UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| (Mark One) ☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
or
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| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from to
Commission File Number 001-8610
AT&T INC.
Incorporated under the laws of the State of Delaware
I.R.S. Employer Identification Number 43-1301883
208 S. Akard St., Dallas, Texas 75202
Telephone Number: (210) 821-4105
Securities registered pursuant to Section 12(b) of the Act
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| Name of each exchange |
Title of each class | Trading Symbol(s) | on which registered |
Common Shares (Par Value $1.00 Per Share) | T | New York Stock Exchange |
Depositary Shares, each representing a 1/1000th interest in a share of 5.000% Perpetual Preferred Stock, Series A | T PRA | New York Stock Exchange |
Depositary Shares, each representing a 1/1000th interest in a share of 4.750% Perpetual Preferred Stock, Series C | T PRC | New York Stock Exchange |
AT&T Inc. Floating Rate Global Notes due August 3, 2020 | T 20C | New York Stock Exchange |
AT&T Inc. 1.875% Global Notes due December 4, 2020 | T 20 | New York Stock Exchange |
AT&T Inc. 2.650% Global Notes due December 17, 2021 | T 21B | New York Stock Exchange |
AT&T Inc. 1.450% Global Notes due June 1, 2022 | T 22B | New York Stock Exchange |
AT&T Inc. 2.500% Global Notes due March 15, 2023 | T 23 | New York Stock Exchange |
AT&T Inc. 2.750% Global Notes due May 19, 2023 | T 23C | New York Stock Exchange |
AT&T Inc. Floating Rate Global Notes due September 5, 2023 | T 23D | New York Stock Exchange |
AT&T Inc. 1.050% Global Notes due September 5, 2023 | T 23E | New York Stock Exchange |
AT&T Inc. 1.300% Global Notes due September 5, 2023 | T 23A | New York Stock Exchange |
AT&T Inc. 1.950% Global Notes due September 15, 2023 | T 23F | New York Stock Exchange |
AT&T Inc. 2.400% Global Notes due March 15, 2024 | T 24A | New York Stock Exchange |
AT&T Inc. 3.500% Global Notes due December 17, 2025 | T 25 | New York Stock Exchange |
Name of each exchange | ||
Title of each class | Trading Symbol(s) | on which registered |
AT&T Inc. 0.250% Global Notes due March 4, 2026 | T 26E | New York Stock Exchange |
AT&T Inc. 1.800% Global Notes due September 5, 2026 | T 26D | New York Stock Exchange |
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AT&T Inc. 2.900% Global Notes due December 4, 2026 | T 26A | New York Stock Exchange |
AT&T Inc. 1.600% Global Notes due May 19, 2028 | T 28C | New York Stock Exchange |
AT&T Inc. 2.350% Global Notes due September 5, 2029 | T 29D | New York Stock Exchange |
AT&T Inc. 4.375% Global Notes due September 14, 2029 | T 29B | New York Stock Exchange |
AT&T Inc. 2.600% Global Notes due December 17, 2029 | T 29A | New York Stock Exchange |
AT&T Inc. 0.800% Global Notes due March 4, 2030 | T 30B | New York Stock Exchange |
AT&T Inc. 2.050% Global Notes due May 19, 2032 | T 32A | New York Stock Exchange |
AT&T Inc. 3.550% Global Notes due December 17, 2032 | T 32 | New York Stock Exchange |
AT&T Inc. 5.200% Global Notes due November 18, 2033 | T 33 | New York Stock Exchange |
AT&T Inc. 3.375% Global Notes due March 15, 2034 | T 34 | New York Stock Exchange |
AT&T Inc. 2.450% Global Notes due March 15, 2035 | T 35 | New York Stock Exchange |
AT&T Inc. 3.150% Global Notes due September 4, 2036 | T 36A | New York Stock Exchange |
AT&T Inc. 2.600% Global Notes due May 19, 2038 | T 38C | New York Stock Exchange |
AT&T Inc. 1.800% Global Notes due September 14, 2039 | T 39B | New York Stock Exchange |
AT&T Inc. 7.000% Global Notes due April 30, 2040 | T 40 | New York Stock Exchange |
AT&T Inc. 4.250% Global Notes due June 1, 2043 | T 43 | New York Stock Exchange |
AT&T Inc. 4.875% Global Notes due June 1, 2044 | T 44 | New York Stock Exchange |
AT&T Inc. 4.000% Global Notes due June 1, 2049 | T 49A | New York Stock Exchange |
AT&T Inc. 4.250% Global Notes due March 1, 2050 | T 50 | New York Stock Exchange |
AT&T Inc. 3.750% Global Notes due September 1, 2050 | T 50A | New York Stock Exchange |
AT&T Inc. 5.350% Global Notes due November 1, 2066 | TBB | New York Stock Exchange |
