585 |
|
| 12 |
|
| 573 |
|
| 15 |
|
| 588 |
| 1,510 |
| 921 |
|
| 589 |
| 22 |
| 567 |
| 15 |
| 582 | |||||
Warner Bros. |
| 3,389 |
|
| 2,918 |
|
| 471 |
|
| 31 |
|
| 440 |
|
| - |
|
| 440 |
| 3,518 |
| 2,919 |
|
| 599 |
| 52 |
| 547 |
| 6 |
| 553 | |||||
Other |
| (165) |
|
| 23 |
|
| (188) |
| 9 |
| (197) |
| 29 |
| (168) |
| (92) |
| 17 |
|
| (109) |
| 9 |
| (118) |
| 21 |
| (97) | |||||||||
Total WarnerMedia |
| 8,350 |
|
| 6,289 |
|
| 2,061 |
| 91 |
| 1,970 |
| 55 |
| 2,025 |
| 8,379 |
| 5,993 |
|
| 2,386 |
| 143 |
| 2,243 |
| 67 |
| 2,310 | |||||||||
Latin America |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Vrio |
| 1,032 |
|
| 881 |
|
| 151 |
| 165 |
| (14) |
| 12 |
| (2) |
| 1,067 |
| 866 |
|
| 201 |
| 169 |
| 32 |
| - |
| 32 | |||||||||
Mexico |
| 725 |
|
| 813 |
|
| (88) |
| 119 |
| (207) |
| - |
| (207) |
| 651 |
| 725 |
|
| (74) |
| 131 |
| (205) |
| - |
| (205) | |||||||||
Total Latin America |
| 1,757 |
|
| 1,694 |
|
| 63 |
| 284 |
| (221) |
| 12 |
| (209) |
| 1,718 |
| 1,591 |
|
| 127 |
| 300 |
| (173) |
| - |
| (173) | |||||||||
Xandr |
| 485 |
|
| 147 |
|
| 338 |
| 13 |
| 325 |
| - |
| 325 |
| 426 |
| 160 |
|
| 266 |
| 13 |
| 253 |
| - |
| 253 | |||||||||
Segment Total |
| 46,100 |
|
| 30,281 |
|
| 15,819 |
| 5,008 |
| 10,811 |
| $ | 67 |
| $ | 10,878 |
| 45,692 |
| 30,344 |
|
| 15,348 |
| 5,014 |
| 10,334 |
| $ | 67 |
| $ | 10,401 | |||||
Corporate and Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Corporate |
| 209 |
|
| 626 |
|
| (417) |
| 134 |
| (551) |
|
|
|
|
| 433 |
| 661 |
|
| (228) |
| 204 |
| (432) |
|
|
|
| |||||||||
Acquisition-related items |
| (30) |
|
| 316 |
|
| (346) |
| 1,960 |
| (2,306) |
|
|
|
|
| (42) |
| 73 |
|
| (115) |
| 1,988 |
| (2,103) |
|
|
|
| |||||||||
Certain significant items |
| - |
|
| 94 |
|
| (94) |
| - |
| (94) |
|
|
|
|
| - |
| 248 |
|
| (248) |
| - |
| (248) |
|
|
|
| |||||||||
Eliminations and consolidations |
| (1,322) |
|
| (961) |
|
| (361) |
| (1) |
| (360) |
|
|
|
|
| (1,256) |
| (938) |
|
| (318) |
| - |
| (318) |
|
|
|
| |||||||||
AT&T Inc. | $ | 44,957 |
| $ | 30,356 |
| $ | 14,601 |
| $ | 7,101 |
| $ | 7,500 |
|
|
|
| $ | 44,827 |
| $ | 30,388 |
| $ | 14,439 |
| $ | 7,206 |
| $ | 7,233 |
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||
For the three months ended June 30, 2018 |
1614
AT&T INC.
JUNE 30, 2019MARCH 31, 2020
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
|
| Revenues |
|
| Operations and Support Expenses |
|
| EBITDA |
|
| Depreciation and Amortization |
|
| Operating Income (Loss) |
|
| Equity in Net Income (Loss) of Affiliates |
|
| Segment Contribution |
Communications |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobility | $ | 17,282 |
| $ | 9,663 |
| $ | 7,619 |
| $ | 2,113 |
| $ | 5,506 |
| $ | - |
| $ | 5,506 |
Entertainment Group |
| 11,478 |
|
| 8,657 |
|
| 2,821 |
|
| 1,345 |
|
| 1,476 |
|
| (1) |
|
| 1,475 |
Business Wireline |
| 6,650 |
|
| 4,038 |
|
| 2,612 |
|
| 1,180 |
|
| 1,432 |
|
| 1 |
|
| 1,433 |
Total Communications |
| 35,410 |
|
| 22,358 |
|
| 13,052 |
|
| 4,638 |
|
| 8,414 |
|
| - |
|
| 8,414 |
WarnerMedia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Turner |
| 667 |
|
| 372 |
|
| 295 |
|
| 11 |
|
| 284 |
|
| 5 |
|
| 289 |
Home Box Office |
| 281 |
|
| 171 |
|
| 110 |
|
| 5 |
|
| 105 |
|
| (1) |
|
| 104 |
Warner Bros. |
| 507 |
|
| 403 |
|
| 104 |
|
| 14 |
|
| 90 |
|
| (1) |
|
| 89 |
Other |
| (62) |
|
| (35) |
|
| (27) |
|
| 1 |
|
| (28) |
|
| (29) |
|
| (57) |
Total WarnerMedia |
| 1,393 |
|
| 911 |
|
| 482 |
|
| 31 |
|
| 451 |
|
| (26) |
|
| 425 |
Latin America |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vrio |
| 1,254 |
|
| 1,016 |
|
| 238 |
|
| 186 |
|
| 52 |
|
| 15 |
|
| 67 |
Mexico |
| 697 |
|
| 787 |
|
| (90) |
|
| 127 |
|
| (217) |
|
| - |
|
| (217) |
Total Latin America |
| 1,951 |
|
| 1,803 |
|
| 148 |
|
| 313 |
|
| (165) |
|
| 15 |
|
| (150) |
Xandr |
| 392 |
|
| 59 |
|
| 333 |
|
| - |
|
| 333 |
|
| - |
|
| 333 |
Segment Total |
| 39,146 |
|
| 25,131 |
|
| 14,015 |
|
| 4,982 |
|
| 9,033 |
| $ | (11) |
| $ | 9,022 |
Corporate and Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate |
| 320 |
|
| 661 |
|
| (341) |
|
| 118 |
|
| (459) |
|
|
|
|
|
|
Acquisition-related items |
| - |
|
| 321 |
|
| (321) |
|
| 1,278 |
|
| (1,599) |
|
|
|
|
|
|
Certain significant items |
| - |
|
| 152 |
|
| (152) |
|
| - |
|
| (152) |
|
|
|
|
|
|
Eliminations and consolidations |
| (480) |
|
| (123) |
|
| (357) |
|
| - |
|
| (357) |
|
|
|
|
|
|
AT&T Inc. | $ | 38,986 |
| $ | 26,142 |
| $ | 12,844 |
| $ | 6,378 |
| $ | 6,466 |
|
|
|
|
|
|
17
AT&T INC.
JUNE 30, 2019
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
For the six months ended June 30, 2019 | ||||||||||||||||||||
|
| Revenues |
|
| Operations and Support Expenses |
|
| EBITDA |
|
| Depreciation and Amortization |
|
| Operating Income (Loss) |
|
| Equity in Net Income (Loss) of Affiliates |
|
| Segment Contribution |
Communications |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobility | $ | 35,079 |
| $ | 19,835 |
| $ | 15,244 |
| $ | 4,060 |
| $ | 11,184 |
| $ | - |
| $ | 11,184 |
Entertainment Group |
| 22,696 |
|
| 17,042 |
|
| 5,654 |
|
| 2,662 |
|
| 2,992 |
|
| - |
|
| 2,992 |
Business Wireline |
| 13,126 |
|
| 8,022 |
|
| 5,104 |
|
| 2,491 |
|
| 2,613 |
|
| - |
|
| 2,613 |
Total Communications |
| 70,901 |
|
| 44,899 |
|
| 26,002 |
|
| 9,213 |
|
| 16,789 |
|
| - |
|
| 16,789 |
WarnerMedia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Turner |
| 6,853 |
|
| 4,353 |
|
| 2,500 |
|
| 99 |
|
| 2,401 |
|
| 36 |
|
| 2,437 |
Home Box Office |
| 3,226 |
|
| 2,052 |
|
| 1,174 |
|
| 34 |
|
| 1,140 |
|
| 30 |
|
| 1,170 |
Warner Bros. |
| 6,907 |
|
| 5,837 |
|
| 1,070 |
|
| 83 |
|
| 987 |
|
| 6 |
|
| 993 |
Other |
| (257) |
|
| 40 |
|
| (297) |
|
| 18 |
|
| (315) |
|
| 50 |
|
| (265) |
Total WarnerMedia |
| 16,729 |
|
| 12,282 |
|
| 4,447 |
|
| 234 |
|
| 4,213 |
|
| 122 |
|
| 4,335 |
Latin America |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vrio |
| 2,099 |
|
| 1,747 |
|
| 352 |
|
| 334 |
|
| 18 |
|
| 12 |
|
| 30 |
Mexico |
| 1,376 |
|
| 1,538 |
|
| (162) |
|
| 250 |
|
| (412) |
|
| - |
|
| (412) |
Total Latin America |
| 3,475 |
|
| 3,285 |
|
| 190 |
|
| 584 |
|
| (394) |
|
| 12 |
|
| (382) |
Xandr |
| 911 |
|
| 307 |
|
| 604 |
|
| 26 |
|
| 578 |
|
| - |
|
| 578 |
Segment Total |
| 92,016 |
|
| 60,773 |
|
| 31,243 |
|
| 10,057 |
|
| 21,186 |
| $ | 134 |
| $ | 21,320 |
Corporate and Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate |
| 418 |
|
| 1,139 |
|
| (721) |
|
| 303 |
|
| (1,024) |
|
|
|
|
|
|
Acquisition-related items |
| (72) |
|
| 389 |
|
| (461) |
|
| 3,948 |
|
| (4,409) |
|
|
|
|
|
|
Certain significant items |
| - |
|
| 342 |
|
| (342) |
|
| - |
|
| (342) |
|
|
|
|
|
|
Eliminations and consolidations |
| (2,578) |
|
| (1,899) |
|
| (679) |
|
| (1) |
|
| (678) |
|
|
|
|
|
|
AT&T Inc. | $ | 89,784 |
| $ | 60,744 |
| $ | 29,040 |
| $ | 14,307 |
| $ | 14,733 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended June 30, 2018 |
18
AT&T INC.
JUNE 30, 2019
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
|
| Revenues |
|
| Operations and Support Expenses |
|
| EBITDA |
|
| Depreciation and Amortization |
|
| Operating Income (Loss) |
|
| Equity in Net Income (Loss) of Affiliates |
|
| Segment Contribution |
Communications |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobility | $ | 34,637 |
| $ | 19,765 |
| $ | 14,872 |
| $ | 4,208 |
| $ | 10,664 |
| $ | - |
| $ | 10,664 |
Entertainment Group |
| 22,909 |
|
| 17,468 |
|
| 5,441 |
|
| 2,655 |
|
| 2,786 |
|
| (2) |
|
| 2,784 |
Business Wireline |
| 13,397 |
|
| 8,054 |
|
| 5,343 |
|
| 2,350 |
|
| 2,993 |
|
| - |
|
| 2,993 |
Total Communications |
| 70,943 |
|
| 45,287 |
|
| 25,656 |
|
| 9,213 |
|
| 16,443 |
|
| (2) |
|
| 16,441 |
WarnerMedia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Turner |
| 779 |
|
| 446 |
|
| 333 |
|
| 12 |
|
| 321 |
|
| 32 |
|
| 353 |
Home Box Office |
| 281 |
|
| 171 |
|
| 110 |
|
| 5 |
|
| 105 |
|
| (1) |
|
| 104 |
Warner Bros. |
| 507 |
|
| 403 |
|
| 104 |
|
| 14 |
|
| 90 |
|
| (1) |
|
| 89 |
Other |
| (62) |
|
| (27) |
|
| (35) |
|
| 1 |
|
| (36) |
|
| (46) |
|
| (82) |
Total WarnerMedia |
| 1,505 |
|
| 993 |
|
| 512 |
|
| 32 |
|
| 480 |
|
| (16) |
|
| 464 |
Latin America |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vrio |
| 2,608 |
|
| 2,017 |
|
| 591 |
|
| 391 |
|
| 200 |
|
| 15 |
|
| 215 |
Mexico |
| 1,368 |
|
| 1,590 |
|
| (222) |
|
| 254 |
|
| (476) |
|
| - |
|
| (476) |
Total Latin America |
| 3,976 |
|
| 3,607 |
|
| 369 |
|
| 645 |
|
| (276) |
|
| 15 |
|
| (261) |
Xandr |
| 729 |
|
| 109 |
|
| 620 |
|
| 1 |
|
| 619 |
|
| - |
|
| 619 |
Segment Total |
| 77,153 |
|
| 49,996 |
|
| 27,157 |
|
| 9,891 |
|
| 17,266 |
| $ | (3) |
| $ | 17,263 |
Corporate and Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate |
| 653 |
|
| 1,396 |
|
| (743) |
|
| 141 |
|
| (884) |
|
|
|
|
|
|
Acquisition-related items |
| - |
|
| 388 |
|
| (388) |
|
| 2,340 |
|
| (2,728) |
|
|
|
|
|
|
Certain significant items |
| - |
|
| 332 |
|
| (332) |
|
| - |
|
| (332) |
|
|
|
|
|
|
Eliminations and consolidations |
| (782) |
|
| (127) |
|
| (655) |
|
| - |
|
| (655) |
|
|
|
|
|
|
AT&T Inc. | $ | 77,024 |
| $ | 51,985 |
| $ | 25,039 |
| $ | 12,372 |
| $ | 12,667 |
|
|
|
|
|
|
19
AT&T INC.
JUNE 30, 2019
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:income.
|
| Three months ended | |||||||||||||||
|
| Three months ended June 30, |
|
| Six months ended June 30, |
| March 31, | ||||||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| 2020 |
| 2019 | ||
Communications | $ | 8,737 |
| $ | 8,414 |
| $ | 16,789 |
| $ | 16,441 | Communications | $ | 8,203 |
| $ | 8,011 |
WarnerMedia |
| 2,025 |
|
| 425 |
|
| 4,335 |
|
| 464 | WarnerMedia |
| 1,714 |
|
| 2,310 |
Latin America |
| (209) |
|
| (150) |
|
| (382) |
|
| (261) | Latin America |
| (184) |
|
| (173) |
Xandr |
| 325 |
|
| 333 |
|
| 578 |
|
| 619 | Xandr |
| 299 |
|
| 253 |
Segment Contribution |
| 10,878 |
|
| 9,022 |
|
| 21,320 |
|
| 17,263 | Segment Contribution |
| 10,032 |
|
| 10,401 |
Reconciling Items: |
|
|
|
|
|
|
|
|
|
|
| Reconciling Items: |
|
|
|
|
|
Corporate and Other |
| (551) |
|
| (459) |
|
| (1,024) |
|
| (884) | Corporate and Other |
| (573) |
|
| (432) |
Merger and integration items |
| (346) |
|
| (340) |
|
| (461) |
|
| (432) | Merger and integration items |
| (182) |
|
| (115) |
Amortization of intangibles acquired |
| (1,960) |
|
| (1,278) |
|
| (3,948) |
|
| (2,340) | Amortization of intangibles acquired |
| (2,056) |
|
| (1,988) |
Employee separation charges |
| (94) |
|
| (133) |
|
| (342) |
|
| (184) | ||||||
Natural disaster items |
| - |
|
| - |
|
| - |
|
| (104) | ||||||
Segment equity in net income of affiliates |
| (67) |
|
| 11 |
|
| (134) |
|
| 3 | ||||||
Impairments | Impairments |
| (123) |
|
| - | |||||||||||
Gain on spectrum transaction 1 | Gain on spectrum transaction 1 |
| 900 |
|
| - | |||||||||||
Employee separation costs and benefit-related losses | Employee separation costs and benefit-related losses |
| (119) |
|
| (248) | |||||||||||
Segment equity in net income (loss) of affiliates | Segment equity in net income (loss) of affiliates |
| (19) |
|
| (67) | |||||||||||
Eliminations and consolidations |
| (360) |
|
| (357) |
|
| (678) |
|
| (655) | Eliminations and consolidations |
| (374) |
|
| (318) |
AT&T Operating Income |
| 7,500 |
|
| 6,466 |
|
| 14,733 |
|
| 12,667 | AT&T Operating Income |
| 7,486 |
|
| 7,233 |
Interest Expense |
| (2,149) |
|
| (2,023) |
|
| (4,290) |
|
| (3,794) | Interest Expense |
| 2,018 |
|
| 2,141 |
Equity in net income (loss) of affiliates |
| 40 |
|
| (16) |
|
| 33 |
|
| (7) | Equity in net income (loss) of affiliates |
| (6) |
|
| (7) |
Other income (expense) - net |
| (318) |
|
| 2,353 |
|
| (32) |
|
| 4,055 | Other income (expense) - net |
| 803 |
|
| 286 |
Income Before Income Taxes | $ | 5,073 |
| $ | 6,780 |
| $ | 10,444 |
| $ | 12,921 | Income Before Income Taxes | $ | 6,265 |
| $ | 5,371 |
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:segment.
Intersegment Reconciliation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three months ended | ||||||||||||||
| Three months ended June 30, | Six months ended June 30, | March 31, | ||||||||||||
| 2019 |
| 2018 | 2019 |
|
| 2018 | 2020 |
| 2019 | |||||
Intersegment revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Communications | $ | 8 |
| $ | 2 | $ | 8 |
| $ | 2 | $ | 2 |
| $ | - |
WarnerMedia |
| 861 |
|
| 174 |
| 1,719 |
|
| 209 |
| 816 |
|
| 858 |
Latin America |
| - |
|
| - |
| - |
|
| - |
| - |
|
| - |
Xandr |
| - |
|
| - |
| - |
|
| - |
| 1 |
|
| - |
Total Intersegment Revenues |
| 869 |
|
| 176 |
| 1,727 |
|
| 211 |
| 819 |
|
| 858 |
Consolidations |
| 453 |
|
| 304 |
| 851 |
|
| 571 |
| 477 |
|
| 398 |
Eliminations and consolidations | $ | 1,322 |
| $ | 480 | $ | 2,578 |
| $ | 782 | $ | 1,296 |
| $ | 1,256 |
2015
AT&T INC.
JUNE 30, 2019MARCH 31, 2020
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
NOTE 5. REVENUE RECOGNITION
Revenue Categories
Revenue Categories | ||||||||||||||||||||||||||
The following tables set forth reported revenue by category and by business unit: | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended June 30, 2019 | ||||||||||||||||||||||||||
| Service Revenues |
|
|
|
|
|
| |||||||||||||||||||
|
| Wireless |
|
| Advanced Data |
|
| Legacy Voice & Data |
|
| Subscription |
|
| Content |
|
| Advertising |
|
| Other |
|
| Equipment |
|
| Total |
Communications |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobility | $ | 13,935 |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | 71 |
| $ | - |
| $ | 3,506 |
| $ | 17,512 |
Entertainment Group |
| - |
|
| 2,109 |
|
| 658 |
|
| 7,636 |
|
| - |
|
| 399 |
|
| 562 |
|
| 4 |
|
| 11,368 |
Business Wireline |
| - |
|
| 3,221 |
|
| 2,331 |
|
| - |
|
| - |
|
| - |
|
| 898 |
|
| 178 |
|
| 6,628 |
WarnerMedia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Turner |
| - |
|
| - |
|
| - |
|
| 1,943 |
|
| 111 |
|
| 1,266 |
|
| 90 |
|
| - |
|
| 3,410 |
Home Box Office |
| - |
|
| - |
|
| - |
|
| 1,516 |
|
| 198 |
|
| - |
|
| 2 |
|
| - |
|
| 1,716 |
Warner Bros. |
| - |
|
| - |
|
| - |
|
| 23 |
|
| 3,175 |
|
| 10 |
|
| 181 |
|
| - |
|
| 3,389 |
Eliminations and Other |
| - |
|
| - |
|
| - |
|
| 54 |
|
| (237) |
|
| 9 |
|
| 9 |
|
| - |
|
| (165) |
Latin America |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vrio |
| - |
|
| - |
|
| - |
|
| 1,032 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 1,032 |
Mexico |
| 479 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 246 |
|
| 725 |
Xandr |
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 485 |
|
| - |
|
| - |
|
| 485 |
Corporate and Other |
| (32) |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 211 |
|
| - |
|
| 179 |
Eliminations and consolidations |
| - |
|
| - |
|
| - |
|
| - |
|
| (840) |
|
| (399) |
|
| (83) |
|
| - |
|
| (1,322) |
Total Operating Revenues | $ | 14,382 |
| $ | 5,330 |
| $ | 2,989 |
| $ | 12,204 |
| $ | 2,407 |
| $ | 1,841 |
| $ | 1,870 |
| $ | 3,934 |
| $ | 44,957 |
The following tables set forth reported revenue by category and by business unit:
For the three months ended March 31, 2020 | ||||||||||||||||||||||||||
| Service Revenues |
|
|
|
|
|
| |||||||||||||||||||
|
| Wireless |
|
| Advanced Data |
|
| Legacy Voice & Data |
|
| Subscription |
|
| Content |
|
| Advertising |
|
| Other |
|
| Equipment |
|
| Total |
Communications |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobility | $ | 13,892 |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | 76 |
| $ | - |
| $ | 3,434 |
| $ | 17,402 |
Entertainment Group |
| - |
|
| 2,109 |
|
| 581 |
|
| 6,982 |
|
| - |
|
| 413 |
|
| 419 |
|
| 11 |
|
| 10,515 |
Business Wireline |
| - |
|
| 3,275 |
|
| 2,129 |
|
| - |
|
| - |
|
| - |
|
| 753 |
|
| 175 |
|
| 6,332 |
WarnerMedia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Turner |
| - |
|
| - |
|
| - |
|
| 2,049 |
|
| 86 |
|
| 957 |
|
| 70 |
|
| - |
|
| 3,162 |
Home Box Office |
| - |
|
| - |
|
| - |
|
| 1,338 |
|
| 157 |
|
| - |
|
| 2 |
|
| - |
|
| 1,497 |
Warner Bros. |
| - |
|
| - |
|
| - |
|
| 10 |
|
| 3,060 |
|
| 2 |
|
| 168 |
|
| - |
|
| 3,240 |
Eliminations and Other |
| - |
|
| - |
|
| - |
|
| 63 |
|
| (646) |
|
| 20 |
|
| 23 |
|
| - |
|
| (540) |
Latin America |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vrio |
| - |
|
| - |
|
| - |
|
| 887 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 887 |
Mexico |
| 467 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 236 |
|
| 703 |
Xandr |
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 489 |
|
| - |
|
| - |
|
| 489 |
Corporate and Other |
| 117 |
|
| 14 |
|
| 134 |
|
| - |
|
| - |
|
| - |
|
| 83 |
|
| 40 |
|
| 388 |
Eliminations and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
consolidations |
| - |
|
| - |
|
| - |
|
| - |
|
| (794) |
|
| (413) |
|
| (89) |
|
| - |
|
| (1,296) |
Total Operating Revenues | $ | 14,476 |
| $ | 5,398 |
| $ | 2,844 |
| $ | 11,329 |
| $ | 1,863 |
| $ | 1,544 |
| $ | 1,429 |
| $ | 3,896 |
| $ | 42,779 |
2116
AT&T INC.