AT&T Inc. 5.625% Global Notes due August 1, 2067 | TBC | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically 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 April 30,July 31, 2020, there were 7,125 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 |
| Three months ended |
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| Six months ended | |||||||||
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| March 31, |
| June 30, |
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| June 30, | |||||||||
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| 2020 |
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| 2019 |
| 2020 |
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| 2019 |
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| 2020 |
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| 2019 |
Operating Revenues |
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Service | $ | 38,883 |
| $ | 40,684 | $ | 37,051 |
| $ | 41,023 |
| $ | 75,934 |
| $ | 81,707 |
Equipment |
| 3,896 |
|
| 4,143 |
| 3,899 |
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| 3,934 |
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| 7,795 |
|
| 8,077 |
Total operating revenues |
| 42,779 |
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| 44,827 |
| 40,950 |
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| 44,957 |
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| 83,729 |
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| 89,784 |
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Operating Expenses |
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Cost of revenues |
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Equipment |
| 4,092 |
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| 4,502 |
| 3,978 |
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| 4,061 |
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| 8,070 |
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| 8,563 |
Broadcast, programming and operations |
| 6,847 |
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| 7,652 |
| 5,889 |
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| 7,730 |
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| 12,643 |
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| 15,382 |
Other cost of revenues (exclusive of depreciation and amortization shown separately below) |
| 8,342 |
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| 8,585 | |||||||||||
Other cost of revenues (exclusive of depreciation and |
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amortization shown separately below) |
| 8,116 |
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| 8,721 |
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| 16,458 |
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| 17,306 | |||||
Selling, general and administrative |
| 8,790 |
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| 9,649 |
| 9,831 |
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| 9,844 |
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| 18,591 |
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| 19,493 |
Asset impairments and abandonments |
| 2,319 |
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| - |
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| 2,442 |
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| - | |||||
Depreciation and amortization |
| 7,222 |
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| 7,206 |
| 7,285 |
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| 7,101 |
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| 14,507 |
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| 14,307 |
Total operating expenses |
| 35,293 |
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| 37,594 |
| 37,418 |
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| 37,457 |
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| 72,711 |
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| 75,051 |
Operating Income |
| 7,486 |
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| 7,233 |
| 3,532 |
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| 7,500 |