JUNE 30, 2019MARCH 31, 2020
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
For the three months ended June 30, 2018 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
For the three months ended March 31, 2019 | For the three months ended March 31, 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 | $ | 13,638 |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | 44 |
| $ | - |
| $ | 3,600 |
| $ | 17,282 | $ | 13,562 |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | 67 |
| $ | - |
| $ | 3,734 |
| $ | 17,363 |
Entertainment Group |
| - |
|
| 1,981 |
|
| 772 |
|
| 7,786 |
|
| - |
|
| 387 |
|
| 551 |
|
| 1 |
|
| 11,478 |
| - |
|
| 2,070 |
|
| 683 |
|
| 7,724 |
|
| - |
|
| 350 |
|
| 501 |
|
| - |
|
| 11,328 |
Business Wireline |
| - |
|
| 3,031 |
|
| 2,730 |
|
| - |
|
| - |
|
| - |
|
| 690 |
|
| 199 |
|
| 6,650 |
| - |
|
| 3,172 |
|
| 2,397 |
|
| - |
|
| - |
|
| - |
|
| 750 |
|
| 159 |
|
| 6,478 |
WarnerMedia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Turner |
| - |
|
| - |
|
| - |
|
| 410 |
|
| 21 |
|
| 223 |
|
| 13 |
|
| - |
|
| 667 |
| - |
|
| - |
|
| - |
|
| 1,965 |
|
| 135 |
|
| 1,261 |
|
| 82 |
|
| - |
|
| 3,443 |
Home Box Office |
| - |
|
| - |
|
| - |
|
| 270 |
|
| 11 |
|
| - |
|
| - |
|
| - |
|
| 281 |
| - |
|
| - |
|
| - |
|
| 1,334 |
|
| 173 |
|
| - |
|
| 3 |
|
| - |
|
| 1,510 |
Warner Bros. |
| - |
|
| - |
|
| - |
|
| 7 |
|
| 455 |
|
| 8 |
|
| 37 |
|
| - |
|
| 507 |
| - |
|
| - |
|
| - |
|
| 21 |
|
| 3,332 |
|
| 10 |
|
| 155 |
|
| - |
|
| 3,518 |
Eliminations and Other |
| - |
|
| - |
|
| - |
|
| - |
|
| (56) |
|
| (6) |
|
| - |
|
| - |
|
| (62) |
| - |
|
| - |
|
| - |
|
| 49 |
|
| (152) |
|
| 8 |
|
| 3 |
|
| - |
|
| (92) |
Latin America |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vrio |
| - |
|
| - |
|
| - |
|
| 1,254 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 1,254 |
| - |
|
| - |
|
| - |
|
| 1,067 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 1,067 |
Mexico |
| 417 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 280 |
|
| 697 |
| 442 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 209 |
|
| 651 |
Xandr |
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 392 |
|
| - |
|
| - |
|
| 392 |
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 426 |
|
| - |
|
| - |
|
| 426 |
Corporate and Other |
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 320 |
|
| - |
|
| 320 |
| 163 |
|
| 13 |
|
| 7 |
|
| - |
|
| - |
|
| - |
|
| 167 |
|
| 41 |
|
| 391 |
Eliminations and consolidations |
| - |
|
| - |
|
| - |
|
| - |
|
| (174) |
|
| (387) |
|
| 81 |
|
| - |
|
| (480) | ||||||||||||||||||||||||||
Eliminations and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||
consolidations |
| - |
|
| - |
|
| - |
|
| - |
|
| (837) |
|
| (350) |
|
| (69) |
|
| - |
|
| (1,256) | ||||||||||||||||||||||||||
Total Operating Revenues | $ | 14,055 |
| $ | 5,012 |
| $ | 3,502 |
| $ | 9,727 |
| $ | 257 |
| $ | 661 |
| $ | 1,692 |
| $ | 4,080 |
| $ | 38,986 | $ | 14,167 |
| $ | 5,255 |
| $ | 3,087 |
| $ | 12,160 |
| $ | 2,651 |
| $ | 1,772 |
| $ | 1,592 |
| $ | 4,143 |
| $ | 44,827 |
2217
AT&T INC.
JUNE 30, 2019MARCH 31, 2020
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
For the six months ended June 30, 2019 | ||||||||||||||||||||||||||
| Service Revenues |
|
|
|
|
|
| |||||||||||||||||||
|
| Wireless |
|
| Advanced Data |
|
| Legacy Voice & Data |
|
| Subscription |
|
| Content |
|
| Advertising |
|
| Other |
|
| Equipment |
|
| Total |
Communications |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobility | $ | 27,660 |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | 138 |
| $ | - |
| $ | 7,281 |
| $ | 35,079 |
Entertainment Group |
| - |
|
| 4,179 |
|
| 1,341 |
|
| 15,360 |
|
| - |
|
| 749 |
|
| 1,063 |
|
| 4 |
|
| 22,696 |
Business Wireline |
| - |
|
| 6,407 |
|
| 4,735 |
|
| - |
|
| - |
|
| - |
|
| 1,647 |
|
| 337 |
|
| 13,126 |
WarnerMedia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Turner |
| - |
|
| - |
|
| - |
|
| 3,908 |
|
| 246 |
|
| 2,527 |
|
| 172 |
|
| - |
|
| 6,853 |
Home Box Office |
| - |
|
| - |
|
| - |
|
| 2,850 |
|
| 371 |
|
| - |
|
| 5 |
|
| - |
|
| 3,226 |
Warner Bros. |
| - |
|
| - |
|
| - |
|
| 44 |
|
| 6,507 |
|
| 20 |
|
| 336 |
|
| - |
|
| 6,907 |
Eliminations and Other |
| - |
|
| - |
|
| - |
|
| 103 |
|
| (389) |
|
| 17 |
|
| 12 |
|
| - |
|
| (257) |
Latin America |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vrio |
| - |
|
| - |
|
| - |
|
| 2,099 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 2,099 |
Mexico |
| 921 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 455 |
|
| 1,376 |
Xandr |
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 911 |
|
| - |
|
| - |
|
| 911 |
Corporate and Other |
| (32) |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 378 |
|
| - |
|
| 346 |
Eliminations and consolidations |
| - |
|
| - |
|
| - |
|
| - |
|
| (1,677) |
|
| (749) |
|
| (152) |
|
| - |
|
| (2,578) |
Total Operating Revenues | $ | 28,549 |
| $ | 10,586 |
| $ | 6,076 |
| $ | 24,364 |
| $ | 5,058 |
| $ | 3,613 |
| $ | 3,461 |
| $ | 8,077 |
| $ | 89,784 |
23
AT&T INC.
JUNE 30, 2019
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
For the six months ended June 30, 2018 | ||||||||||||||||||||||||||
| Service Revenues |
|
|
|
|
|
| |||||||||||||||||||
|
| Wireless |
|
| Advanced Data |
|
| Legacy Voice & Data |
|
| Subscription |
|
| Content |
|
| Advertising |
|
| Other |
|
| Equipment |
|
| Total |
Communications |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobility | $ | 27,000 |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | 85 |
| $ | - |
| $ | 7,552 |
| $ | 34,637 |
Entertainment Group |
| - |
|
| 3,859 |
|
| 1,578 |
|
| 15,677 |
|
| - |
|
| 721 |
|
| 1,070 |
|
| 4 |
|
| 22,909 |
Business Wireline |
| - |
|
| 6,074 |
|
| 5,595 |
|
| - |
|
| - |
|
| - |
|
| 1,359 |
|
| 369 |
|
| 13,397 |
WarnerMedia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Turner |
| - |
|
| - |
|
| - |
|
| 508 |
|
| 21 |
|
| 237 |
|
| 13 |
|
| - |
|
| 779 |
Home Box Office |
| - |
|
| - |
|
| - |
|
| 270 |
|
| 11 |
|
| - |
|
| - |
|
| - |
|
| 281 |
Warner Bros. |
| - |
|
| - |
|
| - |
|
| 7 |
|
| 455 |
|
| 8 |
|
| 37 |
|
| - |
|
| 507 |
Eliminations and Other |
| - |
|
| - |
|
| - |
|
| - |
|
| (56) |
|
| (6) |
|
| - |
|
| - |
|
| (62) |
Latin America |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vrio |
| - |
|
| - |
|
| - |
|
| 2,608 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 2,608 |
Mexico |
| 821 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 547 |
|
| 1,368 |
Xandr |
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 729 |
|
| - |
|
| - |
|
| 729 |
Corporate and Other |
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 653 |
|
| - |
|
| 653 |
Eliminations and consolidations |
| - |
|
| - |
|
| - |
|
| - |
|
| (209) |
|
| (721) |
|
| 148 |
|
| - |
|
| (782) |
Total Operating Revenues | $ | 27,821 |
| $ | 9,933 |
| $ | 7,173 |
| $ | 19,070 |
| $ | 222 |
| $ | 1,053 |
| $ | 3,280 |
| $ | 8,472 |
| $ | 77,024 |
24
AT&T INC.
JUNE 30, 2019
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. 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:
|
| June 30, |
|
| December 31, |
| March 31, |
|
| December 31, |
Consolidated Balance Sheets |
| 2019 |
|
| 2018 |
| 2020 |
|
| 2019 |
Deferred Acquisition Costs |
|
|
|
|
|
|
|
|
|
|
Other current assets | $ | 1,952 |
| $ | 1,901 | $ | 2,592 |
| $ | 2,462 |
Other Assets |
| 2,760 |
|
| 2,073 |
| 2,997 |
|
| 2,991 |
Total deferred customer contract acquisition costs |
| 4,712 |
|
| 3,974 |
| 5,589 |
|
| 5,453 |
|
|
|
|
|
|
|
|
|
|
|
Deferred Fulfillment Costs |
|
|
|
|
|
|
|
|
|
|
Other current assets |
| 4,620 |
|
| 4,090 |
| 4,438 |
|
| 4,519 |
Other Assets |
| 6,796 |
|
| 7,450 |
| 6,279 |
|
| 6,439 |
Total deferred customer contract fulfillment costs | $ | 11,416 |
| $ | 11,540 | $ | 10,717 |
| $ | 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 sixthree months ended:
|
| June 30, |
|
| June 30, |
| March 31, |
|
| March 31, |
Consolidated Statements of Income |
| 2019 |
|
| 2018 |
| 2020 |
|
| 2019 |
Deferred acquisition cost amortization | $ | 1,026 |
| $ | 595 | $ | 636 |
| $ | 547 |
Deferred fulfillment cost amortization |
| 2,381 |
|
| 1,889 |
| 1,305 |
|
| 1,098 |
Contract Assets and Liabilities
A contract asset is recorded when revenue is recognized in advance of our right to bill and receive consideration. The contract asset will decrease as services are provided and billed. For example, when installment sales include promotional discounts (e.g., “buy one get one free”) the difference between revenue recognized and consideration received is recorded as a contract asset to be amortized over the contract term.
When consideration is received in advance of the delivery of goods or services, a contract liability is recorded for deferred revenue. Reductions in the contract liability will be recorded as we satisfy the performance obligations.
The following table presents contract assets and liabilities on our consolidated balance sheets:
|
|
| June 30, |
|
| December 31, |
Consolidated Balance Sheets |
|
| 2019 |
|
| 2018 |
|
|
|
|
|
|
|
Contract asset |
| $ | 2,188 |
| $ | 1,896 |
Contract liability |
|
| 6,653 |
|
| 6,856 |
|
|
| March 31, |
|
| December 31, |
|
|
| 2020 |
|
| 2019 |
|
|
|
|
|
|
|
Contract asset |
| $ | 2,598 |
| $ | 2,472 |
Contract liability |
|
| 6,757 |
|
| 6,999 |
Our January 1, 2019beginning of period contract liability recorded as customer contract revenue during 20192020 was $4,974.$4,519.
2518
AT&T INC.
JUNE 30, 2019MARCH 31, 2020
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
Our consolidated balance sheets at June 30, 2019March 31, 2020 and December 31, 20182019 included approximately $1,463$1,700 and $1,244,$1,611, respectively, for the current portion of our contract asset in “Other current assets” and $5,533$5,769 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 June 30, 2019,March 31, 2020, the aggregate amount of the transaction price allocated to remaining performance obligations was $40,646,$36,486, of which we expect to recognize approximately 80%86% 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. For the quarter ended March 31, 2019, we recorded special termination benefits of $93 associated with this offer in “Other income (expense) – net.” We also committed to a plan to offer 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 anticipate total distributions from the pension plan will exceed the threshold of service and interest costs for 2019, requiring us to follow settlement accounting and remeasure our pension benefit obligation each quarter-end of 2019. These remeasurements resulted in the recognition of actuarial losses of $432 and $1,699 in the first and second quarters of 2019, respectively.
19
AT&T INC.
MARCH 31, 2020
As part of our 2019 remeasurements, we decreased the weighted-average discount rate used to measure our pension benefit obligation from 4.50% at December 31, 2018 to 4.10% at March 31, 2019, and to 3.70% at June 30, 2019. The discount rateNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in effect for determining pension service and interest costs after remeasurement is 3.90% and 3.25%, respectively. Our remeasurements also reflect actual returns on plan assets of 10.0% (six-month rate). Our expected long-term rate of return on pension plan assets is an annualized 7.00% for the remainder of 2019.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.”
26
AT&T INC.
JUNE 30, 2019
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
| Three months ended |
| Six months ended | Three months ended | ||||||||||||
| June 30, |
| June 30, | March 31, | ||||||||||||
| 2019 |
| 2018 |
| 2019 |
| 2018 | 2020 |
| 2019 | ||||||
Pension cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost – benefits earned during the period | $ | 243 |
| $ | 284 |
| $ | 483 |
| $ | 575 | $ | 257 |
| $ | 240 |
Interest cost on projected benefit obligation |
| 508 |
|
| 504 |
|
| 1,057 |
|
| 991 |
| 422 |
|
| 549 |
Expected return on assets |
| (880) |
|
| (755) |
|
| (1,731) |
|
| (1,515) |
| (889) |
|
| (851) |
Amortization of prior service credit |
| (24) |
|
| (29) |
|
| (57) |
|
| (59) |
| (28) |
|
| (33) |
Actuarial (gain) loss |
| 1,699 |
|
| (1,796) |
|
| 2,131 |
|
| (1,796) |
| - |
|
| 432 |
Net pension (credit) cost | $ | 1,546 |
| $ | (1,792) |
| $ | 1,883 |
| $ | (1,804) | $ | (238) |
| $ | 337 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost – benefits earned during the period | $ | 18 |
| $ | 26 |
| $ | 36 |
| $ | 55 | $ | 13 |
| $ | 18 |
Interest cost on accumulated postretirement benefit obligation |
| 186 |
|
| 195 |
|
| 372 |
|
| 386 |
| 104 |
|
| 186 |
Expected return on assets |
| (56) |
|
| (75) |
|
| (112) |
|
| (152) |
| (44) |
|
| (56) |
Amortization of prior service credit |
| (426) |
|
| (413) |
|
| (852) |
|
| (810) |
| (582) |
|
| (426) |
Actuarial (gain) loss |
| - |
|
| - |
|
| - |
|
| (930) | |||||
Net postretirement (credit) cost | $ | (278) |
| $ | (267) |
| $ | (556) |
| $ | (1,451) | $ | (509) |
| $ | (278) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined net pension and postretirement (credit) cost | $ | 1,268 |
| $ | (2,059) |
| $ | 1,327 |
| $ | (3,255) | $ | (747) |
| $ | 59 |
We also provide senior- and middle-management employees with nonqualified, unfunded supplemental retirement and savings plans. NetFor the first quarter of 2020 and 2019, net supplemental pension benefits costs not included in the table above were $25$19 and $21 in the second quarter and $50 and $42 for the first six months of 2019 and 2018, respectively.$25.
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 fair value measurements 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.
20
AT&T INC.
MARCH 31, 2020
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
Long-Term Debt and Other Financial Instruments
The carrying amounts and estimated fair values of our long-term debt, including current maturities, and other financial instruments, are summarized as follows:
27
AT&T INC.
JUNE 30, 2019
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
|
| June 30, 2019 |
| December 31, 2018 |
| March 31, 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 | $ | 165,443 |
| $ | 181,230 |
| $ | 171,529 |
| $ | 172,287 | Notes and debentures1 | $ | 159,386 |
| $ | 175,902 |
| $ | 161,109 |
| $ | 182,124 |
Commercial paper | Commercial paper |
| 3,164 |
|
| 3,164 |
|
| 3,048 |
|
| 3,048 | Commercial paper |
| 3,144 |
|
| 3,144 |
|
| - |
|
| - |
Bank borrowings | Bank borrowings |
| 4 |
|
| 4 |
|
| 4 |
|
| 4 | Bank borrowings |
| - |
|
| - |
|
| 4 |
|
| 4 |
Investment securities2 | Investment securities2 |
| 3,518 |
|
| 3,518 |
|
| 3,409 |
|
| 3,409 | Investment securities2 |
| 3,591 |
|
| 3,591 |
|
| 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.
Following is the fair value leveling for investment securities and derivatives that are measured at fair value and derivatives as of June 30, 2019March 31, 2020 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, “Other current assets” on our consolidated balance sheets.
|
| June 30, 2019 |
| March 31, 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 | $ | 1,016 |
| $ | - |
| $ | - |
| $ | 1,016 | Domestic equities | $ | 674 |
| $ | - |
| $ | - |
| $ | 674 |
International equities | International equities |
| 235 |
|
| - |
|
| - |
|
| 235 | International equities |
| 143 |
|
| - |
|
| - |
|
| 143 |
Fixed income equities | Fixed income equities |
| 209 |
|
| - |
|
| - |
|
| 209 | Fixed income equities |
| 233 |
|
| - |
|
| - |
|
| 233 |
Available-for-Sale Debt Securities | Available-for-Sale Debt Securities |
| - |
|
| 1,031 |
|
| - |
|
| 1,031 | Available-for-Sale Debt Securities |
| - |
|
| 1,514 |
|
| - |
|
| 1,514 |
Asset Derivatives | Asset Derivatives |
|
|
|
|
|
|
|
|
|
|
| Asset Derivatives |
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps | Interest rate swaps |
| - |
|
| 26 |
|
| - |
|
| 26 | Interest rate swaps |
| - |
|
| 14 |
|
| - |
|
| 14 |
Cross-currency swaps |
| - |
|
| 307 |
|
| - |
|
| 307 | |||||||||||||
Foreign exchange contracts | Foreign exchange contracts |
| - |
|
| 68 |
|
| - |
|
| 68 | Foreign exchange contracts |
| - |
|
| 77 |
|
| - |
|
| 77 |
Liability Derivatives | Liability Derivatives |
|
|
|
|
|
|
|
|
|
|
| Liability Derivatives |
|
|
|
|
|
|
|
|
|
|
|
Cross-currency swaps | Cross-currency swaps |
| - |
|
| (2,929) |
|
| - |
|
| (2,929) | Cross-currency swaps |
| - |
|
| (8,283) |
|
| - |
|
| (8,283) |
Interest rate locks | Interest rate locks |
| - |
|
| (23) |
|
| - |
|
| (23) | Interest rate locks |
| - |
|
| (720) |
|
| - |
|
| (720) |
Foreign exchange contracts | Foreign exchange contracts |
| - |
|
| (3) |
|
| - |
|
| (3) | Foreign exchange contracts |
| - |
|
| (11) |
|
| - |
|
| (11) |
2821
AT&T INC.