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| 11,018 |
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| 14,733 |
Other Income (Expense) |
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Interest expense |
| (2,018) |
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| (2,141) |
| (2,041) |
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| (2,149) |
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| (4,059) |
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| (4,290) |
Equity in net income (loss) of affiliates |
| (6) |
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| (7) |
| (10) |
|
| 40 |
|
| (16) |
|
| 33 |
Other income (expense) – net |
| 803 |
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| 286 |
| 1,017 |
|
| (318) |
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| 1,820 |
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| (32) |
Total other income (expense) |
| (1,221) |
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| (1,862) |
| (1,034) |
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| (2,427) |
|
| (2,255) |
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| (4,289) |
Income Before Income Taxes |
| 6,265 |
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| 5,371 |
| 2,498 |
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| 5,073 |
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| 8,763 |
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| 10,444 |
Income tax expense |
| 1,302 |
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| 1,023 |
| 935 |
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| 1,099 |
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| 2,237 |
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| 2,122 |
Net Income |
| 4,963 |
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| 4,348 |
| 1,563 |
|
| 3,974 |
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| 6,526 |
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| 8,322 |
Less: Net Income Attributable to Noncontrolling Interest |
| (353) |
|
| (252) |
| (282) |
|
| (261) |
|
| (635) |
|
| (513) |
Net Income Attributable to AT&T | $ | 4,610 |
| $ | 4,096 | $ | 1,281 |
| $ | 3,713 |
| $ | 5,891 |
| $ | 7,809 |
Less: Preferred Stock Dividends |
| (32) |
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| - |
| (52) |
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| - |
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| (84) |
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| - |
Net Income Attributable to Common Stock | $ | 4,578 |
| $ | 4,096 | $ | 1,229 |
| $ | 3,713 |
| $ | 5,807 |
| $ | 7,809 |
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) |
| 7,187 |
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| 7,313 | |||||||||||
Weighted Average Number of Common Shares Outstanding – with Dilution (in millions) |
| 7,214 |
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| 7,342 | |||||||||||
Basic Earnings Per Share Attributable to |
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Common Stock | $ | 0.17 |
| $ | 0.51 |
| $ | 0.81 |
| $ | 1.06 | |||||
Diluted Earnings Per Share Attributable to |
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Common Stock | $ | 0.17 |
| $ | 0.51 |
| $ | 0.81 |
| $ | 1.06 | |||||
Weighted Average Number of Common Shares |
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Outstanding – Basic (in millions) |
| 7,145 |
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| 7,323 |
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| 7,166 |
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| 7,318 | |||||
Weighted Average Number of Common Shares |
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Outstanding – with Dilution (in millions) |
| 7,170 |
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| 7,353 |
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| 7,192 |
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| 7,347 | |||||
See Notes to Consolidated Financial Statements. |
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3
AT&T INC. |