JUNE 30, 2019MARCH 31, 2020
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 |
| Six months ended | ||||||||
| June 30, |
| June 30, | ||||||||
| 2019 |
| 2018 |
| 2019 |
| 2018 | ||||
Total gains (losses) recognized on equity securities | $ | 50 |
| $ | 21 |
| $ | 210 |
| $ | 8 |
Gains (Losses) recognized on equity securities sold |
| 69 |
|
| (3) |
|
| 155 |
|
| 49 |
Unrealized gains (losses) recognized on equity securities held at end of period |
| (19) |
|
| 24 |
|
| 55 |
|
| (41) |
| Three months ended | ||||
| March 31, | ||||
| 2020 |
| 2019 | ||
Total gains (losses) recognized on equity securities | $ | (203) |
| $ | 160 |
Gains (losses) recognized on equity securities sold |
| (33) |
|
| 18 |
Unrealized gains (losses) recognized on equity securities held at end of period |
| (170) |
|
| 142 |
At June 30, 2019,March 31, 2020, available-for-sale debt securities totaling $1,031$1,514 have maturities as follows - less than one year: $26;$78; one to three years: $185;$149; three to five years: $151;$160; for five or more years: $669.$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.
2922
AT&T INC.
JUNE 30, 2019MARCH 31, 2020
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
Fair Value Hedging We 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 sixthree months ended June 30,March 31, 2020 and 2019, and 2018, 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 six months ended June 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 $63$60 from accumulated OCI to interest expense“Interest expense” due to the amortization of net losses on historical interest rate locks.
Net Investment Hedging We have designated €700€1,364 million aggregate principal amount of debt as a hedge of the variability of some of the Euro-denominated net investments of WarnerMedia.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 gains on net investment hedges recognized in accumulated OCI for 2020 were $25.
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 June 30, 2019,March 31, 2020, we had posted collateral of $242$2,809 (a deposit asset) and held collateral of $86 (a receipt liability).0 collateral. Under the agreements, if AT&T’s credit rating had been downgraded one rating level by Fitch Ratings before the final collateral exchange in June, end of March, we would not have been required to post any additional collateral of $137.. If AT&T’s credit rating had been downgraded four ratingsrating 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 $2,668.$6,149. If DIRECTV Holdings LLC’s credit rating had been downgraded below BBB- by S&P,(S&P), we would have been required to post additional
30
AT&T INC.
JUNE 30, 2019
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
collateral of $262.$200. 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.
23
AT&T INC.
MARCH 31, 2020
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
Following are the notional amounts of our outstanding derivative positions:
|
| June 30, |
| December 31, | March 31, |
| December 31, | ||||
| 2019 |
| 2018 | 2020 |
| 2019 | |||||
Interest rate swaps1 | $ | 1,633 |
| $ | 3,483 | ||||||
Interest rate swaps | $ | 853 |
| $ | 853 | ||||||
Cross-currency swaps | Cross-currency swaps |
| 40,311 |
|
| 42,192 |
| 42,325 |
|
| 42,325 |
Interest rate locks | Interest rate locks |
| 2,000 |
|
| - |
| 3,500 |
|
| 3,500 |
Foreign exchange contracts | Foreign exchange contracts |
| 669 |
|
| 2,094 |
| 106 |
|
| 269 |
Total | Total | $ | 44,613 |
| $ | 47,769 | $ | 46,784 |
| $ | 46,947 |
1 | In July 2019 we settled interest rate swaps with a notional value of $780. |
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 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||
| Three months ended |
| Six months ended | Three months ended | ||||||||||||
| June 30, |
| June 30, | March 31, | ||||||||||||
Fair Value Hedging Relationships | 2019 |
| 2018 |
| 2019 |
| 2018 | 2020 |
| 2019 | ||||||
Interest rate swaps (Interest expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss) on interest rate swaps | $ | 35 |
| $ | (9) |
| $ | 59 |
| $ | (62) | |||||
Gain (Loss) on long-term debt |
| (35) |
|
| 9 |
|
| (59) |
|
| 62 | |||||
Gain (loss) on interest rate swaps | $ | 10 |
| $ | 24 | |||||||||||
Gain (loss) on long-term debt |
| (10) |
|
| (24) |
In addition, the net swap settlements that accrued and settled in the quarterquarters ended June 30March 31, 2020 and 2019 were offset against interest expense.
| Three months ended |
| Six months ended | ||||||||
| June 30, |
| June 30, | ||||||||
Cash Flow Hedging Relationships | 2019 |
| 2018 |
| 2019 |
| 2018 | ||||
Cross-currency swaps: |
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss) recognized in accumulated OCI | $ | (763) |
| $ | (533) |
| $ | (595) |
| $ | 321 |
Foreign exchange contracts: |
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss) recognized in accumulated OCI |
| 4 |
|
| - |
|
| (3) |
|
| - |
Other income (expense) - net reclassified from accumulated OCI into income |
| 7 |
|
| - |
|
| 10 |
|
| - |
Interest rate locks: |
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss) recognized in accumulated OCI |
| (23) |
|
| - |
|
| (23) |
|
| - |
Interest income (expense) reclassified from accumulated OCI into income |
| (16) |
|
| (14) |
|
| (32) |
|
| (29) |
NOTE 8. ACQUISITIONS, DISPOSITIONS AND OTHER ADJUSTMENTS
Acquisitions
Time Warner On June 14, 2018, we completed our acquisition of Time Warner, a leader in media and entertainment whose major businesses encompass an array of some of the most respected media brands. We paid Time Warner shareholders
31
AT&T INC.
JUNE 30, 2019
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
$36,599 in AT&T stock and $42,100 in cash. Total consideration, including share-based payment arrangements and other adjustments totaled $79,358, excluding Time Warner’s net debt at 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.
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
32
AT&T INC.
JUNE 30, 2019
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
Hudson Yards In June 2019, we sold our ownership in Hudson Yards North Tower Holdings LLC under a sale-leaseback arrangement for cash proceeds of $2,081 and recorded a loss of $102 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 gain of $740.
| Three months ended | ||||
| March 31, | ||||
Cash Flow Hedging Relationships | 2020 |
| 2019 | ||
Cross-currency swaps: |
|
|
|
|
|
Gain (loss) recognized in accumulated OCI | $ | (3,979) |
| $ | 168 |
Foreign exchange contracts: |
|
|
|
|
|
Gain (loss) recognized in accumulated OCI |
| (13) |
|
| (7) |
Other income (expense) - net reclassified from accumulated OCI into income |
| 16 |
|
| 3 |
Interest rate locks: |
|
|
|
|
|
Gain (loss) recognized in accumulated OCI |
| (636) |
|
| - |
Interest income (expense) reclassified from accumulated OCI into income |
| (16) |
|
| (16) |
NOTE 9.8. SALES OF RECEIVABLES
We have agreements with various third-party financial institutions pertaining to the salesales 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
24
AT&T INC.
MARCH 31, 2020
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
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:
|
| June 30, 2019 |
| December 31, 2018 |
|
| March 31, 2020 |
|
| December 31, 2019 | ||||||||||||||
|
| Equipment |
|
|
|
| Equipment |
|
|
|
| Equipment |
|
|
|
| Equipment |
|
|
| ||||
|
| Installment |
| WarnerMedia |
| Installment |
| WarnerMedia |
| Installment |
| Revolving |
| Installment |
| Revolving | ||||||||
Gross receivables: | Gross receivables: | $ | 4,519 |
| $ | 2,769 |
| $ | 5,994 |
| $ | - | Gross receivables: | $ | 3,640 |
| $ | 4,057 |
| $ | 4,576 |
| $ | 3,324 |
Balance sheet classification | Balance sheet classification |
|
|
|
|
|
|
|
|
|
|
| Balance sheet classification |
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable | Accounts receivable |
|
|
|
|
|
|
|
|
|
|
| Accounts receivable |
|
|
|
|
|
|
|
|
|
|
|
Notes receivable | Notes receivable |
| 2,599 |
|
| - |
|
| 3,457 |
|
| - | Notes receivable |
| 1,979 |
|
| - |
|
| 2,467 |
|
| - |
Trade receivables | Trade receivables |
| 449 |
|
| 2,286 |
|
| 438 |
|
| - | Trade receivables |
| 466 |
|
| 3,733 |
|
| 477 |
|
| 2,809 |
Other Assets | Other Assets |
|
|
|
|
|
|
|
|
|
|
| Other Assets |
|
|
|
|
|
|
|
|
|
|
|
Noncurrent notes and trade receivables | Noncurrent notes and trade receivables |
| 1,471 |
|
| 483 |
|
| 2,099 |
|
| - | Noncurrent notes and trade receivables |
| 1,195 |
|
| 324 |
|
| 1,632 |
|
| 515 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding portfolio of receivables derecognized from our consolidated balance sheets |
| 9,528 |
|
| 3,725 |
|
| 9,065 |
|
| - | |||||||||||||
Outstanding portfolio of receivables derecognized from | Outstanding portfolio of receivables derecognized from |
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
our consolidated balance sheets | our consolidated balance sheets |
| 9,690 |
|
| 5,300 |
|
| 9,713 |
|
| 4,300 | ||||||||||||
Cash proceeds received, net of remittances1 | Cash proceeds received, net of remittances1 |
| 7,073 |
|
| 3,725 |
|
| 6,508 |
|
| - | Cash proceeds received, net of remittances1 |
| 7,156 |
|
| 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. |
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
33
AT&T INC.
JUNE 30, 2019
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
any outstanding remaining installment receivable balance. Accordingly, we record a guarantee obligation for this estimated amount at the time the receivables are transferred.
The following table sets forth a summary of equipment installment receivables sold under this program during the three and six months ended June 30, 2019March 31, 2020 and 2018:2019:
|
| Three months ended |
| Six months ended | ||||||||||||||
|
| June 30, |
| June 30, |
| Three months ended March 31, | ||||||||||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 |
|
| 2020 |
|
| 2019 | ||||
Gross receivables sold | Gross receivables sold | $ | 2,244 |
| $ | 1,906 |
| $ | 4,945 |
| $ | 4,916 | Gross receivables sold | $ | 2,367 |
| $ | 2,701 |
Net receivables sold1 | Net receivables sold1 |
| 2,133 |
|
| 1,811 |
|
| 4,679 |
|
| 4,606 | Net receivables sold1 |
| 2,273 |
|
| 2,546 |
Cash proceeds received | Cash proceeds received |
| 1,920 |
|
| 1,532 |
|
| 4,195 |
|
| 3,927 | Cash proceeds received |
| 1,950 |
|
| 2,275 |
Deferred purchase price recorded | Deferred purchase price recorded |
| 261 |
|
| 307 |
|
| 570 |
|
| 826 | Deferred purchase price recorded |
| 353 |
|
| 309 |
Guarantee obligation recorded | Guarantee obligation recorded |
| 93 |
|
| 72 |
|
| 194 |
|
| 195 | Guarantee obligation recorded |
| 44 |
|
| 101 |
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
25
AT&T INC.
MARCH 31, 2020
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
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 six months ended June 30, 2019March 31, 2020 and 2018:2019:
|
| Three months ended |
| Six months ended | ||||||||
|
| June 30, |
| June 30, | ||||||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 | ||||
Fair value of repurchased receivables | $ | 235 |
| $ | 1,481 |
| $ | 658 |
| $ | 1,481 | |
Carrying value of deferred purchase price |
| 225 |
|
| 1,393 |
|
| 632 |
|
| 1,393 | |
Gain (loss) on repurchases1 | $ | 10 |
| $ | 88 |
| $ | 26 |
| $ | 88 | |
1 | These gains (losses) are included in “Selling, general and administrative” in the consolidated statements of income. |
|
| Three months ended March 31, | ||||
|
|
| 2020 |
|
| 2019 |
Fair value of repurchased receivables | $ | 288 |
| $ | 423 | |
Carrying value of deferred purchase price |
| 277 |
|
| 407 | |
Gain on repurchases1 | $ | 11 |
| $ | 16 | |
1 | These gains are included in “Selling, general and administrative” in the consolidated statements of income. |
At June 30, 2019March 31, 2020 and December 31, 2018,2019, our deferred purchase price receivable was $2,242$2,378 and $2,370,$2,336, respectively, of which $1,531$1,583 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 June 30, 2019March 31, 2020 and December 31, 20182019 was $454$351 and $439,$384, respectively, of which $91$189 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.
WarnerMediaRevolving Receivables Program
In March 2019, we entered into a 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. As customers pay their balances, we transfer additional receivables into the program, resulting in our gross receivables sold exceeding net cash flow impacts. In June 2019, we expanded the program another $2,600 for a total maximum outstanding amount of $4,000, of which approximately $3,725 is outstanding at June 30, 2019.impacts (e.g., collect and reinvest). The transferred receivables are fully guaranteed by our subsidiary,bankruptcy-remote subsidiaries, which holdshold additional receivables in the amount of $2,769$4,057 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. Our maximum exposure to loss related to selling these receivables transferred is limited to the amount outstanding.
34
AT&T INC.
JUNE 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 six months ended June 30, 2019 and 2018:sold:
|
| Three months ended |
| Six months ended |
|
| Three months ended March 31, | |||||||||||
|
| June 30, |
| June 30, |
|
| 2020 |
|
| 2019 | ||||||||
Gross receivables sold/cash proceeds received1 | Gross receivables sold/cash proceeds received1 | $ | 4,222 |
| $ | 1,400 | ||||||||||||
Collections reinvested under revolving agreement | Collections reinvested under revolving agreement |
| 3,222 |
|
| - | ||||||||||||
Net cash proceeds received (remitted) | Net cash proceeds received (remitted) | $ | 1,000 |
| $ | 1,400 | ||||||||||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 |
|
|
|
|
|
| ||||
Initial sale of receivables | $ | 2,325 |
| $ | - |
| $ | 3,725 |
| $ | - | |||||||
Collections reinvested under revolving agreement |
| 2,127 |
|
| - |
|
| 2,127 |
|
| - | |||||||
Gross receivables sold/cash proceeds received |
| 4,452 |
|
| - |
|
| 5,852 |
|
| - | |||||||
Net receivables sold1 |
| 4,134 |
|
| - |
|
| 5,497 |
|
| - | |||||||
Net receivables sold2 | Net receivables sold2 | $ | 4,138 |
| $ | 1,363 | ||||||||||||
Obligations recorded | Obligations recorded |
| 384 |
|
| - |
|
| 436 |
|
| - | Obligations recorded |
| 126 |
|
| 52 |
1 | Receivables net of allowance, return and incentive reserves and imputed interest | Includes initial sale of receivables of $1,000 and $1,400 for the three months ended March 31, 2020 and 2019, respectively. | ||||||||||||||||
2 | Receivables net of allowance, return and incentive reserves and imputed interest. |
NOTE 10.9. LEASES
We have operating and finance leases for certain facilities and equipment used in operations. As of June 30, 2019, ourOur leases generally have remaining lease terms of 1up 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..
26
AT&T INC.
MARCH 31, 2020
Subsequent to the adoption of ASC 842 on January 1, 2019, weNOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
We have recognized a right-of-use asset for both operating and finance leases, and an operating lease liability that represents the present value of our obligation to make payments over the lease term. The present value of the lease payments is calculated using the incremental borrowing rate for operating and finance leases, which was determined using a portfolio approach based on the rate of interest that we would have to pay to borrow an amount equal to the lease payments on a collateralized basis over a similar term. We use the unsecured borrowing rate and risk-adjust that rate to approximate a collateralized rate in the currency of the lease, which 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 |
| Six months ended | Three months ended March 31, | ||||||
| June 30, 2019 |
| June 30, 2019 | 2020 |
| 2019 | ||||
Operating lease cost | $ | 1,610 |
| $ | 2,852 | $ | 1,377 |
| $ | 1,242 |
|
|
|
|
|
|
|
|
|
| |
Finance lease cost: |
|
|
|
|
|
|
|
|
| |
Amortization of right-of-use assets | $ | 70 |
| $ | 136 | $ | 67 |
| $ | 66 |
Interest on lease obligation |
| 42 |
| 84 |
| 41 |
|
| 42 | |
Total finance lease cost | $ | 112 |
| $ | 220 | $ | 108 |
| $ | 108 |
SupplementalThe following tables set forth supplemental balance sheet information related to leases is as follows:leases:
|
| March 31, | December 31, | ||
| 2020 | 2019 | |||
Operating Leases |
|
|
|
|
|
Operating lease right-of-use assets | $ | 24,008 | $ | 24,039 |
|
|
|
|
|
|
|
Accounts payable and accrued liabilities | $ | 3,443 | $ | 3,451 |
|
Operating lease obligation |
| 21,584 |
| 21,804 |
|
Total operating lease obligation | $ | 25,027 | $ | 25,255 |
|
|
|
|
|
|
|
Finance Leases |
|
|
|
|
|
Property, plant and equipment, at cost | $ | 3,298 | $ | 3,534 |
|
Accumulated depreciation and amortization |
| (1,302) |
| (1,296) |
|
Property, plant and equipment, net | $ | 1,996 | $ | 2,238 |
|
|
|
|
|
|
|
Current portion of long-term debt | $ | 158 | $ | 162 |
|
Long-term debt |
| 1,581 |
| 1,872 |
|
Total finance lease obligation | $ | 1,739 | $ | 2,034 |
|
|
|
|
|
|
|
Weighted-Average Remaining Lease Term |
|
|
|
|
|
Operating leases |
|
|
| 8.4 | yrs |
Finance leases |
|
|
| 10.7 | yrs |
|
|
|
|
|
|
Weighted-Average Discount Rate |
|
|
|
|
|
Operating leases |
|
|
| 4.2 | % |
Finance leases |
|
|
| 8.4 | % |
3527
AT&T INC.
JUNE 30, 2019MARCH 31, 2020
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
At June 30, 2019 |
| ||
|
| ||
Operating Leases |
|
|
|
Operating lease right-of-use assets | $ | 22,650 |
|
|
|
|
|
Accounts payable and accrued liabilities | $ | 3,344 |
|
Operating lease obligation |
| 20,568 |
|
Total operating lease obligation | $ | 23,912 |
|
|
|
|
|
Finance Leases |
|
|
|
Property, plant and equipment, at cost | $ | 3,362 |
|
Accumulated depreciation and amortization |
| (1,178) |
|
Property, plant and equipment, net | $ | 2,184 |
|
|
|
|
|
Current portion of long-term debt | $ | 137 |
|
Long-term debt |
| 1,809 |
|
Total finance lease obligation | $ | 1,946 |
|
|
|
|
|
Weighted-Average Remaining Lease Term |
|
|
|
Operating leases |
| 8.4 | yrs |
Finance leases |
| 10.7 | yrs |
|
|
|
|
Weighted-Average Discount Rate |
|
|
|
Operating leases |
| 4.7 | % |
Finance leases |
| 8.5 | % |
Future minimum maturities of lease obligationsliabilities are as follows:
At June 30, 2019 | Operating |
| Finance | |||||||
At March 31, 2020 | Operating |
| Finance | |||||||
| Leases |
| Leases | Leases |
| Leases | ||||
Remainder of 2019 | $ | 2,250 |
| $ | 169 | |||||
2020 |
| 4,276 |
|
| 296 | |||||
Remainder of 2020 | $ | 3,519 |
| $ | 275 | |||||
2021 |
| 3,841 |
|
| 274 |
| 4,391 |
|
| 275 |
2022 |
| 3,561 |
|
| 264 |
| 4,068 |
|
| 258 |
2023 |
| 3,228 |
|
| 253 |
| 3,663 |
|
| 232 |
2024 |
| 3,140 |
|
| 214 | |||||
Thereafter |
| 12,502 |
|
| 1,814 |
| 11,788 |
|
| 1,509 |
Total lease payments |
| 29,658 |
|
| 3,070 |
| 30,569 |
|
| 2,763 |
Less imputed interest |
| (5,746) |
|
| (1,124) |
| (5,542) |
|
| (1,024) |
Total | $ | 23,912 |
| $ | 1,946 | $ | 25,027 |
| $ | 1,739 |
NOTE 10. 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 March 31, 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 March 31, 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 March 31, 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. 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:
| March 31, |
| December 31, | ||||||||
Cash and Cash Equivalents and Restricted Cash |
| 2020 |
|
| 2019 |
|
| 2019 |
|
| 2018 |
Cash and cash equivalents | $ | 9,955 |
| $ | 6,516 |
| $ | 12,130 |
| $ | 5,204 |
Restricted cash in Other current assets |
| 8 |
|
| 20 |
|
| 69 |
|
| 61 |
Restricted cash in Other Assets |
| 77 |
|
| 94 |
|
| 96 |
|
| 135 |
Cash and cash equivalents and restricted cash | $ | 10,040 |
| $ | 6,630 |
| $ | 12,295 |
| $ | 5,400 |
3628
AT&T INC.
JUNE 30, 2019MARCH 31, 2020
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
|
| June 30, |
| December 31, | ||||||||
|
|
| 2019 |
|
| 2018 |
|
| 2018 |
|
| 2017 |
Cash and cash equivalents |
| $ | 8,423 |
| $ | 13,523 |
| $ | 5,204 |
| $ | 50,498 |
Restricted cash in Other current assets |
|
| 15 |
|
| 12 |
|
| 61 |
|
| 6 |
Restricted cash in Other Assets |
|
| 216 |
|
| 218 |
|
| 135 |
|
| 428 |
Cash and cash equivalents and restricted cash |
| $ | 8,654 |
| $ | 13,753 |
| $ | 5,400 |
| $ | 50,932 |
| Three months ended | ||||
| March 31, | ||||
Cash Paid (Received) During the Period for: |
| 2020 |
|
| 2019 |
Interest | $ | 2,376 |
| $ | 2,507 |
Income taxes, net of refunds |
| (354) |
|
| (379) |
| Three months ended | ||||
| March 31, | ||||
Cash Paid for Amounts Included in Lease Obligations: | 2020 |
| 2019 | ||
Operating cash flows from operating leases | $ | 1,217 |
| $ | 1,332 |
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Lease Cash Flow Disclosures: |
|
|
|
|
|
Operating lease right-of-use assets obtained in exchange for new operating lease obligations |
| 1,013 |
|
| 201 |
Supplemental disclosures for the statement of cash flows related to operating leases are as follows:Financing Activities
Term Loan
|
| Six months ended | ||||
|
| June 30, | ||||
|
| 2019 |
| 2018 | ||
Cash Flows from Operating Activities |
|
|
|
|
|
|
Cash paid for amounts included in lease obligations |
|
|
|
|
|
|
Operating cash flows from operating leases |
| $ | 2,464 |
| $ | 2,458 |
|
|
|
|
|
|
|
Supplemental Lease Cash Flow Disclosures |
|
|
|
|
|
|
Operating lease right-of-use assets obtained in exchange for new operating lease obligations |
|
| 3,899 |
|
| - |
Cash paid (received) from interestOn April 6, 2020, we entered into and income taxes duringdrew on a $5,500 Term Loan Credit Agreement (Term Loan), with certain commercial banks and Bank of America, N.A., as lead agent. The Term Loan is not subject to amortization, and the period are as follows:
| Six months ended | ||||
| June 30, | ||||
|
| 2019 |
|
| 2018 |
Interest | $ | 4,410 |
| $ | 4,045 |
Income taxes, net of refunds |
| (32) |
|
| (757) |
Other Noncash Investingentire principal amount will be due and Financing Activities In 2019, we recorded approximately $1,265 of new vendor financing commitments related to capital investments, and we have repaid $1,836 of such obligations during the year. In connection with capital improvements, we negotiate favorable payment terms (referred to as vendor financing), which are excluded from our investing activities and reported as financing activities.payable on December 31, 2020.
3729
AT&T INC.
JUNE 30, 2019MARCH 31, 2020
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 four reportable segments: (1) Communications, (2) WarnerMedia, (3) Latin America and (4) Xandr. 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.
| Second Quarter |
|
| Six-Month Period |
| First Quarter |
| |||||||||||||||
|
|
|
|
|
| Percent |
|
|
|
|
|
|
| Percent |
|
|
|
|
| Percent |
| |
| 2019 |
| 2018 | Change |
|
| 2019 |
| 2018 | Change |
| 2020 |
| 2019 | Change |
| ||||||
Operating Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Communications | $ | 35,508 |
| $ | 35,410 | 0.3 | % |
| $ | 70,901 |
| $ | 70,943 | (0.1) | % | $ | 34,249 |
| $ | 35,169 | (2.6) | % |
WarnerMedia |
| 8,350 |
|
| 1,393 | - |
|
|
| 16,729 |
|
| 1,505 | - |
|
| 7,359 |
|
| 8,379 | (12.2) |
|
Latin America |
| 1,757 |
|
| 1,951 | (9.9) | �� |
|
| 3,475 |
|
| 3,976 | (12.6) |
|
| 1,590 |
|
| 1,718 | (7.5) |
|
Xandr |
| 485 |
|
| 392 | 23.7 |
|
|
| 911 |
|
| 729 | 25.0 |
|
| 489 |
|
| 426 | 14.8 |
|
Corporate and other |
| 179 |
|
| 320 | (44.1) |
|
|
| 346 |
|
| 653 | (47.0) |
|
| 388 |
|
| 391 | (0.8) |
|
Eliminations and consolidation |
| (1,322) |
|
| (480) | - |
|
|
| (2,578) |
|
| (782) | - |
|
| (1,296) |
|
| (1,256) | (3.2) |
|
AT&T Operating Revenues |
| 44,957 |
|
| 38,986 | 15.3 |
|
|
| 89,784 |
|
| 77,024 | 16.6 |
|
| 42,779 |
|
| 44,827 | (4.6) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Contribution |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Communications |
| 8,737 |
|
| 8,414 | 3.8 |
|
|
| 16,789 |
|
| 16,441 | 2.1 |
|
| 8,203 |
| 8,011 | 2.4 |
| |
WarnerMedia |
| 2,025 |
|
| 425 | - |
|
|
| 4,335 |
|
| 464 | - |
|
| 1,714 |
|
| 2,310 | (25.8) |
|
Latin America |
| (209) |
|
| (150) | (39.3) |
|
|
| (382) |
|
| (261) | (46.4) |
|
| (184) |
|
| (173) | (6.4) |
|
Xandr |
| 325 |
|
| 333 | (2.4) |
|
|
| 578 |
|
| 619 | (6.6) |
|
| 299 |
|
| 253 | 18.2 |
|
Segment Operating Contribution | $ | 10,878 |
| $ | 9,022 | 20.6 | % |
| $ | 21,320 |
| $ | 17,263 | 23.5 | % | $ | 10,032 |
| $ | 10,401 | (3.5) | % |
The Communications segment provides services to businesses and consumers located in the U.S. or in U.S. territories 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.
3830
AT&T INC.
JUNE 30, 2019MARCH 31, 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 WarnerMedia segment develops, produces and distributes feature films, television, gaming and other content over various physical and digital formats. This segment contains the following business units:
Turner is comprised of the historic Turner division as well as the financial results of our RSNs. This business unit 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.
Mexico provides wireless service and equipment to customers in Mexico.
The Xandr segment provides advertising services and includes our recently acquired AppNexus.services. These services utilize data insights to develop and deliver targeted advertising across video and digital platforms.
COVID-19 UPDATE
In March 2020, the World Health Organization designated the coronavirus (COVID-19) a pandemic and the President of the United States declared a national emergency. To date, COVID-19 has surfaced in nearly all regions around the world and resulted in travel restrictions and business slowdowns or shutdowns.
Disruptions caused by COVID-19 and measures taken to prevent its spread or mitigate its effects both domestically and internationally have impacted our results of operations. In the first quarter of 2020, we recognized approximately $430, or $0.05 per share, of incremental costs associated with bad debt reserves, voluntary corporate actions taken primarily to protect and compensate front-line employees and contractors, and WarnerMedia production shutdown costs. We expect more than half of these incremental charges will be short-term in nature.
In addition to these incremental costs, our operations and comparability were impacted by (1) the cancellation of the NCAA Division I Men’s Basketball Tournament (NCAA tournament), resulting in lower advertising revenues and associated expenses, (2) closures of retail stores, contributing to a decline in wireless equipment sales, with a corresponding reduction in equipment expense and (3) the imposition of travel restrictions, driving significantly lower wireless roaming services that do not have a directly correlated expense reduction. The net impact of these items on profitability was not significant.
All subscriber counts at and for the period ended March 31, 2020, exclude customers who we have agreed not to terminate service under the Federal Communications Commission (FCC) “Keep Americans Connected Pledge.” For reporting purposes, we count these subscribers as if they had disconnected service.
The economic effects of the pandemic and resulting societal changes are currently not predictable. We expect that COVID-19 could affect additional areas of our business in future quarters and that the financial impacts could vary from those seen in the first quarter. 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 our operations; changes in consumer confidence, behaviors and spending; work from home trends; and the sustainability of supply chains.
Due to the uncertainty of the COVID-19 pandemic and recovery, we have withdrawn our prior financial guidance.
31
AT&T INC.
MARCH 31, 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
RESULTS OF OPERATIONS
Consolidated Results Our financial results are summarized in the following discussions. 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 |
| First Quarter |
| |||||||||||||||
|
|
|
|
|
| Percent |
|
|
|
|
|
|
| Percent |
|
|
|
|
|
| Percent |
|
| 2019 |
| 2018 | Change |
|
| 2019 |
| 2018 | Change |
| 2020 |
| 2019 | Change |
| ||||||
Operating Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Service | $ | 41,023 |
| $ | 34,906 | 17.5 | % |
| $ | 81,707 |
| $ | 68,552 | 19.2 | % | $ | 38,883 |
| $ | 40,684 | (4.4) | % |
Equipment |
| 3,934 |
|
| 4,080 | (3.6) |
|
|
| 8,077 |
|
| 8,472 | (4.7) |
|
| 3,896 |
|
| 4,143 | (6.0) |
|
Total Operating Revenues |
| 44,957 |
|
| 38,986 | 15.3 |
|
|
| 89,784 |
|
| 77,024 | 16.6 |
|
| 42,779 |
|
| 44,827 | (4.6) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Operations and support |
| 30,356 |
|
| 26,142 | 16.1 |
|
|
| 60,744 |
|
| 51,985 | 16.8 |
|
| 28,071 |
|
| 30,388 | (7.6) |
|
Depreciation and amortization |
| 7,101 |
|
| 6,378 | 11.3 |
|
|
| 14,307 |
|
| 12,372 | 15.6 |
|
| 7,222 |
|
| 7,206 | 0.2 |
|
Total Operating Expenses |
| 37,457 |
|
| 32,520 | 15.2 |
|
|
| 75,051 |
|
| 64,357 | 16.6 |
|
| 35,293 |
|
| 37,594 | (6.1) |
|
Operating Income |
| 7,500 |
|
| 6,466 | 16.0 |
|
|
| 14,733 |
|
| 12,667 | 16.3 |
|
| 7,486 |
|
| 7,233 | 3.5 |
|
Interest expense |
| 2,149 |
|
| 2,023 | 6.2 |
|
|
| 4,290 |
|
| 3,794 | 13.1 |
|
| 2,018 |
|
| 2,141 | (5.7) |
|
Equity in net income (loss) of affiliates |
| 40 |
|
| (16) | - |
|
|
| 33 |
|
| (7) | - |
|
| (6) |
|
| (7) | 14.3 |
|
Other income (expense) – net |
| (318) |
|
| 2,353 | - |
|
|
| (32) |
|
| 4,055 | - |
|
| 803 |
|
| 286 | - |
|
Income Before Income Taxes |
| 5,073 |
|
| 6,780 | (25.2) |
|
|
| 10,444 |
|
| 12,921 | (19.2) |
|
| 6,265 |
|
| 5,371 | 16.6 |
|
Net Income |
| 3,974 |
|
| 5,248 | (24.3) |
|
|
| 8,322 |
|
| 10,007 | (16.8) |
|
| 4,963 |
|
| 4,348 | 14.1 |
|
Net Income Attributable to AT&T | $ | 3,713 |
| $ | 5,132 | (27.7) | % |
| $ | 7,809 |
| $ | 9,794 | (20.3) | % |
| 4,610 |
|
| 4,096 | 12.5 |
|
Net Income Attributable to Common Stock | $ | 4,578 |
| $ | 4,096 | 11.8 | % |
Operating revenues decreased in the first quarter of 2020. The decrease was driven by declines in our WarnerMedia, Communications and Latin America segments. Lower WarnerMedia segment revenues reflect unfavorable programming comparisons, including strong carryover theatrical revenues in the first quarter of 2019, and lower advertising revenues from the cancellation of the NCAA tournament. Communications segment revenue declines were driven by continued declines in video and legacy services and lower wireless equipment sales resulting from store closures. Latin America segment revenue declines were primarily due to foreign exchange pressure. Partially offsetting these decreases were revenue increases in wireless service and strategic and managed business service in our Communications segment.
Operations and supportexpenses decreased in the first quarter of 2020. The decrease was driven by a noncash gain of $900 on a spectrum transaction, lower broadcast and programming costs in our Communications and WarnerMedia segments, reduced wireless equipment costs resulting from lower device sales and lower sports licenses from the cancellation of televised sporting events. Expense declines also reflect our continued focus on cost management. Partially offsetting the decreases were incremental costs, including bad debt, associated with COVID-19. 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.
Depreciation and amortization expense increased in the secondfirst quarter and the first six months of 2019. The increase was2020.
Depreciation expense increased $29, or 0.6%, primarily due to our 2018 acquisition of Time Warner. Partially offsetting these increases in revenues were declines in our Latin America segment, which were negatively impacted by foreign exchange pressure. Revenuesongoing capital spend for network upgrades and expansion in our Communications segment weresegment.
Amortization expense decreased $13, or 0.6%, primarily due to the decreased amortization of intangibles associated with WarnerMedia, largely offset by commencement of amortization for orbital slot licenses, beginning in the first quarter of 2020 (see Note 1).
3932
AT&T INC.
JUNE 30, 2019MARCH 31, 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
stable with growth in wireless service, strategic and managed business services and IP broadband revenues offsetting lower legacy services, video and wireless equipment revenues.
Operations and supportexpenses increased in the second quarter and the first six months of 2019. The increase was primarily due to our 2018 acquisition of Time Warner. This increase was partially offset by lower costs in our Communications segment, including lower wireless equipment costs and lower content and other costs related to lower video volumes, foreign exchange rate impacts in our Latin America segment, and lower expenses due to our continued focus on cost management.
Depreciation and amortization expense increased in the second quarter and for the first six months of 2019. Depreciation expense increased $27, or 0.5% in the second quarter and $163, or 1.6% for the first six months of 2019 primarily due to the Time Warner acquisition.
Amortization expense increased $696, or 50.6% in the second quarter and $1,772, or 72.7% for the first six months of 2019 primarily due to the amortization of intangibles associated with WarnerMedia.
Operating income increased in the secondfirst quarter and the first six months of 2019.2020. Our operating income margin forin the secondfirst quarter increased from 16.6% in 2018 to 16.7%16.1% in 2019 and maintained at 16.4% for the first six months of 2018 and 2019.to 17.5% in 2020.
Interest expense increaseddecreased in the secondfirst quarter and first six months of 2019. The increase was2020, primarily due to lower capitalized interest associated with putting spectrum into network service and higher debt balances related to our acquisition of Time Warner. The increase also reflects higher interest rates.
balances.
Equity in net income (loss) of affiliates increasedwas essentially flat in the secondfirst quarter and for the first six months of 2019, primarily due to2020, reflecting changes in our investment portfolio, resulting from acquisition-related activity.including the second-quarter 2019 sale of Hulu.
Other income (expense) – net decreased earningsincreased in the secondfirst quarter and for the first six months of 2019. The decreases were2020 primarily due to an increase in net benefit credit resulting from lower interest costs on the benefit obligation and higher prior service credit amortization in 2020 and an actuarial loss on pension benefits in 2019 (see Note 6). Partially offsetting the increase were losses of $1,699on investments in equity securities resulting from market declines in the secondfirst quarter and $2,131 for the first six months of 2019, compared to actuarial gains of $1,796 and $2,726 in the comparable prior year. Offsetting the decline from the remeasurement of our benefit plans was a $740 gain on the second-quarter 2019 sale of our investment in Hulu and lower premiums on debt redemptions.2020.
Income taxes decreasedincreased in the secondfirst quarter and for the first six months of 2019.2020. Our effective tax rate was 21.7% for the second quarter and 20.3%20.8% for the first six monthsquarter of 2019,2020, versus 22.6%19.0% for the second quarter and for the first six months of 2018.comparable year prior. The decreaseincrease in income tax expense was primarily due to higher income before income taxes and the impacts of tax settlements in the first quarter of 2019. The increase in our effective tax rate was primarily due to lower income before income taxes, includingthe impacts of actuarial losses of $1,699 in the second quarter and $2,131 for the first six months of 2019, compared to actuarial gains of $1,796 and $2,726 in 2018.tax settlements.
40
AT&T INC.
JUNE 30, 2019
COMMUNICATIONS SEGMENT | First Quarter |
| |||||
|
|
|
|
|
| Percent |
|
| 2020 |
| 2019 | Change |
| ||
Segment Operating Revenues |
|
|
|
|
|
|
|
Mobility | $ | 17,402 |
| $ | 17,363 | 0.2 | % |
Entertainment Group |
| 10,515 |
|
| 11,328 | (7.2) |
|
Business Wireline |
| 6,332 |
|
| 6,478 | (2.3) |
|
Total Segment Operating Revenues |
| 34,249 |
|
| 35,169 | (2.6) |
|
|
|
|
|
|
|
|
|
Segment Operating Contribution |
|
|
|
|
|
|
|
Mobility |
| 5,788 |
|
| 5,309 | 9.0 |
|
Entertainment Group |
| 1,335 |
|
| 1,478 | (9.7) |
|
Business Wireline |
| 1,080 |
|
| 1,224 | (11.8) |
|
Total Segment Operating Contribution | $ | 8,203 |
| $ | 8,011 | 2.4 | % |
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 | Second Quarter |
|
| Six-Month Period |
| ||||||||||
|
|
|
|
|
| Percent |
|
|
|
|
|
|
| Percent |
|
| 2019 |
| 2018 | Change |
|
| 2019 |
| 2018 | Change |
| ||||
Segment Operating Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobility | $ | 17,512 |
| $ | 17,282 | 1.3 | % |
| $ | 35,079 |
| $ | 34,637 | 1.3 | % |
Entertainment Group |
| 11,368 |
|
| 11,478 | (1.0) |
|
|
| 22,696 |
|
| 22,909 | (0.9) |
|
Business Wireline |
| 6,628 |
|
| 6,650 | (0.3) |
|
|
| 13,126 |
|
| 13,397 | (2.0) |
|
Total Segment Operating Revenues |
| 35,508 |
|
| 35,410 | 0.3 |
|
|
| 70,901 |
|
| 70,943 | (0.1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Operating Contribution |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobility |
| 5,833 |
|
| 5,506 | 5.9 |
|
|
| 11,184 |
|
| 10,664 | 4.9 |
|
Entertainment Group |
| 1,514 |
|
| 1,475 | 2.6 |
|
|
| 2,992 |
|
| 2,784 | 7.5 |
|
Business Wireline |
| 1,390 |
|
| 1,433 | (3.0) |
|
|
| 2,613 |
|
| 2,993 | (12.7) |
|
Total Segment Operating Contribution | $ | 8,737 |
| $ | 8,414 | 3.8 | % |
| $ | 16,789 |
| $ | 16,441 | 2.1 | % |
Selected Subscribers and Connections |
|
|
|
|
|
|
| June 30, | March 31, | ||||
(000s) | 2019 |
| 2018 | 2020 |
| 2019 |
Mobility Subscribers | 169,198 |
| 154,670 | |||
Total domestic broadband connections | 15,698 |
| 15,772 | 15,315 |
| 15,737 |
Network access lines in service | 9,207 |
| 10,832 | 8,160 |
| 9,587 |
U-verse VoIP connections | 4,766 |
| 5,449 | 4,213 |
| 4,935 |
Operating revenues increaseddecreased in the secondfirst quarter and decreased for the first six months of 2019. The increase in the quarter was2020, driven by increases in our Mobility business unit, partially offset by declines in our Entertainment Group and Business Wireline business units. Revenues reflect higher wireless service, growth in strategic and managed business services and IP broadband, and licensing of intellectual property assets, which wereunits, partially offset by continued declines in legacy voice and data products, the shift to over-the-top (OTT) video offerings and decreased equipment revenues.
The decrease for the first six months was primarily due to the declines in our Business Wireline and Entertainment Group business units, offset by increases in our Mobility business unit. The decrease reflects the continued shift away from legacy communications and linear video offerings,and legacy services and lower wireless equipment revenues, largely offset bysales attributable to store closures. Largely offsetting these declines were higher wireless service and advanced data revenues.
Operating contribution increased in the second quarter and for the first six months of 2019, reflecting improvementrevenues from growth in our Mobilityprepaid subscriber base and Entertainment Group business units, partially offset by declinesgrowth in our Business Wireline business unit. Our Communications segment operating income margin in the second quarter increased from 23.8% in 2018 to 24.6% in 2019postpaid phone subscribers and for the first six months increased from 23.2% in 2018 to 23.7% in 2019.
average revenue per subscriber (ARPU).
4133
AT&T INC.