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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME |
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| CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME |
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Dollars in millions |
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(Unaudited) |
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| Three months ended | Three months ended |
| Six months ended | ||||||||||||
| March 31, | June 30, |
| June 30, | ||||||||||||
| 2020 |
| 2019 | 2020 |
| 2019 |
| 2020 |
| 2019 | ||||||
Net income | $ | 4,963 |
| $ | 4,348 | $ | 1,563 |
| $ | 3,974 |
| $ | 6,526 |
| $ | 8,322 |
Other comprehensive income (loss), net of tax: |
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Foreign currency: |
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Translation adjustment (includes $(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 | |||||||||||
Translation adjustment (includes $(8), $2, $(59) and $2 |
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attributable to noncontrolling interest), net of taxes of |
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$(135), $(1), $(197) and $48 |
| 305 |
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| (127) |
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| (1,549) |
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| 161 | |||||
Securities: |
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Net unrealized gains, net of taxes of $22 and $5 |
| 66 |
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| 16 | |||||||||||
Net unrealized gains (losses), net of taxes of $5, $10, $27 |
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and $15 |
| 14 |
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| 26 |
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| 80 |
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| 42 | |||||
Derivative instruments: |
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Net unrealized gains (losses), net of taxes of $(971) and $34 |
| (3,657) |
|
| 127 | |||||||||||
Reclassification adjustment included in net income, net of taxes of $0 and $2 |
| - |
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| 11 | |||||||||||
Net unrealized gains (losses), net of taxes of $168, $(165), |
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$(803) and $(131) |
| 631 |
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| (617) |
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| (3,026) |
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| (490) | |||||
Reclassification adjustment included in net income, |
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net of taxes of $4, $3, $4 and $5 |
| 17 |
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| 6 |
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| 17 |
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| 17 | |||||
Defined benefit postretirement plans: |
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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) | |||||||||||
Amortization of net prior service credit included in net |
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income, net of taxes of $(150), $(107), $(301) |
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and $(220) |
| (461) |
|
| (342) |
|
| (922) |
|
| (688) | |||||
Other comprehensive income (loss) |
| (5,906) |
|
| 96 |
| 506 |
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| (1,054) |
|
| (5,400) |
|
| (958) |
Total comprehensive income (loss) |
| (943) |
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| 4,444 | |||||||||||
Less: Total comprehensive income attributable to noncontrolling interest |
| (302) |
|
| (252) | |||||||||||
Total Comprehensive Income (Loss) Attributable to AT&T | $ | (1,245) |
| $ | 4,192 | |||||||||||
Total comprehensive income |
| 2,069 |
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| 2,920 |
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| 1,126 |
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| 7,364 | |||||
Less: Total comprehensive income attributable to |