JUNE 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 Business Unit Discussion | |||||||||||||||
Mobility Results |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Second Quarter |
| Six-Month Period | ||||||||||||
|
|
|
|
|
| Percent |
|
|
|
|
|
| Percent | ||
| 2019 |
| 2018 | Change |
| 2019 |
| 2018 | Change | ||||||
Operating revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service | $ | 14,006 |
| $ | 13,682 | 2.4 | % |
| $ | 27,798 |
| $ | 27,085 | 2.6 | % |
Equipment |
| 3,506 |
|
| 3,600 | (2.6) |
|
|
| 7,281 |
|
| 7,552 | (3.6) |
|
Total Operating Revenues |
| 17,512 |
|
| 17,282 | 1.3 |
|
|
| 35,079 |
|
| 34,637 | 1.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations and support |
| 9,654 |
|
| 9,663 | (0.1) |
|
|
| 19,835 |
|
| 19,765 | 0.4 |
|
Depreciation and amortization |
| 2,025 |
|
| 2,113 | (4.2) |
|
|
| 4,060 |
|
| 4,208 | (3.5) |
|
Total Operating Expenses |
| 11,679 |
|
| 11,776 | (0.8) |
|
|
| 23,895 |
|
| 23,973 | (0.3) |
|
Operating Income |
| 5,833 |
|
| 5,506 | 5.9 |
|
|
| 11,184 |
|
| 10,664 | 4.9 |
|
Equity in Net Income of Affiliates |
| - |
|
| - | - |
|
|
| - |
|
| - | - |
|
Operating Contribution | $ | 5,833 |
| $ | 5,506 | 5.9 | % |
| $ | 11,184 |
| $ | 10,664 | 4.9 | % |
The following tables highlight other key measures of performance for Mobility:
42
AT&T INC.
JUNE 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
|
|
|
|
|
|
|
| June 30, | Percent | ||||
(in 000s) |
|
|
|
|
|
| 2019 |
| 2018 | Change | |||
Wireless Subscribers |
|
|
|
|
|
|
|
|
|
|
|
| |
Postpaid smartphones |
|
|
|
|
|
|
| 60,737 |
| 60,183 | 0.9 | % | |
Postpaid feature phones and data-centric devices |
|
|
|
|
|
|
| 15,545 |
| 17,189 | (9.6) |
| |
Postpaid |
|
|
|
|
|
|
| 76,282 |
| 77,372 | (1.4) |
| |
Prepaid |
|
|
|
|
|
|
| 17,602 |
| 16,217 | 8.5 |
| |
Reseller |
|
|
|
|
|
|
| 7,392 |
| 8,582 | (13.9) |
| |
Connected devices1 |
|
|
|
|
|
|
| 58,389 |
| 44,718 | 30.6 |
| |
Total Wireless Subscribers |
|
|
|
|
|
|
| 159,665 |
| 146,889 | 8.7 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postpaid Phone Subscribers |
|
|
|
|
|
|
| 63,415 |
| 63,543 | (0.2) |
| |
Total Phone Subscribers |
|
|
|
|
|
|
| 80,003 |
| 78,919 | 1.4 | % | |
1 | Includes data-centric devices such as wholesale automobile systems, monitoring devices, fleet management, and session-based tablets. | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Second Quarter |
|
|
|
| Six-Month Period |
| ||||||
|
|
|
|
| Percent |
|
|
|
|
| Percent | ||
(in 000s) | 2019 |
| 2018 | Change |
|
| 2019 |
| 2018 | Change | |||
Wireless Net Additions2 |
|
|
|
|
|
|
|
|
|
|
|
| |
Postpaid | (154) |
| 73 | - | % |
|
| (358) |
| 122 | - | % | |
Prepaid | 341 |
| 453 | (24.7) |
|
|
| 437 |
| 694 | (37.0) |
| |
Reseller | (214) |
| (444) | 51.8 |
|
|
| (467) |
| (832) | 43.9 |
| |
Connected devices1 | 3,959 |
| 2,982 | 32.8 |
|
|
| 7,047 |
| 5,710 | 23.4 |
| |
Wireless Net Subscriber Additions | 3,932 |
| 3,064 | 28.3 |
|
|
| 6,659 |
| 5,694 | 16.9 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postpaid Phone Net Additions | 72 |
| 51 | 41.2 |
|
|
| 152 |
| (9) | - |
| |
Total Phone Net Additions | 355 |
| 407 | (12.8) | % |
|
| 520 |
| 539 | (3.5) | % | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postpaid Churn3 | 1.08 |
| 1.02 | 6 | BP |
|
| 1.12 |
| 1.04 | 8 | BP | |
Postpaid Phone-Only Churn3 | 0.86 |
| 0.82 | 4 | BP |
|
| 0.89 |
| 0.83 | 6 | 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. |
Service revenue increased in the second quarter and for the first six months of 2019 largely due to growth in Cricket and AT&T PREPAIDSM subscribers and higher postpaid average revenue per subscriber (ARPU).
ARPU
ARPU increased in the second quarter and for the first six months primarily due to postpaid price actions that were not in effect in the comparative prior year.
Churn
43
AT&T INC.
JUNE 30, 2019MARCH 31, 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
Operating contribution increased in the first quarter of 2020, reflecting improvement in our Mobility business unit, partially offset by declines in our Entertainment Group and Business Wireline business units. Our Communications segment operating income margin in the first quarter increased from 22.8% in 2019 to 24.0% in 2020.
Communications Business Unit Discussion | |||||||
Mobility Results |
|
|
|
|
|
|
|
| First Quarter | ||||||
|
|
|
|
|
| Percent | |
| 2020 |
| 2019 | Change | |||
Operating revenues |
|
|
|
|
|
|
|
Service | $ | 13,968 |
| $ | 13,629 | 2.5 | % |
Equipment |
| 3,434 |
|
| 3,734 | (8.0) |
|
Total Operating Revenues |
| 17,402 |
|
| 17,363 | 0.2 |
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
Operations and support |
| 9,569 |
|
| 10,041 | (4.7) |
|
Depreciation and amortization |
| 2,045 |
|
| 2,013 | 1.6 |
|
Total Operating Expenses |
| 11,614 |
|
| 12,054 | (3.7) |
|
Operating Income |
| 5,788 |
|
| 5,309 | 9.0 |
|
Equity in Net Income (Loss) of Affiliates |
| - |
|
| - | - |
|
Operating Contribution | $ | 5,788 |
| $ | 5,309 | 9.0 | % |
The following tables highlight other key measures of performance for Mobility:
Subscribers |
|
|
|
|
|
|
| |
| March 31, |
| Percent | |||||
(in 000s) | 2020 |
|
| 2019 |
| Change | ||
Postpaid | 75,148 |
|
| 75,737 |
| (0.8) |
| |
Prepaid | 17,808 |
|
| 17,012 |
| 4.7 |
| |
Reseller | 6,736 |
|
| 7,495 |
| (10.1) |
| |
Connected devices1 | 69,506 |
|
| 54,426 |
| 27.7 |
| |
Total Mobility Subscribers2 | 169,198 |
|
| 154,670 |
| 9.4 | % | |
1 | Includes data-centric devices such as session-based tablets, monitoring devices and primarily wholesale automobile systems. Excludes | |||||||
| postpaid tablets. | |||||||
2 | Excludes 55 customers who we have agreed not to terminate service under the FCC’s “Keep Americans Connected Pledge,” which was | |||||||
| implemented March 13, 2020. |
34
AT&T INC.
MARCH 31, 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 |
|
|
|
|
|
| |
|
| First Quarter | |||||
|
|
|
|
|
| Percent | |
(in 000s) | 2020 |
| 2019 |
| Change | ||
Postpaid Phone Net Additions | 163 |
| 79 |
| - | % | |
Total Phone Net Additions | 120 |
| 168 |
| (28.6) |
| |
|
|
|
|
|
|
|
|
Postpaid2, 5 | 27 |
| (207) |
| - |
| |
Prepaid | (45) |
| 101 |
| - |
| |
Reseller | (190) |
| (242) |
| 21.5 |
| |
Connected devices3 | 3,518 |
| 3,088 |
| 13.9 |
| |
Mobility Net Subscriber Additions1, 5 | 3,310 |
| 2,740 |
| 20.8 | % | |
|
|
|
|
|
|
| |
Postpaid Churn4, 5 | 1.08 | % | 1.16 | % | (8) | BP | |
Postpaid Phone-Only Churn4, 5 | 0.86 | % | 0.92 | % | (6) | 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 (267) and (410) for the three | ||||||
| months ended March 31, 2020 and 2019, respectively. Wearables and other net adds were 24 and (17) for the three months ended | ||||||
| March 31, 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 | Excludes 55 customers who we have agreed not to terminate service under the FCC’s “Keep Americans Connected Pledge.” |
Service revenue increased in the first quarter of 2020 largely due to higher average revenue per subscriber (ARPU) and growth in Cricket subscribers.
ARPU
ARPU increased in the first quarter primarily due to a continued shift by subscribers to our unlimited plans.
Churn
The effective management of subscriber churn is critical to our ability to maximize revenue growth and to maintain and improve margins. Postpaid churn and postpaid phone-only churn were higher lower in the first quarter due to tabletpricing changes, competitive offers and involuntary churn. Also contributing to higher churn for the first six months was continued competitive pricing in the industry.industry-wide store closures from COVID-19.
Equipment revenue decreased in the secondfirst quarter and for the first six months of 20192020 driven by lower postpaid smartphone sales resulting reflecting store closures from the continuing trend of customers choosing to upgrade devices less frequently or bring their ownCOVID-19.
Operations and support expenses decreased in the secondfirst quarter and increased for the first six months of 2019. The decrease in the quarter was2020 primarily due to lower postpaid smartphonecost of equipment sales from lower volumes and increased operationaladvertising expense and continued improvements in cost efficiencies, partially offset by higher bad debt expense and commission deferral amortization. In the second quarter of 2019, we extended the estimated economic life of our customers, which resulted in a decline of commission deferral amortization on a sequential basis.
The increase for the first six months was primarily due to increased bad debt expense and higher commission deferral amortization in the six-month period, partially offset by lower postpaid smartphone volumes and increased operational efficiencies.expense.
Depreciation expense decreasedincreased in the secondfirst quarter and for the first six months of 20192020 primarily due to fully depreciated assets, partially offset by ongoing capital spending for network upgrades and expansion.expansion partially offset by fully depreciated assets.
Operating income increased in the secondfirst quarter and for the first six months of 2019.2020. Our Mobility operating income margin in the secondfirst quarter increased from 31.9%30.6% in 20182019 to 33.3% in 2019, and for the first six months increased from 30.8% in 2018 to 31.9% in 2019.2020. Our Mobility EBITDA margin in the secondfirst quarter increased from 44.1% in 2018 to 44.9%42.2% in 2019 to
35
AT&T INC.
MARCH 31, 2020
Item 2. Management’s Discussion and for the first six months increased from 42.9%Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in 2018 to 43.5%millions, except per share and per subscriber amounts
45.0% in 2019.2020. 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, we believe 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, 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 system,systems, monitoring devices, fleet management and session-based tablets. ConnectedThe number of connected device subscriberssubscriber relationships increased in 2019, and during the secondfirst quarter and forof 2020, driven by the first six monthsaddition of 2019, we added approximately 2.1 million and 4.02.5 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 |
|
|
|
|
|
|
|
| First Quarter |
| |||||
|
|
|
|
|
| Percent | |
| 2020 |
| 2019 | Change | |||
Operating revenues |
|
|
|
|
|
|
|
Video entertainment | $ | 7,395 |
| $ | 8,074 | (8.4) | % |
High-speed internet |
| 2,109 |
|
| 2,070 | 1.9 |
|
Legacy voice and data services |
| 581 |
|
| 683 | (14.9) |
|
Other service and equipment |
| 430 |
|
| 501 | (14.2) |
|
Total Operating Revenues |
| 10,515 |
|
| 11,328 | (7.2) |
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
Operations and support |
| 7,891 |
|
| 8,527 | (7.5) |
|
Depreciation and amortization |
| 1,289 |
|
| 1,323 | (2.6) |
|
Total Operating Expenses |
| 9,180 |
|
| 9,850 | (6.8) |
|
Operating Income |
| 1,335 |
|
| 1,478 | (9.7) |
|
Equity in Net Income (Loss) of Affiliates |
| - |
|
| - | - |
|
Operating Contribution | $ | 1,335 |
| $ | 1,478 | (9.7) | % |
4436
AT&T INC.
JUNE 30, 2019MARCH 31, 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
Entertainment Group Results |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Second Quarter |
|
| Six-Month Period |
| ||||||||||
|
|
|
|
|
| Percent |
|
|
|
|
|
| Percent | ||
| 2019 |
| 2018 | Change |
| 2019 |
| 2018 | Change | ||||||
Operating revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Video entertainment | $ | 8,035 |
| $ | 8,173 | (1.7) | % |
| $ | 16,109 |
| $ | 16,398 | (1.8) | % |
High-speed internet |
| 2,109 |
|
| 1,981 | 6.5 |
|
|
| 4,179 |
|
| 3,859 | 8.3 |
|
Legacy voice and data services |
| 658 |
|
| 772 | (14.8) |
|
|
| 1,341 |
|
| 1,578 | (15.0) |
|
Other service and equipment |
| 566 |
|
| 552 | 2.5 |
|
|
| 1,067 |
|
| 1,074 | (0.7) |
|
Total Operating Revenues |
| 11,368 |
|
| 11,478 | (1.0) |
|
|
| 22,696 |
|
| 22,909 | (0.9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations and support |
| 8,515 |
|
| 8,657 | (1.6) |
|
|
| 17,042 |
|
| 17,468 | (2.4) |
|
Depreciation and amortization |
| 1,339 |
|
| 1,345 | (0.4) |
|
|
| 2,662 |
|
| 2,655 | 0.3 |
|
Total Operating Expenses |
| 9,854 |
|
| 10,002 | (1.5) |
|
|
| 19,704 |
|
| 20,123 | (2.1) |
|
Operating Income |
| 1,514 |
|
| 1,476 | 2.6 |
|
|
| 2,992 |
|
| 2,786 | 7.4 |
|
Equity in Net Income (Loss) of Affiliates |
| - |
|
| (1) | - |
|
|
| - |
|
| (2) | - |
|
Operating Contribution | $ | 1,514 |
| $ | 1,475 | 2.6 | % |
| $ | 2,992 |
| $ | 2,784 | 7.5 | % |
The following tables highlight other key measures of performance for the Entertainment Group:Group business unit:
45
AT&T INC.
JUNE 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
|
|
|
|
|
|
|
| June 30, | Percent | ||||
|
|
|
|
|
|
| 2019 |
| 2018 | Change | |||
Video Connections |
|
|
|
|
|
|
|
|
|
|
|
| |
Premium TV |
|
|
|
|
|
|
| 21,581 |
| 23,640 | (8.7) | % | |
DIRECTV NOW1 |
|
|
|
|
|
|
| 1,340 |
| 1,809 | (25.9) |
| |
Total Video Connections |
|
|
|
|
|
|
| 22,921 |
| 25,449 | (9.9) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Broadband Connections |
|
|
|
|
|
|
|
|
|
|
|
| |
IP |
|
|
|
|
|
|
| 13,822 |
| 13,692 | 0.9 |
| |
DSL |
|
|
|
|
|
|
| 598 |
| 763 | (21.6) |
| |
Total Broadband Connections |
|
|
|
|
|
|
| 14,420 |
| 14,455 | (0.2) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail Consumer Switched Access Lines |
|
|
|
|
|
|
| 3,630 |
| 4,333 | (16.2) |
| |
U-verse Consumer VoIP Connections |
|
|
|
|
|
|
| 4,211 |
| 4,950 | (14.9) |
| |
Total Retail Consumer Voice Connections |
|
|
|
|
|
|
| 7,841 |
| 9,283 | (15.5) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiber Broadband Connections (included in IP) |
|
|
|
|
|
|
| 3,378 |
| 2,204 | 53.3 | % | |
1 | Consistent with industry practice, DIRECTV NOW includes connections that are on a free-trial. | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Second Quarter |
|
|
|
| Six-Month Period |
|
| ||||
|
|
|
|
| Percent |
|
|
|
|
| Percent | ||
(in 000s) | 2019 |
| 2018 | Change |
|
| 2019 |
| 2018 | Change | |||
Video Net Additions |
|
|
|
|
|
|
|
|
|
|
|
| |
Premium TV2 | (778) |
| (262) | - | % |
|
| (1,322) |
| (449) | - | % | |
DIRECTV NOW1 | (168) |
| 342 | - |
|
|
| (251) |
| 654 | - |
| |
Net Video Additions | (946) |
| 80 | - |
|
|
| (1,573) |
| 205 | - |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Broadband Net Additions |
|
|
|
|
|
|
|
|
|
|
|
| |
IP | - |
| 76 | - |
|
|
| 93 |
| 230 | (59.6) |
| |
DSL | (34) |
| (53) | 35.8 |
|
|
| (82) |
| (125) | 34.4 |
| |
Net Broadband Additions | (34) |
| 23 | - |
|
|
| 11 |
| 105 | (89.5) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Fiber Broadband Net Additions (included in IP) | 318 |
| 249 | 27.7 | % |
|
| 615 |
| 475 | 29.5 | % | |
1 | Consistent with industry practice, DIRECTV NOW includes connections that are on a free-trial. | ||||||||||||
2 | Includes disconnections for customers that migrated to DIRECTV NOW. | ||||||||||||
|
|
Connections |
|
|
|
|
|
| |
|
| March 31, | Percent | ||||
(in 000s) | 2020 |
|
| 2019 | Change | ||
Video Connections | |||||||
Premium TV1 | 18,576 |
|
| 22,359 | (16.9) | % | |
AT&T TV Now | 788 |
|
| 1,508 | (47.7) |
| |
Total Video Connections1 | 19,364 |
|
| 23,867 | (18.9) |
| |
|
|
|
|
|
|
|
|
Total Broadband Connections1 | 14,046 |
|
| 14,454 | (2.8) |
| |
Fiber Broadband Connections | 4,096 |
|
| 3,060 | 33.9 | % | |
|
|
|
|
|
|
|
|
Retail Consumer Switched Access Lines | 3,196 |
|
| 3,787 | (15.6) |
| |
U-verse Consumer VoIP Connections | 3,630 |
|
| 4,393 | (17.4) |
| |
Total Retail Consumer Voice Connections | 6,826 |
|
| 8,180 | (16.6) |
| |
|
|
|
|
|
|
| |
Net Additions |
|
|
|
|
|
| |
|
| First Quarter |
| ||||
|
|
|
|
|
| Percent | |
(in 000s) | 2020 |
|
| 2019 | Change | ||
Video Net Additions |
|
|
|
|
|
| |
Premium TV1 | (897) |
|
| (544) | (64.9) | % | |
AT&T TV Now | (138) |
|
| (83) | (66.3) |
| |
Net Video Additions1 | (1,035) |
|
| (627) | (65.1) |
| |
|
|
|
|
|
|
|
|
Net Broadband Additions1 | (73) |
|
| 45 | - |
| |
Fiber Broadband Net Additions | 209 |
|
| 297 | (29.6) | % | |
1 | Excludes 66 premium TV and 35 broadband connections 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 secondfirst quarter and for the first six months of 2019,2020, largely driven by an 8.7%a decline in premium TV subscribers. Our customerssubscribers, as we continue to shift, consistentfocus on high-value customers, partially offset by subscription-based advertising growth. Consistent with the rest of the industry, our customers continue to shift from a premium linear service to our more economically priced OTT video service or to competitors,services, which has pressured our video revenues. OTT net additions declined
High-speed internet revenues increased in the secondfirst quarter of 2020, reflecting higher ARPU resulting from pricing actions and foran increase in high-speed fiber connections. 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 first six monthsquarter of 2020, reflecting the continued migration of customers to our more advanced IP-based offerings or to competitors.
Operations and support expenses decreased in the first quarter of 2020, primarily due to price changeslower content costs from fewer subscribers and fewer promotions. Churn rose for subscribers with premium TV-only service,ongoing cost initiatives, partially reflecting price increases.offset by higher amortization of fulfillment cost deferrals and higher annual content rate increases.
4637
AT&T INC.
JUNE 30, 2019MARCH 31, 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
High-speed internet revenues increased in the second quarter and for the first six months of 2019 reflecting the 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 second quarter and for the first six 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 second quarter and for the first six months of 2019. Contributing to the decreases were lower content costs largely due to lower subscribers, lower volumes and our ongoing focus on cost initiatives. Partially offsetting the decreases was higher amortization of fulfillment cost deferrals, including the impact of updates to the estimated economic life for our Entertainment Group customers.
Depreciation expense decreased in the secondfirst quarter and increased for the first six months of 2019. The decrease in the quarter was primarily2020, due to network assets becoming fully depreciated assets, largely offset by ongoing capital spending for network upgrades and expansion. The increase fordepreciated. Partially offsetting the first six monthsdecreases was primarily due to our ongoing capital spending for network upgrades and expansion.
Operating income increaseddecreased in the secondfirst quarter and for the first six months of 2019.2020. Our Entertainment Group operating income margin in the secondfirst quarter increaseddecreased from 12.9% in 2018 to 13.3%13.0% in 2019 and for the first six months increased from 12.2%to 12.7% in 2018 to 13.2% in 2019.2020. Our Entertainment Group EBITDA margin in the secondfirst quarter increased from 24.6% in 2018 to 25.1%24.7% in 2019 and for the first six months increased from 23.8%to 25.0% in 2018 to 24.9% in 2019.2020.