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noncontrolling interest |
| (274) |
|
| (263) |
|
| (576) |
|
| (515) | |||||
Total Comprehensive Income Attributable to AT&T | $ | 1,795 |
| $ | 2,657 |
| $ | 550 |
| $ | 6,849 | |||||
See Notes to Consolidated Financial Statements. |
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4
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 |
|
| 22,636 |
Prepaid expenses |
| 1,600 |
|
| 1,631 |
Other current assets |
| 21,241 |
|
| 18,364 |
Total current assets |
| 52,704 |
|
| 54,761 |
Noncurrent inventories and theatrical film and television production costs |
| 13,276 |
|
| 12,434 |
Property, Plant and Equipment |
| 329,187 |
|
| 333,538 |
Less: accumulated depreciation and amortization |
| (200,266) |
|
| (203,410) |
Property, Plant and Equipment – Net |
| 128,921 |
|
| 130,128 |
Goodwill |
| 145,546 |
|
| 146,241 |
Licenses – Net |
| 96,662 |
|
| 97,907 |
Trademarks and Trade Names – Net |
| 23,293 |
|
| 23,567 |
Distribution Networks – Net |
| 14,886 |
|
| 15,345 |
Other Intangible Assets – Net |
| 19,623 |
|
| 20,798 |
Investments in and Advances to Equity Affiliates |
| 3,606 |
|
| 3,695 |
Operating lease right-of-use assets |
| 24,008 |
|
| 24,039 |
Other Assets |
| 22,829 |
|
| 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 |
|
| 45,956 |
Advanced billings and customer deposits |
| 5,960 |
|
| 6,124 |
Accrued taxes |
| 2,169 |
|
| 1,212 |
Dividends payable |
| 3,737 |
|
| 3,781 |
Total current liabilities |
| 69,704 |
|
| 68,911 |
Long-Term Debt |
| 147,202 |
|
| 151,309 |
Deferred Credits and Other Noncurrent Liabilities |
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Deferred income taxes |
| 58,491 |
|
| 59,502 |
Postemployment benefit obligation |
| 18,324 |
|
| 18,788 |
Operating lease liabilities |
| 21,584 |
|
| 21,804 |
Other noncurrent liabilities |
| 34,600 |
|
| 29,421 |
Total deferred credits and other noncurrent liabilities |
| 132,999 |
|
| 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 |
|
| 7,621 |
Additional paid-in capital |
| 129,966 |
|
| 126,279 |
Retained earnings |
| 58,534 |
|
| 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) |
|
| (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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AT&T INC. | |||||
CONSOLIDATED BALANCE SHEETS | |||||
Dollars in millions except per share amounts | |||||
| June 30, |
| December 31, | ||
| 2020 |
| 2019 | ||
Assets | (Unaudited) |
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Current Assets |
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Cash and cash equivalents | $ | 16,941 |
| $ | 12,130 |
Accounts receivable - net of related allowances for credit loss of $1,606 and $1,235 |
| 19,127 |
|
| 22,636 |
Prepaid expenses |
| 1,439 |
|
| 1,631 |
Other current assets |
| 19,048 |
|
| 18,364 |
Total current assets |
| 56,555 |
|
| 54,761 |
Noncurrent Inventories and Theatrical Film and Television Production Costs |
| 14,514 |
|
| 12,434 |
Property, plant and equipment |
| 332,883 |
|
| 333,538 |
Less: accumulated depreciation and amortization |
| (203,938) |
|
| (203,410) |
Property, Plant and Equipment – Net |
| 128,945 |
|
| 130,128 |
Goodwill |
| 143,651 |
|
| 146,241 |
Licenses – Net |
| 98,763 |
|
| 97,907 |
Trademarks and Trade Names – Net |
| 23,757 |
|
| 23,567 |
Distribution Networks – Net |
| 14,704 |
|
| 15,345 |
Other Intangible Assets – Net |
| 18,452 |
|
| 20,798 |
Investments in and Advances to Equity Affiliates |
| 2,302 |
|
| 3,695 |
Operating Lease Right-Of-Use Assets |
| 24,692 |
|
| 24,039 |
Other Assets |
| 21,563 |
|
| 22,754 |
Total Assets | $ | 547,898 |
| $ | 551,669 |
Liabilities and Stockholders’ Equity |
|
|
|
|
|
Current Liabilities |
|
|
|
|
|
Debt maturing within one year | $ | 15,576 |
| $ | 11,838 |
Accounts payable and accrued liabilities |
| 41,881 |
|
| 45,956 |
Advanced billings and customer deposits |
| 5,723 |
|
| 6,124 |
Accrued taxes |
| 2,548 |
|
| 1,212 |
Dividends payable |
| 3,741 |
|
| 3,781 |
Total current liabilities |
| 69,469 |
|
| 68,911 |
Long-Term Debt |
| 153,388 |
|
| 151,309 |
Deferred Credits and Other Noncurrent Liabilities |
|
|
|
|
|
Deferred income taxes |