Business Wireline Results |
|
|
|
|
| �� |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| Second Quarter |
|
| Six-Month Period |
| First Quarter |
| |||||||||||||||
|
|
|
|
|
| Percent |
|
|
|
|
|
| Percent |
|
|
|
|
| Percent | |||
| 2019 |
| 2018 | Change |
| 2019 |
| 2018 | Change | 2020 |
| 2019 | Change | |||||||||
Operating revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Strategic and managed services | $ | 3,848 |
| $ | 3,603 | 6.8 | % |
| $ | 7,640 |
| $ | 7,198 | 6.1 | % | $ | 3,879 |
| $ | 3,779 | 2.6 | % |
Legacy voice and data services |
| 2,331 |
|
| 2,730 | (14.6) |
|
|
| 4,735 |
|
| 5,595 | (15.4) |
|
| 2,129 |
|
| 2,397 | (11.2) |
|
Other service and equipment |
| 449 |
|
| 317 | 41.6 |
|
|
| 751 |
|
| 604 | 24.3 |
|
| 324 |
|
| 302 | 7.3 |
|
Total Operating Revenues |
| 6,628 |
|
| 6,650 | (0.3) |
|
|
| 13,126 |
|
| 13,397 | (2.0) |
|
| 6,332 |
|
| 6,478 | (2.3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Operations and support |
| 3,982 |
|
| 4,038 | (1.4) |
|
|
| 8,022 |
|
| 8,054 | (0.4) |
|
| 3,951 |
|
| 4,032 | (2.0) |
|
Depreciation and amortization |
| 1,256 |
|
| 1,180 | 6.4 |
|
|
| 2,491 |
|
| 2,350 | 6.0 |
|
| 1,301 |
|
| 1,222 | 6.5 |
|
Total Operating Expenses |
| 5,238 |
|
| 5,218 | 0.4 |
|
|
| 10,513 |
|
| 10,404 | 1.0 |
|
| 5,252 |
|
| 5,254 | - |
|
Operating Income |
| 1,390 |
|
| 1,432 | (2.9) |
|
|
| 2,613 |
|
| 2,993 | (12.7) |
|
| 1,080 |
|
| 1,224 | (11.8) |
|
Equity in Net Income of Affiliates |
| - |
|
| 1 | - |
|
|
| - |
|
| - | - |
| |||||||
Equity in Net Income (Loss) of Affiliates |
| - |
|
| - | - |
| |||||||||||||||
Operating Contribution | $ | 1,390 |
| $ | 1,433 | (3.0) | % |
| $ | 2,613 |
| $ | 2,993 | (12.7) | % | $ | 1,080 |
| $ | 1,224 | (11.8) | % |
Strategic and managed services revenues increased in the secondfirst quarter and for the first six 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 outsourcing services. Revenue increases were primarily attributable to growth in our securitydedicated internet, business internet and cloud solutions and managedsecurity services.
Legacy voice and data service revenues decreased in the secondfirst quarter and for the first six months of 2019,2020, primarily due to lower demand as customers continue to shift to our more advanced IP-based offerings and mobile services or our competitors.
Other service and equipmentrevenues increased in the first quarter of 2020, driven by revenues from customer premises equipment. Revenues from the licensing of intellectual property assets vary from period-to-period and can impact revenue trends. Other service revenues include project-based revenue, which is nonrecurring in nature, as well as revenues from customer premises equipment.
Operations and support expenses decreased in the first quarter of 2020, primarily due to our continued efforts to drive efficiencies in our network operations through automation and reductions in customer support expenses through digitization.
Depreciation expense increased in the first quarter, primarily due to increases in capital spending for network upgrades and expansion.
Operating income decreased in the first quarter of 2020. Our Business Wireline operating income margin in the first quarter decreased from 18.9% in 2019 to 17.1% in 2020. Our Business Wireline EBITDA margin in the first quarter decreased from 37.8% in 2019 to 37.6% in 2020.
4738
AT&T INC.
JUNE 30,MARCH 31, 2020
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
WARNERMEDIA SEGMENT | First Quarter | ||||||
|
|
|
|
|
| Percent | |
| 2020 |
| 2019 | Change | |||
Segment Operating Revenues |
|
|
|
|
|
|
|
Turner | $ | 3,162 |
| $ | 3,443 | (8.2) | % |
Home Box Office |
| 1,497 |
|
| 1,510 | (0.9) |
|
Warner Bros. |
| 3,240 |
|
| 3,518 | (7.9) |
|
Eliminations & Other |
| (540) |
|
| (92) | - |
|
Total Segment Operating Revenues |
| 7,359 |
|
| 8,379 | (12.2) |
|
|
|
|
|
|
|
|
|
Cost of revenues |
|
|
|
|
|
|
|
Turner |
| 1,320 |
|
| 1,680 | (21.4) |
|
Home Box Office |
| 816 |
|
| 670 | 21.8 |
|
Warner Bros. |
| 2,346 |
|
| 2,430 | (3.5) |
|
Selling, general and administrative |
| 1,354 |
|
| 1,284 | 5.5 |
|
Eliminations & Other |
| (319) |
|
| (71) | - |
|
Depreciation and amortization |
| 143 |
|
| 143 | - |
|
Total Operating Expenses |
| 5,660 |
|
| 6,136 | (7.8) |
|
Operating Income |
| 1,699 |
|
| 2,243 | (24.3) |
|
Equity in Net Income (Loss) of Affiliates |
| 15 |
|
| 67 | (77.6) |
|
Total Segment Operating Contribution | $ | 1,714 |
| $ | 2,310 | (25.8) | % |
Our WarnerMedia segment consists of 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 first quarter of 2020, primarily due to lower advertising revenues from the cancellation of televised sporting events at Turner; lower theatrical product revenues, reflecting unfavorable programming comparisons, including strong carryover revenues in the first quarter of 2019 at Warner Bros.; and lower content licensing revenue at HBO.
Operating contribution decreased in the first quarter of 2020. Our WarnerMedia segment operating income margin in the first quarter decreased from 26.8% in 2019 to 23.1% in 2020.
39
AT&T INC.
MARCH 31, 2020
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
WarnerMedia Business Unit Discussion | |||||||
Turner Results |
|
|
|
|
|
|
|
| First Quarter | ||||||
|
|
|
|
|
| Percent | |
| 2020 |
| 2019 | Change | |||
Operating revenues |
|
|
|
|
|
|
|
Subscription | $ | 2,049 |
| $ | 1,965 | 4.3 | % |
Advertising |
| 957 |
|
| 1,261 | (24.1) |
|
Content and other |
| 156 |
|
| 217 | (28.1) |
|
Total Operating Revenues |
| 3,162 |
|
| 3,443 | (8.2) |
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
Cost of revenues |
| 1,320 |
|
| 1,680 | (21.4) |
|
Selling, general and administrative |
| 390 |
|
| 456 | (14.5) |
|
Depreciation and amortization |
| 69 |
|
| 60 | 15.0 |
|
Total Operating Expenses |
| 1,779 |
|
| 2,196 | (19.0) |
|
Operating Income |
| 1,383 |
|
| 1,247 | 10.9 |
|
Equity in Net Income (Loss) of Affiliates |
| 6 |
|
| 25 | (76.0) |
|
Operating Contribution | $ | 1,389 |
| $ | 1,272 | 9.2 | % |
Operating revenues decreased in the first quarter of 2020, primarily due to decreases in advertising revenue largely due to the cancellation of the NCAA Division I Men’s Basketball Tournament. Partially offsetting the decrease were higher subscription revenues that benefitted from higher domestic affiliate rates, partly offset by unfavorable exchange rates.
Cost of revenues decreased in the first quarter of 2020, primarily due to lower programming costs, including NCAA sports licensing costs resulting from cancellation of the NCAA tournament.
Selling, general and administrative decreased in the first quarter of 2020, primarily due to lower marketing costs.
Operating income increased in the first quarter of 2020. Our Turner operating income margin in the first quarter increased from 36.2% in 2019 to 43.7% in 2020.
40
AT&T INC.
MARCH 31, 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 |
|
|
|
|
|
|
|
| First Quarter | ||||||
|
|
|
|
|
| Percent | |
| 2020 |
| 2019 | Change | |||
Operating revenues |
|
|
|
|
|
|
|
Subscription | $ | 1,338 |
| $ | 1,334 | 0.3 | % |
Content and other |
| 159 |
|
| 176 | (9.7) |
|
Total Operating Revenues |
| 1,497 |
|
| 1,510 | (0.9) |
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
Cost of revenues |
| 816 |
|
| 670 | 21.8 |
|
Selling, general and administrative |
| 237 |
|
| 251 | (5.6) |
|
Depreciation and amortization |
| 21 |
|
| 22 | (4.5) |
|
Total Operating Expenses |
| 1,074 |
|
| 943 | 13.9 |
|
Operating Income |
| 423 |
|
| 567 | (25.4) |
|
Equity in Net Income (Loss) of Affiliates |
| 20 |
|
| 15 | 33.3 |
|
Operating Contribution | $ | 443 |
| $ | 582 | (23.9) | % |
Operating revenues decreased in the first quarter of 2020, primarily due to lower content licensing. Subscription revenue was flat, including digital and international growth that was partially offset by lower domestic linear subscribers.
Cost of revenues increased in the first quarter of 2020, primarily due to higher programming costs and expenses related to the launch of HBO Max, scheduled for second quarter.
Selling, general and administrative decreased in the first quarter of 2020, primarily due to lower marketing expenses.
Operating income decreased in the first quarter of 2020. Our HBO operating income margin in the first quarter decreased from 37.5% in 2019 to 28.3% in 2020.
Warner Bros. Results |
|
|
|
|
|
|
|
| First Quarter | ||||||
|
|
|
|
|
| Percent |
|
| 2020 |
| 2019 | Change |
| ||
Operating revenues |
|
|
|
|
|
|
|
Theatrical product | $ | 1,106 |
| $ | 1,506 | (26.6) | % |
Television product |
| 1,769 |
|
| 1,613 | 9.7 |
|
Games and other |
| 365 |
|
| 399 | (8.5) |
|
Total Operating Revenues |
| 3,240 |
|
| 3,518 | (7.9) |
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
Cost of revenues |
| 2,346 |
|
| 2,430 | (3.5) |
|
Selling, general and administrative |
| 604 |
|
| 489 | 23.5 |
|
Depreciation and amortization |
| 41 |
|
| 52 | (21.2) |
|
Total Operating Expenses |
| 2,991 |
|
| 2,971 | 0.7 |
|
Operating Income |
| 249 |
|
| 547 | (54.5) |
|
Equity in Net Income (Loss) of Affiliates |
| (8) |
|
| 6 | - |
|
Operating Contribution | $ | 241 |
| $ | 553 | (56.4) | % |
41
AT&T INC.
MARCH 31, 2020
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
Other service and equipmentOperating revenues revenues increaseddecreased in the secondfirst quarter and forof 2020, primarily due to lower theatrical product driven by unfavorable comparisons to the first six monthsprior comparable period, which included, in 2019, carryover revenues from the theatrical release of 2019,Aquaman in addition to a more favorable mix of home entertainment releases. Partially offsetting the theatrical declines were higher television product revenues, driven by licensing, of intellectual property assets. Other servicepartly offset by lower initial telecast revenues include project-based revenue, which is nonrecurring in nature, as well as revenues from customer premises equipment.driven by television production delays.
Operations and support Cost of revenuesexpenses decreased in the secondfirst quarter and for the first six months of 2019,2020, primarily due to our continued efforts to shift to a software-based network and automate and digitize our customer support activities,lower marketing of theatrical product, partially offset by higher fulfillment deferral amortization.incremental costs incurred due to the production hiatus.
Depreciation Selling, general and administrativeexpense increased in the secondfirst quarter and for the first six months of 2019,2020, primarily due to increases in capital spending for network upgradeshigher bad debt expense and expansion.other charges.
Operating income decreased in the secondfirst quarter and for the first six months of 2019. Our Business Wireline operating income margin in the second quarter decreased from 21.5% in 2018 to 21.0% in 2019, and for the first six months decreased from 22.3% in 2018 to 19.9% in 2019. Our Business Wireline EBITDA margin in the second quarter increased from 39.3% in 2018 to 39.9% in 2019, and for the first six months decreased from 39.9% in 2018 to 38.9% in 2019.
WARNERMEDIA SEGMENT | Second Quarter |
| Six-Month Period |
| |||||||||||
|
|
|
|
|
| Percent |
|
|
|
|
|
| Percent | ||
| 2019 |
| 2018 | Change |
| 2019 |
| 2018 | Change | ||||||
Segment Operating Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Turner | $ | 3,410 |
| $ | 667 | - | % |
| $ | 6,853 |
| $ | 779 | - | % |
Home Box Office |
| 1,716 |
|
| 281 | - |
|
|
| 3,226 |
|
| 281 | - |
|
Warner Bros. |
| 3,389 |
|
| 507 | - |
|
|
| 6,907 |
|
| 507 | - |
|
Eliminations & Other |
| (165) |
|
| (62) | - |
|
|
| (257) |
|
| (62) | - |
|
Total Segment Operating Revenues |
| 8,350 |
|
| 1,393 | - |
|
|
| 16,729 |
|
| 1,505 | - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Operating Contribution |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Turner |
| 1,165 |
|
| 289 | - |
|
|
| 2,437 |
|
| 353 | - |
|
Home Box Office |
| 588 |
|
| 104 | - |
|
|
| 1,170 |
|
| 104 | - |
|
Warner Bros. |
| 440 |
|
| 89 | - |
|
|
| 993 |
|
| 89 | - |
|
Eliminations & Other |
| (168) |
|
| (57) | - |
|
|
| (265) |
|
| (82) | - |
|
Total Segment Operating Contribution | $ | 2,025 |
| $ | 425 | - | % |
| $ | 4,335 |
| $ | 464 | - | % |
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.
Segment and business unit results in the second quarter and for the first six months are not comparable to prior periods and therefore not discussed. Comparative results will be discussed beginning with our third-quarter 2019 results.
48
AT&T INC.
JUNE 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
WarnerMedia Business Unit Discussion | |||||||||||||||
Turner Results |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Second Quarter |
| Six-Month Period | ||||||||||||
|
|
|
|
|
| Percent |
|
|
|
|
|
| Percent | ||
| 2019 |
| 2018 | Change |
| 2019 |
| 2018 | Change | ||||||
Operating revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription | $ | 1,943 |
| $ | 410 | - | % |
| $ | 3,908 |
| $ | 508 | - | % |
Advertising |
| 1,266 |
|
| 223 | - |
|
|
| 2,527 |
|
| 237 | - |
|
Content and other |
| 201 |
|
| 34 | - |
|
|
| 418 |
|
| 34 | - |
|
Total Operating Revenues |
| 3,410 |
|
| 667 | - |
|
|
| 6,853 |
|
| 779 | - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations and support |
| 2,217 |
|
| 372 | - |
|
|
| 4,353 |
|
| 446 | - |
|
Depreciation and amortization |
| 39 |
|
| 11 | - |
|
|
| 99 |
|
| 12 | - |
|
Total Operating Expenses |
| 2,256 |
|
| 383 | - |
|
|
| 4,452 |
|
| 458 | - |
|
Operating Income |
| 1,154 |
|
| 284 | - |
|
|
| 2,401 |
|
| 321 | - |
|
Equity in Net Income of Affiliates |
| 11 |
|
| 5 | - |
|
|
| 36 |
|
| 32 | 12.5 |
|
Operating Contribution | $ | 1,165 |
| $ | 289 | - | % |
| $ | 2,437 |
| $ | 353 | - | % |
Turner includes the WarnerMedia businesses managed by Turner as well as our financial results for RSNs.
Operating revenuesfor Turner are generated primarily from licensing programming to distribution affiliates and from selling advertising on its networks and digital properties. Our Turner operating income margin was 33.8% in the second quarter and 35.0% for the first six months of 2019. Our Turner EBITDA margin was 35.0% in the second quarter and 36.5% for the first six months of 2019.
Home Box Office Results |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Second Quarter |
| Six-Month Period | ||||||||||||
|
|
|
|
|
| Percent |
|
|
|
|
|
| Percent | ||
| 2019 |
| 2018 | Change |
| 2019 |
| 2018 | Change | ||||||
Operating revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription | $ | 1,516 |
| $ | 270 | - | % |
| $ | 2,850 |
| $ | 270 | - | % |
Content and other |
| 200 |
|
| 11 | - |
|
|
| 376 |
|
| 11 | - |
|
Total Operating Revenues |
| 1,716 |
|
| 281 | - |
|
|
| 3,226 |
|
| 281 | - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations and support |
| 1,131 |
|
| 171 | - |
|
|
| 2,052 |
|
| 171 | - |
|
Depreciation and amortization |
| 12 |
|
| 5 | - |
|
|
| 34 |
|
| 5 | - |
|
Total Operating Expenses |
| 1,143 |
|
| 176 | - |
|
|
| 2,086 |
|
| 176 | - |
|
Operating Income |
| 573 |
|
| 105 | - |
|
|
| 1,140 |
|
| 105 | - |
|
Equity in Net Income (Loss) of Affiliates |
| 15 |
|
| (1) | - |
|
|
| 30 |
|
| (1) | - |
|
Operating Contribution | $ | 588 |
| $ | 104 | - | % |
| $ | 1,170 |
| $ | 104 | - | % |
Operating revenues for Home Box Office are generated from the exploitation of original and licensed programming through distribution outlets. Our Home Box Office operating income margin was 33.4% in the second quarter and 35.3% for the first six months of 2019. Our Home Box Office EBITDA margin was 34.1% in the second quarter and 36.4% for the first six months of 2019.
49
AT&T INC.
JUNE 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
Warner Bros. Results |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Second Quarter |
| Six-Month Period | ||||||||||||
|
|
|
|
|
| Percent |
|
|
|
|
|
| Percent | ||
| 2019 |
| 2018 | Change |
| 2019 |
| 2018 | Change | ||||||
Operating revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Theatrical product | $ | 1,527 |
| $ | 223 | - | % |
| $ | 3,033 |
| $ | 223 | - | % |
Television product |
| 1,310 |
|
| 203 | - |
|
|
| 2,923 |
|
| 203 | - |
|
Games and other |
| 552 |
|
| 81 | - |
|
|
| 951 |
|
| 81 | - |
|
Total Operating Revenues |
| 3,389 |
|
| 507 | - |
|
|
| 6,907 |
|
| 507 | - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations and support |
| 2,918 |
|
| 403 | - |
|
|
| 5,837 |
|
| 403 | - |
|
Depreciation and amortization |
| 31 |
|
| 14 | - |
|
|
| 83 |
|
| 14 | - |
|
Total Operating Expenses |
| 2,949 |
|
| 417 | - |
|
|
| 5,920 |
|
| 417 | - |
|
Operating Income |
| 440 |
|
| 90 | - |
|
|
| 987 |
|
| 90 | - |
|
Equity in Net Income (Loss) of Affiliates |
| - |
|
| (1) | - |
|
|
| 6 |
|
| (1) | - |
|
Operating Contribution | $ | 440 |
| $ | 89 | - | % |
| $ | 993 |
| $ | 89 | - | % |
Operating revenues for Warner Bros. primarily relate to theatrical product (which is content made available for initial exhibition in theaters) and television product (which is content made available for initial airing on television or OTT services).2020. Our Warner Bros. operating income margin was 13.0% in the secondfirst quarter and 14.3% for the first six months of 2019. Our Warner Bros. EBITDA margin was 13.9%decreased from 15.5% in the second quarter and 15.5% for the first six months of 2019.2019 to 7.7% in 2020.
LATIN AMERICA SEGMENT | Second Quarter |
| Six-Month Period | First Quarter | ||||||||||||||||||
|
|
|
|
|
| Percent |
|
|
|
|
|
| Percent |
|
|
|
|
| Percent | |||
| 2019 |
| 2018 | Change |
| 2019 |
| 2018 | Change | 2020 |
| 2019 | Change | |||||||||
Segment Operating Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Vrio | $ | 1,032 |
| $ | 1,254 | (17.7) | % |
| $ | 2,099 |
| $ | 2,608 | (19.5) | % | $ | 887 |
| $ | 1,067 | (16.9) | % |
Mexico |
| 725 |
|
| 697 | 4.0 |
|
|
| 1,376 |
|
| 1,368 | 0.6 |
|
| 703 |
|
| 651 | 8.0 |
|
Total Segment Operating Revenues |
| 1,757 |
|
| 1,951 | (9.9) |
|
|
| 3,475 |
|
| 3,976 | (12.6) |
|
| 1,590 |
|
| 1,718 | (7.5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Segment Operating Contribution |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Vrio |
| (2) |
|
| 67 | - |
|
|
| 30 |
|
| 215 | (86.0) |
|
| (39) |
|
| 32 | - |
|
Mexico |
| (207) |
|
| (217) | 4.6 |
|
|
| (412) |
|
| (476) | 13.4 |
|
| (145) |
|
| (205) | 29.3 |
|
Total Segment Operating Contribution | $ | (209) |
| $ | (150) | (39.3) | % |
| $ | (382) |
| $ | (261) | (46.4) | % | $ | (184) |
| $ | (173) | (6.4) | % |
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 secondfirst quarter and for the six months of 20192020 driven by lower revenues for Vrio, primarily resulting from foreign exchange pressures related to Argentina’s hyperinflationary economy.pressure, that more than offset growth in Mexico.
Operating contribution decreased in the secondfirst quarter and for the first six months of 2019,2020, reflecting foreign exchange pressure. Our Latin America segment operating income margin in the secondfirst quarter decreased from (8.5)was (11.8)% in 2018 to (12.6)% in 2019,2020 and for the first six months decreased from (6.9)% in 2018 to (11.3)(10.1)% in 2019.
5042
AT&T INC.
JUNE 30, 2019MARCH 31, 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 Business Unit Discussion | Latin America Business Unit Discussion |
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| Latin America Business Unit Discussion |
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Mexico Results |
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Vrio Results | Vrio Results |
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| First Quarter | |||||||||||||||||||||
| Second Quarter |
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| Six-Month Period |
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| Percent | |||||||||||
| 2019 |
| 2018 | Percent Change |
| 2019 |
| 2018 | Percent Change | 2020 |
| 2019 | Change | |||||||||
Operating revenues |
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| $ | 887 |
| $ | 1,067 | (16.9) | % |
Service | $ | 479 |
| $ | 417 | 14.9 | % |
| $ | 921 |
| $ | 821 | 12.2 | % | |||||||
Equipment |
| 246 |
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| 280 | (12.1) |
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| 455 |
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| 547 | (16.8) |
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Total Operating Revenues |
| 725 |
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| 697 | 4.0 |
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| 1,376 |
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| 1,368 | 0.6 |
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Operating expenses |
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Operations and support |
| 813 |
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| 787 | 3.3 |
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| 1,538 |
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| 1,590 | (3.3) |
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| 783 |
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| 866 | (9.6) |
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Depreciation and amortization |
| 119 |
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| 127 | (6.3) |
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| 250 |
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| 254 | (1.6) |
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| 147 |
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| 169 | (13.0) |
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Total Operating Expenses |
| 932 |
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| 914 | 2.0 |
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| 1,788 |
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| 1,844 | (3.0) |
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| 930 |
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| 1,035 | (10.1) |
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Operating Income (Loss) |
| (207) |
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| (217) | 4.6 |
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| (412) |
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| (476) | 13.4 |
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Equity in Net Income of Affiliates |
| - |
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| - | - |
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| - |
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| - | - |
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Operating Income |
| (43) |
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| 32 | - |
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Equity in Net Income (Loss) of Affiliates |
| 4 |
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| - | - |
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Operating Contribution | $ | (207) |
| $ | (217) | 4.6 | % |
| $ | (412) |
| $ | (476) | 13.4 | % | $ | (39) |
| $ | 32 | - | % |
The following tables highlight other key measures of performance for Vrio:
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| March 31, | Percent | |||||
(in 000s) | 2020 |
| 2019 | Change | ||||
Vrio Video Subscribers |
| 13,217 |
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| 13,584 | (2.7) | % | |
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| First Quarter | ||||||
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(in 000s) | 2020 |
| 2019 | Change | ||||
Vrio Video Net Subscriber Additions |
| (114) |
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| (32) | - | % |
Operating revenues decreased in the first quarter of 2020, primarily due to foreign exchange pressures.
Operations and support expenses decreased in the first quarter of 2020, primarily due to changes in foreign currency exchange rates. Approximately 20% of Vrio expenses are U.S. dollar based, with the remainder in the local currency.
Depreciation expense decreased in the first quarter of 2020, primarily due to changes in foreign currency exchange rates in most of the region.
Operating income decreased in the first quarter of 2020. Our Vrio operating income margin in the first quarter decreased from 3.0% in 2019 to (4.8)% in 2020. Our Vrio EBITDA margin in the first quarter decreased from 18.8% in 2019 to 11.7% in 2020.
43
AT&T INC.
MARCH 31, 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
Mexico Results |
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| First Quarter |
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| 2019 | Change | |||
Operating revenues |
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Service | $ | 467 |
| $ | 442 | 5.7 | % |
Equipment |
| 236 |
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| 209 | 12.9 |
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Total Operating Revenues |
| 703 |
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| 651 | 8.0 |
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Operating expenses |
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Operations and support |
| 714 |
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| 725 | (1.5) |
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Depreciation and amortization |
| 134 |
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| 131 | 2.3 |
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Total Operating Expenses |
| 848 |
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| 856 | (0.9) |
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Operating Income (Loss) |
| (145) |
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| (205) | 29.3 |
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Equity in Net Income (Loss) of Affiliates |
| - |
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| - | - |
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Operating Contribution | $ | (145) |
| $ | (205) | 29.3 | % |
The following tables highlight other key measures of performance for Mexico:
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| June 30, | Percent |
| March 31, | Percent | ||||||||||
(in 000s) | (in 000s) |
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| 2019 |
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| 2018 | Change | (in 000s) | 2020 |
| 2019 | Change | |||||
Mexico Wireless Subscribers1 |
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Mexico Wireless Subscribers | Mexico Wireless Subscribers |
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Postpaid | Postpaid |
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| 5,489 |
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| 5,749 | (4.5) | % | Postpaid |
| 4,962 |
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| 5,642 | (12.1) | % |
Prepaid | Prepaid |
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| 12,180 |
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| 10,468 | 16.4 |
| Prepaid |
| 13,692 |
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| 11,779 | 16.2 |
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Reseller | Reseller |
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| 352 |
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| 181 | 94.5 |
| Reseller |
| 504 |
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| 301 | 67.4 |
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Total Mexico Wireless Subscribers | Total Mexico Wireless Subscribers |
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| 18,021 |
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| 16,398 | 9.9 | % | Total Mexico Wireless Subscribers |
| 19,158 |
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| 17,722 | 8.1 | % |
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| 2018 | Change |
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| 2018 | Change | ||||||||||
(in 000s) | (in 000s) | 2020 |
| 2019 | Change | |||||||||||||||||||
Mexico Wireless Net Additions | Mexico Wireless Net Additions |
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| Mexico Wireless Net Additions |
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Postpaid | Postpaid |
| (153) |
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| 142 | - | % |
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| (222) |
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| 251 | - | % | Postpaid |
| (141) |
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| (69) | - | % |
Prepaid | Prepaid |
| 401 |
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| 611 | (34.4) |
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| 515 |
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| 1,070 | (51.9) |
| Prepaid |
| 108 |
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| 114 | (5.3) |
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Reseller | Reseller |
| 51 |
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| 3 | - |
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| 99 |
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| (22) | - |
| Reseller |
| 32 |
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| 48 | (33.3) |
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Mexico Wireless Net Subscriber Additions | Mexico Wireless Net Subscriber Additions |
| 299 |
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| 756 | (60.4) | % |
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| 392 |
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| 1,299 | (69.8) | % | Mexico Wireless Net Subscriber Additions |
| (1) |
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| 93 | - | % |
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 increased in the secondfirst quarter and for the first six months of 2019,2020, primarily due to growth in our prepaid subscriber base.
Equipment revenues decreasedincreased in the secondfirst quarter and for the first six months of 2019,2020, primarily due to higher demand in the prior year for our initial offering of equipment installment programs.due to higher gross subscriber adds and sales.
Operations and support expenses decreased in the first quarter of 2020, primarily driven by lower maintenance expenses, employee costs and changes in foreign currency rates. These decreases were partially offset by higher equipment sales. Approximately 7% of Mexico expenses are U.S. dollar based, with the remainder in the local currency.
Depreciation and amortization expense increased in the first quarter of 2020, primarily due to the amortization of spectrum licenses and higher in-service assets. These increases were partially offset by changes in foreign exchange rates.
5144
AT&T INC.
JUNE 30, 2019MARCH 31, 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
Operations and support expenses increased in the second quarter and decreased for the first six months of 2019. The increases in the second quarter were primarily driven by higher bad debt expenses. The decreases for the first six months were primarily driven by lower equipment sales, partially offset by higher bad debt expenses. Approximately 7% of Mexico expenses are U.S. dollar based, with the remainder in the local currency.
Depreciation and amortization expense decreased in the second quarter and for the first six months of 2019 primarily due to changes in the useful lives of certain assets, partially offset by the amortization of spectrum licenses and higher in-service assets.
Operating income increased in the secondfirst quarter and first six months of 2019.2020. Our Mexico operating income margin in the secondfirst quarter increased from (31.1)% in 2018 to (28.6)(31.5)% in 2019 and for the first six months increased from (34.8)to (20.6)% in 2018 to (29.9)% in 2019.2020. Our Mexico EBITDA margin in the secondfirst quarter increased from (12.9)% in 2018 to (12.1)(11.4)% in 2019 and for the first six months increased from (16.2)to (1.6)% in 2018 to (11.8)% in 2019.2020.
Vrio Results |
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| Second Quarter |
| Six-Month Period | ||||||||||||
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| Percent |
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| Percent | ||
| 2019 |
| 2018 | Change |
| 2019 |
| 2018 | Change | ||||||
Operating revenues | $ | 1,032 |
| $ | 1,254 | (17.7) | % |
| $ | 2,099 |
| $ | 2,608 | (19.5) | % |
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Operating expenses |
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Operations and support |
| 881 |
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| 1,016 | (13.3) |
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| 1,747 |
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| 2,017 | (13.4) |
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Depreciation and amortization |
| 165 |
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| 186 | (11.3) |
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| 334 |
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| 391 | (14.6) |
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Total Operating Expenses |
| 1,046 |
|
| 1,202 | (13.0) |
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|
| 2,081 |
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| 2,408 | (13.6) |
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Operating Income |
| (14) |
|
| 52 | - |
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| 18 |
|
| 200 | (91.0) |
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Equity in Net Income of Affiliates |
| 12 |
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| 15 | (20.0) |
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| 12 |
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| 15 | (20.0) |
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Operating Contribution | $ | (2) |
| $ | 67 | - | % |
| $ | 30 |
| $ | 215 | (86.0) | % |
The following tables highlight other key measures of performance for Vrio:
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| June 30, | Percent | |||||
(in 000s) |
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| 2019 |
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| 2018 | Change | |||
Vrio Video Subscribers1,2 |
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| 13,473 |
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| 13,713 | (1.8) | % | |
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| Second Quarter |
| Six -Month Period | ||||||||||
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| Percent |
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| Percent | ||
(in 000s) |
| 2019 |
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| 2018 | Change |
| 2019 |
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| 2018 | Change | |||
Vrio Video Net Subscriber Additions3 |
| (111) |
|
| 140 | - | % |
| (143) |
|
| 125 | - | % | |
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 March 31, 2019 and 8.0 million subscribers at June 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 losses of 251 and 41 for the period end March 31, 2019 and June 30, 2018, respectively. |
Operating revenues decreased in the second quarter and for the first six months of 2019, primarily due to foreign exchange pressures.
52
AT&T INC.
JUNE 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 second quarter and for the first six months of 2019, primarily due to changes in foreign currency exchange rates. Approximately 18% 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 2019, primarily due to changes in foreign currency exchange rates.
Operating income decreased in the second quarter and for the first six months of 2019. Our Vrio operating income margin in the second quarter decreased from 4.1% in 2018 to (1.4)% in 2019, and for the first six months decreased from 7.7% in 2018 to 0.9% in 2019. Our Vrio EBITDA margin in the second quarter decreased from 19.0% in 2018 to 14.6% in 2019, and for the first six months decreased from 22.7% in 2018 to 16.8% in 2019.
XANDR SEGMENT | XANDR SEGMENT |
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| XANDR SEGMENT |
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| Second Quarter |
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| Six-Month Period |
| First Quarter |
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| Percent |
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| Percent | |||
| 2019 |
| 2018 | Change |
| 2019 |
| 2018 | Change | 2020 |
| 2019 | Change | |||||||||
Operating revenues | $ | 485 |
| $ | 392 | 23.7 | % |
| $ | 911 |
| $ | 729 | 25.0 | % | $ | 489 |
| $ | 426 | 14.8 | % |
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Operating expenses |
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Operations and support |
| 147 |
|
| 59 | - |
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|
| 307 |
|
| 109 | - |
|
| 170 |
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| 160 | 6.3 |
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Depreciation and amortization |
| 13 |
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| - | - |
|
|
| 26 |
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| 1 | - |
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| 20 |
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| 13 | 53.8 |
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Total Operating Expenses |
| 160 |
|
| 59 | - |
|
|
| 333 |
|
| 110 | - |
|
| 190 |
|
| 173 | 9.8 |
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Operating Income |
| 325 |
|
| 333 | (2.4) |
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|
| 578 |
|
| 619 | (6.6) |
|
| 299 |
|
| 253 | 18.2 |
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Equity in Net Income of Affiliates |
| - |
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| - | - |
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| - |
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| - | - |
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Equity in Net Income (Loss) of Affiliates |
| - |
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| - | - |
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Operating Contribution | $ | 325 |
| $ | 333 | (2.4) | % |
| $ | 578 |
| $ | 619 | (6.6) | % | $ | 299 |
| $ | 253 | 18.2 | % |
Operating revenues increased in the secondfirst quarter and for the first six months of 2019 primarily2020 due to our acquisition of AppNexus in August 2018.strong demand for addressable advertising, including political advertising.
Operations and support expenses increased in the secondfirst quarter and for the first six months of 2019, primarily due to our acquisition of AppNexus and our2020 driven by ongoing development ofand growth in the platform supporting Xandr’s business.
Operating income decreasedincreased in the secondfirst quarter and for the first six months of 2019.2020. Our Xandr segment operating income margin in the secondfirst quarter decreasedincreased from 84.9% in 2018 to 67.0%59.4% in 2019 and for the first six months decreased from 84.9%to 61.1% in 2018 to 63.4% in 2019.2020.
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 |
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| First Quarter |
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| Percent | |
| 2020 |
| 2019 | Change | |||
Operating Revenues |
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WarnerMedia | $ | 979 |
| $ | 1,279 | (23.5) | % |
Communications |
| 489 |
|
| 417 | 17.3 |
|
Xandr |
| 489 |
|
| 426 | 14.8 |
|
Eliminations |
| (413) |
|
| (350) | (18.0) |
|
Total Advertising Revenues | $ | 1,544 |
| $ | 1,772 | (12.9) | % |
5345
AT&T INC.
JUNE 30, 2019MARCH 31, 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
Total Advertising Revenues |
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| Second Quarter |
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| Six-Month Period |
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| Percent |
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| Percent | ||
| 2019 |
| 2018 | Change |
| 2019 |
| 2018 | Change | ||||||
Operating Revenues |
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WarnerMedia | $ | 1,285 |
| $ | 225 | - | % |
| $ | 2,564 |
| $ | 239 | - | % |
Communications |
| 470 |
|
| 431 | 9.0 |
|
|
| 887 |
|
| 806 | 10.0 |
|
Xandr |
| 485 |
|
| 392 | 23.7 |
|
|
| 911 |
|
| 729 | 25.0 |
|
Eliminations |
| (399) |
|
| (387) | (3.1) |
|
|
| (749) |
|
| (721) | (3.9) |
|
Total Advertising Revenues | $ | 1,841 |
| $ | 661 | - | % |
| $ | 3,613 |
| $ | 1,053 | - | % |
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 |
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| Second Quarter |
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| Six-Month Period |
| First Quarter |
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| 2019 |
| 2018 | Percent Change |
| 2019 |
| 2018 | Percent Change | 2020 |
| 2019 | Percent Change | |||||||||
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Operating revenues |
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Wireless service | $ | 2,022 |
| $ | 1,829 | 10.6 | % |
| $ | 3,935 |
| $ | 3,620 | 8.7 | % | $ | 1,949 |
| $ | 1,777 | 9.7 | % |
Strategic and managed services |
| 3,848 |
|
| 3,603 | 6.8 |
|
|
| 7,640 |
|
| 7,198 | 6.1 |
|
| 3,879 |
|
| 3,779 | 2.6 |
|
Legacy voice and data services |
| 2,331 |
|
| 2,730 | (14.6) |
|
|
| 4,735 |
|
| 5,595 | (15.4) |
|
| 2,129 |
|
| 2,397 | (11.2) |
|
Other service and equipment |
| 449 |
|
| 317 | 41.6 |
|
|
| 751 |
|
| 604 | 24.3 |
|
| 324 |
|
| 302 | 7.3 |
|
Wireless equipment |
| 622 |
|
| 584 | 6.5 |
|
|
| 1,218 |
|
| 1,162 | 4.8 |
|
| 710 |
|
| 590 | 20.3 |
|
Total Operating Revenues |
| 9,272 |
|
| 9,063 | 2.3 |
|
|
| 18,279 |
|
| 18,179 | 0.6 |
|
| 8,991 |
|
| 8,845 | 1.7 |
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|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Operations and support |
| 5,539 |
|
| 5,616 | (1.4) |
|
|
| 11,179 |
|
| 11,210 | (0.3) |
|
| 5,710 |
|
| 5,614 | 1.7 |
|
Depreciation and amortization |
| 1,561 |
|
| 1,487 | 5.0 |
|
|
| 3,102 |
|
| 2,945 | 5.3 |
|
| 1,625 |
|
| 1,525 | 6.6 |
|
Total Operating Expenses |
| 7,100 |
|
| 7,103 | - |
|
|
| 14,281 |
|
| 14,155 | 0.9 |
|
| 7,335 |
|
| 7,139 | 2.7 |
|
Operating Income |
| 2,172 |
|
| 1,960 | 10.8 |
|
|
| 3,998 |
|
| 4,024 | (0.6) |
|
| 1,656 |
|
| 1,706 | (2.9) |
|
Equity in Net Income of Affiliates |
| - |
|
| 1 | - |
|
|
| - |
|
| - | - |
| |||||||
Equity in Net Income (Loss) of Affiliates |
| - |
|
| - |
| ||||||||||||||||
Operating Contribution | $ | 2,172 |
| $ | 1,961 | 10.8 | % |
| $ | 3,998 |
| $ | 4,024 | (0.6) | % | $ | 1,656 |
| $ | 1,706 | (2.9) | % |
OTHER BUSINESS MATTERS
Time Warner Spectrum AuctionIn June 2018, we completed our acquisition We were the winning bidder of Time Warner, a leaderhigh-frequency 37/39 GHz licenses in media and entertainment whose major businesses encompassFCC Auction 103 covering an arrayaverage of some of the most respected media brands. In July 2018, the U.S. Department of Justice (DOJ) appealed the U.S. District Court’s decision permitting the merger. On February 26, 2019, the D.C. Circuit unanimously affirmed our win. The DOJ did not appeal786 MHz nationwide for approximately $2,400. Prior to the United States Supreme Court, thereby endingauction, we exchanged the litigation.39 GHz licenses previously acquired through FiberTower Corporation for vouchers to be applied against the winning bids. These vouchers yielded a value of $1,200 which was applied toward our $2,400 gross bids. We made our final payment of approximately $950 for the Auction 103 payment in April 2020.
We expect the FCC will grant the licenses in mid-2020.
Labor ContractsAs of June 30, 2019,March 31, 2020, we employed approximately 258,000244,000 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 7,000 Mobility employees expired in February 2020. In March 2020, a new 4-year contract was ratified by employees and will expire in February 2024.
A contract covering approximately 13,000 wireline employees in our West region expired in April 2020. In March 2020, a tentative agreement was reached on a new 4-year contract. The tentative agreement is subject to ratification by employees.
5446
AT&T INC.
JUNE 30, 2019MARCH 31, 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
(IBEW) or other unions. After expiration of the 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 wireline employees in our Midwest region expired in April 2018. In July 2019, we reached a tentative agreement on a new four-year contract that will expire in April 2022, if ratified. In addition, a contract covering approximately 3,000 traditional wireline employees in our legacy AT&T Corp. business also expired in April 2018. In July 2019, we reached a tentative agreement on a new four-year contract that will expire in April 2022, if ratified.
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 new 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.
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 appealed the FCC’s December 2017 decision andlight-touch regulation. Although the D.C. Circuit heard oral argument onupheld the appeals on February 1, 2019. Although the FCC order expressly preempted inconsistent state or local measures, aFCC’s current classification, challenges to that decision remain pending.
A number of states are considering or have adopted legislation or issued executive orders that would reimpose the verynet neutrality rules repealed by the FCC, repealed, and in some cases, establishestablished 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 suitscertain states, but have been stayed pursuant to agreements by those states not to enforce their laws pending final resolution of all appeals of the FCC’s December 2017 order.FCC order restoring broadband’s status as an information service. We will continue to support congressional action to codify a set of standard consumer rules for the internet.
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 Facebook. In April 2017, the president 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 could result in increased costs of compliance, claims against broadband internet access service providers and others, and increased
55
AT&T INC.
JUNE 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
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
47
AT&T INC.
MARCH 31, 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
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. We currently have mobilenow expect nationwide 5G coverage this summer; we anticipate the introduction of 5G handsets and devices will contribute to a renewed interest in parts of 20 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.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity and capital resources were not materially impacted by COVID-19 and related economic conditions during the first quarter of 2020 despite lower business collections late in the quarter as customers extended their payment cycles, presumably in response to the economic challenges of the pandemic. We will continue to monitor impacts on the COVID-19 pandemic on our liquidity and capital resources. For further discussion regarding the potential future impacts of COVID-19 and related economic conditions on the Company's liquidity and capital resources, see "Part II-Item 1A-Risk Factors."
We had $8,423$9,955 in cash“Cash and cash equivalentsequivalents” available at June 30, 2019. CashMarch 31, 2020. “Cash and cash equivalentsequivalents” included cash of $3,512$3,287 and money market funds and other cash equivalents of $4,911.$6,668. Approximately $1,700$2,485 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.
“Cash and cash equivalents increased $3,219equivalents” decreased $2,175 since December 31, 2018.2019. In the first sixthree 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, saleissuance of investments,long-term debt, issuance of commercial paper and long-term debt and collateral received from banks and other participants in our derivative arrangements.issuances of cumulative preferred stock. These inflows were offset by cash used to meet the needs of the business, including, but not limited to, payment of operating expenses, debt repayments, funding capital expenditures and vendor financing payments, collateral 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 sixthree months of 2019,2020, cash provided by operating activities was $25,336,$8,866, compared to $19,176$11,052 for the first sixthree months of 2018. Higher2019. Lower operating cash flows in 20192020 were primarily due to contributions fromdriven by WarnerMedia profits, including our new receivables securitization program (see Note 9), cash from our sale and transfer of certain wireless equipment installment receivables to third partiesincreased HBO Max investments and higher cash flows fromproduction spend; lower incremental receivable securitization; and working capital initiatives, partly offset bypressures, specifically lower net tax refunds.business collections late in the quarter.