| 58,387 |
|
| 59,502 |
Postemployment benefit obligation |
| 18,167 |
|
| 18,788 |
Operating lease liabilities |
| 22,230 |
|
| 21,804 |
Other noncurrent liabilities |
| 32,804 |
|
| 29,421 |
Total deferred credits and other noncurrent liabilities |
| 131,588 |
|
| 129,515 |
Stockholders’ Equity |
|
|
|
|
|
Preferred stock ($1 par value, 10,000,000 authorized ): |
|
|
|
|
|
Series A (48,000 issued and outstanding at June 30, 2020 and December 31, 2019) |
| - |
|
| - |
Series B (20,000 issued and outstanding at June 30, 2020 |
|
|
|
|
|
and 0 issued and outstanding at December 31, 2019) |
| - |
|
| - |
Series C (70,000 issued and outstanding at June 30, 2020 |
|
|
|
|
|
and 0 issued and outstanding at December 31, 2019) |
| - |
|
| - |
Common stock ($1 par value, 14,000,000,000 authorized at June 30, 2020 and |
|
|
|
|
|
December 31, 2019: issued 7,620,748,598 at June 30, 2020 and December 31, 2019) |
| 7,621 |
|
| 7,621 |
Additional paid-in capital |
| 130,046 |
|
| 126,279 |
Retained earnings |
| 56,045 |
|
| 57,936 |
Treasury stock (495,425,902 at June 30, 2020 and 366,193,458 December 31, 2019, |
|
|
|
|
|
at cost) |
| (17,945) |
|
| (13,085) |
Accumulated other comprehensive income |
| 129 |
|
| 5,470 |
Noncontrolling interest |
| 17,557 |
|
| 17,713 |
Total stockholders’ equity |
| 193,453 |
|
| 201,934 |
Total Liabilities and Stockholders’ Equity | $ | 547,898 |
| $ | 551,669 |
See Notes to Consolidated Financial Statements. |
|
|
|
|
|
5
AT&T INC. | AT&T INC. | AT&T INC. | ||||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS | CONSOLIDATED STATEMENTS OF CASH FLOWS | CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
Dollars in millions | Dollars in millions | Dollars in millions | ||||||||
(Unaudited) |
|
|
|
|
|
| ||||
| Three months ended | Six months ended | ||||||||
| March 31, | June 30, | ||||||||
| 2020 |
| 2019 | 2020 |
| 2019 | ||||
Operating Activities |
|
|
|
|
|
|
|
|
|
|
Net income | $ | 4,963 |
| $ | 4,348 | $ | 6,526 |
| $ | 8,322 |
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
| 7,222 |
|
| 7,206 |
| 14,507 |
|
| 14,307 |
Amortization of television and film costs |
| 2,269 |
|
| 2,497 |
| 3,985 |
|
| 5,199 |
Undistributed earnings from investments in equity affiliates |
| 39 |
|
| 112 |
| 64 |
|
| 76 |
Provision for uncollectible accounts |
| 780 |
|
| 592 |
| 1,199 |
|
| 1,216 |
Deferred income tax expense |
| 259 |
|
| 753 |
| 653 |
|
| 1,080 |
Net (gain) loss on assets, net of impairments |
| (646) |
|
| (175) | |||||
Net (gain) loss on investments, net of impairments |
| (705) |
|
| (905) | |||||
Pension and postretirement benefit expense (credit) |
| (748) |
|
| (369) |
| (1,495) |
|
| (808) |
Actuarial (gain) loss on pension and postretirement benefits |
| - |
|
| 432 |
| - |
|
| 2,131 |
Asset impairments and abandonments |
| 2,442 |
|
| - | |||||
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
Receivables |
| 1,695 |
|
| 2,125 |
| 2,522 |
|
| 3,584 |
Other current assets, inventories and theatrical film and television production costs |
| (3,267) |
|
| (2,510) |
| (5,592) |
|
| (5,422) |
Accounts payable and other accrued liabilities |
| (3,884) |
|
| (3,686) |
| (3,847) |
|
| (3,056) |
Equipment installment receivables and related sales |
| 535 |
|
| 652 |
| 226 |
|
| 1,144 |
Deferred customer contract acquisition and fulfillment costs |
| 105 |
|
| (375) |
| 322 |
|
| (614) |
Postretirement claims and contributions |
| (111) |
|
| (193) |
| (228) |
|
| (424) |
Other - net |
| (345) |
|
| (357) |
| 346 |
|
| (494) |
Total adjustments |
| 3,903 |
|
| 6,704 |
| 14,399 |
|
| 17,014 |
Net Cash Provided by Operating Activities |
| 8,866 |
|
| 11,052 |
| 20,925 |
|
| 25,336 |
Investing Activities |
|
|
|
|
|
|
|
|
|
|
Capital expenditures: |
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment |
| (4,938) |
|
| (5,121) |
| (9,372) |
|
| (10,542) |
Interest during construction |
| (28) |
|
| (61) |
| (60) |
|
| (112) |
Acquisitions, net of cash acquired |
| (100) |
|
| (117) |
| (1,174) |
|
| (320) |
Dispositions |
| 118 |
|
| 10 |
| 347 |
|
| 3,593 |
(Purchases), sales and settlement of securities and investments, net |