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 makehave payments made 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 $496$1,075 and $904 for the first sixthree months ofended March 31, 2020 and 2019, and to improve working capital $584 for the first six months of 2018.respectively. All supplier financing payments are due within one year.
Cash Used in or Provided by Investing Activities
For the first sixthree months of 2019,2020, cash used in investing activities totaled $7,299,$5,022, and consisted primarily of $10,654$4,966 (including interest during construction) for capital expenditures ($572216 lower than the prior-year comparable period), and proceeds from$99 of wireless spectrum deposits. Subsequent to the salesfirst quarter of 2020, in April we made our ownership interestsfinal payment of approximately $950 for wireless spectrum licenses won in HuluAuction 103, and WarnerMedia’s headquarters (Hudson Yards) under a sale-leaseback arrangement (see Note 8).on May 4, we acquired our remaining interest HBO Latin America Group (HBO LAG) for $230.
56
AT&T INC.
JUNE 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
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 sixthree months of 2019, these2020, vendor financing payments were $1,836, and when combined with $10,654 of capital expenditures, total capital investment was $12,490 ($1,007 higher than the prior-year comparable period). In$791, compared to $819 for the first sixthree months of 2019, we placed $1,265 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 six months, approximately $600 of assets related to the FirstNet build were placed into service. Total reimbursements from the government for FirstNet during the first six months were $134 for 2019 and $336 for 2018, predominantly for capital expenditures.
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 six months of 2019, cash used in financing activities totaled $14,783 and included net proceeds of $10,030, which consisted primarily of the following issuances:
January draw of $2,850 on an 11-month syndicated term loan agreement.
January draw of $750 on a private financing agreement.
February issuance of $3,000 of 4.350% global notes due 2029.
February issuance of $2,000 of 4.850% global notes due 2039.
Borrowings of $725 in January and $525 in June that are supported by government agencies to support network equipment purchases.
June draw of $300 on U.S. Bank credit agreement.
During the first six months of 2019, repayment of long-term debt totaled $16,124. Repayments primarily consisted of the following:
Notes redeemed at maturity:
$1,850 of 2.300% AT&T global notes in the first quarter.
$400 of AT&T floating-rate notes in the first quarter.
€1,500 of AT&T floating-rate notes in the second quarter.
$650 of 2.100% WarnerMedia, LLC notes in the second quarter.
Notes redeemed prior to maturity:
$2,010 of AT&T global notes with interest rates ranging from 4.750% to 5.200% and original maturities in 2020 and 2021, in the first quarter.
$2,000 of Warner Media, LLC notes with interest rates ranging from 4.700% to 5.200% and original maturities in 2021, in the first quarter.
$590 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, in the second quarter.
Credit facilities and other 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.
$600 of borrowings under our credit agreement with Canadian Imperial Bank of Commerce in the second quarter.2019.
5748
AT&T INC.
JUNE 30, 2019MARCH 31, 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
C$500apital expenditures in the first three months of advances2020 were $4,966, and when including $791 cash paid for vendor financing, capital investment was $5,757 ($244 lower than the prior-year comparable period).
The vast majority of our capital expenditures are spent on our networks, including product development and related support systems. During the first three month of 2020, we placed $449 of equipment in service under our November 2018 Term Loan (defined below)vendor financing arrangements (compared to $733 in the second quarter.prior-year comparable period) and $338 of assets related to the FirstNet build (compared to $304 in the prior-year comparable period).
The amount of capital expenditures is influenced by demand for services and products, capacity needs and network enhancements.
Cash Provided by or Used in Financing Activities
For the first three months of 2020, cash used in financing activities totaled $6,099 and was comprised of debt issuances and repayments, issuances of preferred stock, share repurchase, payments of dividends and required collateral deposits.
During the first three months of 2020, debt issuances included proceeds of $3,132 in net short-term borrowings and $4,357 of net proceeds from long-term debt, which consisted primarily of the following issuances:
February issuance of $2,995 of 4.000% global notes due 2049.
March draw of $750 on a private financing agreement.
March borrowings of $665 from loan programs with export agencies of foreign governments to support network equipment purchases in those countries.
During the first three months of 2020, repayment of long-term debt totaled $4,422. Repayments primarily consisted of the following:
$250800 of AT&T floating-rate notes redeemed at maturity.
$2,619 of 4.600% AT&T global notes with original maturities in 2045.
$750 of borrowings under a U.S. Bank credit agreement in the second quarter.private financing agreement.
Our weighted average interest rate of our entire long-term debt portfolio, including the impact of derivatives, was approximately 4.3% as of March 31, 2020 and 4.4% as of both June 30, 2019 and December 31, 2018.2019. We had $165,443$159,386 of total notes and debentures outstanding at June 30, 2019,March 31, 2020, which included Euro, British pound sterling, Canadian dollar, Swiss franc, Australian dollar, Brazilian real and Mexican peso Canadian dollar and Australian dollar denominated debt that totaled approximately $39,588.$40,712.
At June 30, 2019,March 31, 2020, we had $12,772$17,067 of debt maturing within one year, including $3,164$3,144 of commercial paper borrowings and $9,467$13,923 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. These securities were redeemed on April 27, 2020.
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 sixthree months of 2019,2020, we paid $1,836$791 of cash under our vendor financing program, compared to $257$819 in the first sixthree months of 2018.2019. Total vendor financing payables included in our June 30, 2019March 31, 2020 consolidated balance sheet were $1,930,approximately $1,361, with $1,455$997 due within one year (in “Accounts payable and accrued liabilities”) and the remainder predominantly due within two to three years (in “Other noncurrent liabilities”).
Financing activities in the first three months of 2020 also included $3,869 for the February issuance of Series B and Series C preferred stock. (See Note 10)
During the first three months of 2020, we repurchased approximately 142 million shares of common stock and completed the share repurchase authorization approved by the Board of Directors in 2013. At June 30, 2019,March 31, 2020, we had approximately 376178 million shares remaining from share repurchase authorizations approved by the Board of Directors in 20132014. On March 19,
49
AT&T INC.
MARCH 31, 2020
Item 2. Management’s Discussion and 2014.Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
2020, we announced the cancellation of an accelerated share repurchase agreement that was planned for the second quarter and all 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.
We paid dividends on common and preferred shares of $7,436$3,737 during the first sixthree months of 2019,2020, compared with $6,144$3,714 for the first sixthree 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 $1.02$0.52 per share in the first sixthree months of 20192020 and $1.00$0.51 per share for the first sixthree 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.
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 June 30, 2019.March 31, 2020.
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, and paid the 2022 and 2023 facilities during the second quarter of 2019. The 2021 facility was outstanding as of June 30, 2019.
On November 20, 2018,2019, we entered into and drew on a 4.5 year $3,550$1,300 term loan credit agreement (the “November 2018 Term Loan”)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. We used the proceeds to finance theNo repayment in part, of loans outstandinghad been made under the Acquisition Term Loan. We paid $500 of these borrowings in the second quarter of 2019, and $3,050 was outstanding under this agreementfacilities as of June 30, 2019.
58
AT&T INC.
JUNE 30, 2019March 31, 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
On January 31, 2019,April 6, 2020, we entered into and drew on an 11-month $2,850 syndicated term loan credit agreement (the “Citibanka $5,500 Term Loan”)Loan Credit Agreement (Term Loan), with certain investment and11 commercial banks and Citibank,Bank of America, N.A., as administrativelead agent. As of June 30, 2019, $2,850 was outstanding under this agreement.
In anticipationThe Term Loan is not subject to amortization and the entire principal amount of the Time Warner acquisition, we entered into a $16,175 term loan agreement (“Acquisition Term Loan”) containing (i) a 2.5 year $8,087.5 facility (the “Tranche A Facility”)Loan will be due and (ii) a 4.5 year $8,087.5 facility (the “Tranche B Facility”) with a commitment termination date ofpayable on December 31, 2018, for which we paid the remaining $2,625 of the Tranche A advances on February 20, 2019, and terminated the facility.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 June 30, 2019,March 31, 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 sixthree months of 2019,2020, we received $1,417deposited approximately $2,650 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 June 30, 2019,March 31, 2020, our debt ratio was 46.8%45.7%, compared to 50.8%47.4% at June 30, 2018March 31, 2019 and 47.7%44.7% at December 31, 2018.2019. Our net debt ratio was 44.5%42.9% at June 30, 2019, compared to 47.2% at June 30, 2018 and 46.2% at DecemberMarch 31, 2018. The debt ratio is affected by the same factors that affect total capital, and reflects our recent debt issuances and repayments.
During the first six months of 2019, we have received approximately $3,600 from the disposition of assets, and when combined with cash proceeds from the sale of equipment installment and WarnerMedia receivables, excluding repurchases, total cash received from asset monetizations was approximately $14,000. We plan to continue to explore similar opportunities.
2020,
5950
AT&T INC.
JUNE 30, 2019MARCH 31, 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
compared to 45.6% at March 31, 2019 and 41.4% at December 31, 2019. The debt ratio is affected by the same factors that affect total capital, and reflects our recent debt issuances, repayments and debt acquired in business combinations.
During the first three months of 2020, we received $118 from the disposition of assets, and when combined with working capital monetization initiatives, which include the sale of receivables, total cash received from monetization efforts, net of spectrum acquisitions, was approximately $1,000. We plan to continue to explore similar opportunities throughout 2020.
51
AT&T INC.
MARCH 31, 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
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. Results have been recast to conform to the current period's classification of consumer and business wireless subscribers.
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Wireless service | $ | 14,006 | $ | - | $ | (11,984) | $ | 2,022 |
| $ | 13,682 | $ | - | $ | (11,853) | $ | 1,829 | $ | 13,968 | $ | - | $ | (12,019) | $ | 1,949 |
| $ | 13,629 | $ | - | $ | (11,852) | $ | 1,777 |
Strategic and managed services |
| - |
| 3,848 |
| - |
| 3,848 |
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| - |
| 3,603 |
| - |
| 3,603 |
| - |
| 3,879 |
| - |
| 3,879 |
|
| - |
| 3,779 |
| - |
| 3,779 |
Legacy voice and data services |
| - |
| 2,331 |
| - |
| 2,331 |
|
| - |
| 2,730 |
| - |
| 2,730 |
| - |
| 2,129 |
| - |
| 2,129 |
|
| - |
| 2,397 |
| - |
| 2,397 |
Other service and equipment |
| - |
| 449 |
| - |
| 449 |
|
| - |
| 317 |
| - |
| 317 |
| - |
| 324 |
| - |
| 324 |
|
| - |
| 302 |
| - |
| 302 |
Wireless equipment |
| 3,506 |
| - |
| (2,884) |
| 622 |
|
| 3,600 |
| - |
| (3,016) |
| 584 |
| 3,434 |
| - |
| (2,724) |
| 710 |
|
| 3,734 |
| - |
| (3,144) |
| 590 |
Total Operating Revenues |
| 17,512 |
| 6,628 |
| (14,868) |
| 9,272 |
|
| 17,282 |
| 6,650 |
| (14,869) |
| 9,063 |
| 17,402 |
| 6,332 |
| (14,743) |
| 8,991 |
|
| 17,363 |
| 6,478 |
| (14,996) |
| 8,845 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations and support |
| 9,654 |
| 3,982 |
| (8,097) |
| 5,539 |
|
| 9,663 |
| 4,038 |
| (8,085) |
| 5,616 |
| 9,569 |
| 3,951 |
| (7,810) |
| 5,710 |
|
| 10,041 |
| 4,032 |
| (8,459) |
| 5,614 |
EBITDA |
| 7,858 |
| 2,646 |
| (6,771) |
| 3,733 |
|
| 7,619 |
| 2,612 |
| (6,784) |
| 3,447 |
| 7,833 |
| 2,381 |
| (6,933) |
| 3,281 |
|
| 7,322 |
| 2,446 |
| (6,537) |
| 3,231 |
Depreciation and amortization |
| 2,025 |
| 1,256 |
| (1,720) |
| 1,561 |
|
| 2,113 |
| 1,180 |
| (1,806) |
| 1,487 |
| 2,045 |
| 1,301 |
| (1,721) |
| 1,625 |
|
| 2,013 |
| 1,222 |
| (1,710) |
| 1,525 |
Total Operating Expense |
| 11,679 |
| 5,238 |
| (9,817) |
| 7,100 |
|
| 11,776 |
| 5,218 |
| (9,891) |
| 7,103 |
| 11,614 |
| 5,252 |
| (9,531) |
| 7,335 |
|
| 12,054 |
| 5,254 |
| (10,169) |
| 7,139 |
Operating Income |
| 5,833 |
| 1,390 |
| (5,051) |
| 2,172 |
|
| 5,506 |
| 1,432 |
| (4,978) |
| 1,960 |
| 5,788 |
| 1,080 |
| (5,212) |
| 1,656 |
|
| 5,309 |
| 1,224 |
| (4,827) |
| 1,706 |
Equity in net income of affiliates |
| - |
| - |
| - |
| - |
|
| - |
| 1 |
| - |
| 1 | |||||||||||||||||
Equity in net income (loss) of affiliates |
| - |
| - |
| - |
| - |
|
| - |
| - |
| - |
| - | |||||||||||||||||
Operating Contribution | $ | 5,833 | $ | 1,390 | $ | (5,051) | $ | 2,172 |
| $ | 5,506 | $ | 1,433 | $ | (4,978) | $ | 1,961 | $ | 5,788 | $ | 1,080 | $ | (5,212) | $ | 1,656 |
| $ | 5,309 | $ | 1,224 | $ | (4,827) | $ | 1,706 |
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. |
6052
AT&T INC.
JUNE 30, 2019MARCH 31, 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
|
| Six Months Ended | |||||||||||||||
|
| June 30, 2019 |
|
| June 30, 2018 | ||||||||||||
|
| Mobility |
| Business Wireline |
| Adjustments1 |
| Business Solutions |
|
| Mobility |
| Business Wireline |
| Adjustments1 |
| Business Solutions |
Operating Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wireless service | $ | 27,798 | $ | - | $ | (23,863) | $ | 3,935 |
| $ | 27,085 | $ | - | $ | (23,465) | $ | 3,620 |
Strategic and managed services |
| - |
| 7,640 |
| - |
| 7,640 |
|
| - |
| 7,198 |
| - |
| 7,198 |
Legacy voice and data services |
| - |
| 4,735 |
| - |
| 4,735 |
|
| - |
| 5,595 |
| - |
| 5,595 |
Other service and equipment |
| - |
| 751 |
| - |
| 751 |
|
| - |
| 604 |
| - |
| 604 |
Wireless equipment |
| 7,281 |
| - |
| (6,063) |
| 1,218 |
|
| 7,552 |
| - |
| (6,390) |
| 1,162 |
Total Operating Revenues |
| 35,079 |
| 13,126 |
| (29,926) |
| 18,279 |
|
| 34,637 |
| 13,397 |
| (29,855) |
| 18,179 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations and support |
| 19,835 |
| 8,022 |
| (16,678) |
| 11,179 |
|
| 19,765 |
| 8,054 |
| (16,609) |
| 11,210 |
EBITDA |
| 15,244 |
| 5,104 |
| (13,248) |
| 7,100 |
|
| 14,872 |
| 5,343 |
| (13,246) |
| 6,969 |
Depreciation and amortization |
| 4,060 |
| 2,491 |
| (3,449) |
| 3,102 |
|
| 4,208 |
| 2,350 |
| (3,613) |
| 2,945 |
Total Operating Expense |
| 23,895 |
| 10,513 |
| (20,127) |
| 14,281 |
|
| 23,973 |
| 10,404 |
| (20,222) |
| 14,155 |
Operating Income |
| 11,184 |
| 2,613 |
| (9,799) |
| 3,998 |
|
| 10,664 |
| 2,993 |
| (9,633) |
| 4,024 |
Equity in net income of affiliates |
| - |
| - |
| - |
| - |
|
| - |
| - |
| - |
| - |
Operating Contribution | $ | 11,184 | $ | 2,613 | $ | (9,799) | $ | 3,998 |
| $ | 10,664 | $ | 2,993 | $ | (9,633) | $ | 4,024 |
1Non-business wireless reported in the Communications segment under the Mobility business unit. |
61
AT&T INC.
JUNE 30, 2019
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Dollars in millions except per share amounts
At June 30, 2019,March 31, 2020, we had interest rate swaps with a notional value of $1,633$853 and a fair value of $26.$14.
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 $40,311$42,325 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 $(2,622)$(8,283) at June 30, 2019.March 31, 2020. We have rate locks with a notional value of $2,000$3,500 and a fair value of $(23)$(720) at June 30, 2019.March 31, 2020.
We have foreign exchange contracts with a U.S. dollar notional value of $669$106 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 $65$66 at June 30, 2019.March 31, 2020.
We have designated €700€1,364 million aggregate principal amount of debt as a hedge of the variability of some of thecertain Euro-denominated net investments of WarnerMedia.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 June 30, 2019.March 31, 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 June 30, 2019.March 31, 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.
6253
AT&T INC.
JUNE 30, 2019MARCH 31, 2020
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.
Our ability to respond to revenue and margin pressures from increasing competition, including services that use alternative technologies and/or government-owned or subsidized networks.
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.technologies and/or government-owned or subsidized networks.
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.
The outcome of pending, threatened or potential litigation (which includes arbitrations), including, without limitation, patent and product safety claims by or against third parties.
54
AT&T INC.
MARCH 31, 2020
CAUTIONARY LANGUAGE CONCERNING FORWARD-LOOKING STATEMENTS
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
63
AT&T INC.
JUNE 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.
6455
AT&T INC.
JUNE 30, 2019MARCH 31, 2020
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 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. For
We depend on various suppliers to provide equipment to operate our business and satisfy customer demand and interruption or delay in supply can adversely impact our operating results.
We depend on suppliers to provide us, directly or through other suppliers, with items such as network equipment, customer premises equipment, video equipment and wireless-related equipment such as mobile hotspots, handsets, wirelessly enabled computers, wireless data cards and other connected devices for our customers. These suppliers could fail to provide equipment on a timely basis, or fail to meet our performance expectations, 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 such as the second quarterCOVID-19 pandemic. The COVID-19 pandemic has caused, and may continue to cause, delays in the development, manufacturing (including the sourcing of 2019, therekey components) and shipment of products. In certain limited circumstances, suppliers have been unable to supply products in a timely fashion. In such limited circumstances, we have been unable to provide products and services precisely as and when requested by our customers. It is possible that, in some circumstances, we could be forced to switch to a different key supplier. Because of the cost and time lag that can be associated with transitioning from one supplier to another, our business could be substantially disrupted if we were norequired to, or chose to, replace the products of one or more key suppliers with products from another source, especially if the replacement became necessary on short notice. Any such material developments.disruption could increase our costs, decrease our operating efficiencies and have a negative effect on our operating results.
Our business is subject to risks arising from the recent outbreak of the COVID-19 virus.
The COVID-19 pandemic and resulting mitigation measures have caused, and may continue to cause, a negative effect on our operating results. To date, mitigation measures have caused sports leagues to suspend operations as well as the cancellation of many sporting events, including the NCAA tournament, which has adversely affected our advertising revenues, may result in contract disputes concerning carriage rights and will also cause us to incur expenses relating to these sporting events notwithstanding their cancellation. The closure, or the avoidance, of theaters, and the interruptions in movie production and other programming caused by COVID-19, are expected to impact the timing of revenues and may cause a loss of revenue to our Warner Media business over the long term. If the mitigating measures or the associated effects are prolonged, we expect business customers in industries most significantly impacted will reduce or terminate services, having a negative effect on the performance of our Business Wireline business unit. Further, concerns over the COVID-19 pandemic could result in the prolonged closure of many of our retail stores and deter customers from accessing our stores even as the mitigation measures subside. These pandemic concerns may also result in continued impact to our customers’ ability to pay for our products and services. We may also continue to see significant impact on roaming revenues due to a downturn in international travel. The COVID-19 pandemic has reduced staffing levels at our call centers and field operations resulting in delays in service. Further reductions in staffing levels could further limit our ability to provide services, adversely impacting our competitive position. We may also incur significantly higher expenses attributable to infrastructure investments required to meet higher network utilization from more customers consuming bandwidth from changes in work from home trends; extended cancellation periods; and increased labor costs if the COVID-19 pandemic continues for an extended period.
The COVID-19 pandemic and mitigation measures have caused, and may continue to cause, adverse impacts on global economic conditions and consumer confidence and spending, which affect demand for our products and services. The extent to which the COVID-19 pandemic impacts our business results of operations, cash flows and financial condition will depend on future developments that are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of the virus and the actions to contain its impact. Due to the speed with which the situation is developing, we are not able at this time to estimate the impact of COVID-19 on our financial or operational results, but the impact could be material.
56 AT&T INC. MARCH 31, 2020 PART II – OTHER INFORMATION - CONTINUED Dollars in millions except per share amounts
57 AT&T INC.
58
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.
59 |