| (6) |
|
| (1) | |||||
(Purchases), sales and settlements of securities and investments, net |
| 47 |
|
| 396 | |||||
Advances to and investments in equity affiliates, net |
| (68) |
|
| (111) |
| (66) |
|
| (314) |
Net Cash Used in Investing Activities |
| (5,022) |
|
| (5,401) |
| (10,278) |
|
| (7,299) |
Financing Activities |
|
|
|
|
|
|
|
|
|
|
Net change in short-term borrowings with original maturities of three months or less |
| 1,742 |
|
| (256) |
| 498 |
|
| 119 |
Issuance of other short-term borrowings |
| 1,390 |
|
| 296 |
| 8,440 |
|
| 3,067 |
Repayment of other short-term borrowings |
| - |
|
| (176) |
| (5,975) |
|
| (3,148) |
Issuance of long-term debt |
| 4,357 |
|
| 9,182 |
| 21,060 |
|
| 10,030 |
Repayment of long-term debt |
| (4,422) |
|
| (9,840) |
| (17,284) |
|
| (16,124) |
Payment of vendor financing |
| (791) |
|
| (819) |
| (1,354) |
|
| (1,836) |
Issuance of preferred stock |
| 3,869 |
|
| - |
| 3,869 |
|
| - |
Purchase of treasury stock |
| (5,463) |
|
| (189) |
| (5,480) |
|
| (240) |
Issuance of treasury stock |
| 58 |
|
| 167 |
| 84 |
|
| 455 |
Dividends paid |
| (3,737) |
|
| (3,714) |
| (7,474) |
|
| (7,436) |
Other |
| (3,102) |
|
| 928 |
| (2,295) |
|
| 330 |
Net Cash Used in Financing Activities |
| (6,099) |
|
| (4,421) |
| (5,911) |
|
| (14,783) |
Net (decrease) increase in cash and cash equivalents and restricted cash |
| (2,255) |
|
| 1,230 | |||||
Net increase in cash and cash equivalents and restricted cash |
| 4,736 |
|
| 3,254 | |||||
Cash and cash equivalents and restricted cash beginning of year |
| 12,295 |
|
| 5,400 |
| 12,295 |
|
| 5,400 |
Cash and Cash Equivalents and Restricted Cash End of Period | $ | 10,040 |
| $ | 6,630 | $ | 17,031 |
| $ | 8,654 |
See Notes to Consolidated Financial Statements. | See Notes to Consolidated Financial Statements. | See Notes to Consolidated Financial Statements. |
6
AT&T INC. | |||||||||
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. |
|
|
|
AT&T INC. |
|
|
|
|
|
|
|
|
|
| |||||||||
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY | |||||||||||||||||||
Dollars and shares in millions except per share amounts |
|
|
|
|
|
|
|
|
|
| |||||||||
(Unaudited) |
|
|
|
|
|
|
|
|
|
| |||||||||
| Three months ended |
| Six months ended | ||||||||||||||||
| June 30, 2020 |
| June 30, 2019 |
| June 30, 2020 |
| June 30, 2019 | ||||||||||||
| Shares |
| Amount |
| Shares |
| Amount |
| Shares |
| Amount |
| Shares |
| Amount | ||||
Preferred Stock - Series A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year | - |
| $ | - |
| - |
| $ | - |
| - |
| $ | - |
| - |
| $ | - |
Issuance of stock | - |
|
| - |
| - |
|
| - |
| - |
|
| - |
| - |
|
| - |
Balance at end of period | - |
| $ | - |
| - |
| $ | - |
| - |
| $ | - |
| - |
| $ | - |
Preferred Stock - Series B |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year | - |
| $ | - |
| - |
| $ | - |
| - |
| $ | - |
| - |
| $ | - |
Issuance of stock | - |
|
| - |
| - |
|
| - |
| - |
|
| - |
| - |
|
| - |
Balance at end of period | - |
| $ | - |
| - |
| $ | - |
| - |
| $ | - |
| - |
| $ | - |
Preferred Stock - Series C |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of year | - |
| $ | - |
| - |
| $ | - |
| - |
| $ | - |
| - |
| $ | - |
Issuance of stock | - |
|
| - |
| - |
|
| - |
| - |
|
| - |
| - |
|
| - |
Balance at end of period | - |
| $ | - |
| - |
| $ | - |
| - |
| $ | - |
| - |
| $ | - |
Common Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period | 7,621 |
| $ | 7,621 |
| 7,621 |
| $ | 7,621 |
| 7,621 |
| $ | 7,621 |
| 7,621 |
| $ | 7,621 |
Issuance of stock | - |
|
| - |
| - |
|
| - |
| - |
|
| - |
| - |
|
| - |
Balance at end of period | 7,621 |
| $ | 7,621 |
| 7,621 |
| $ | 7,621 |
| 7,621 |
| $ | 7,621 |
| 7,621 |
| $ | 7,621 |
Additional Paid-In Capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
|
| $ | 129,966 |
|
|
| $ | 125,174 |
|
|
| $ | 126,279 |
|
|
| $ | 125,525 |
Repurchase and acquisition of common stock |
|
|
| - |
|
|
|
| - |
|
|
|
| 67 |
|
|
|
| - |
Issuance of preferred stock |
|
|
| - |
|
|
|
| - |
|
|
|
| 3,869 |
|
|
|
| - |
Issuance of treasury stock |
|
|
| (7) |
|
|
|
| (50) |
|
|
|
| (54) |
|
|
|
| (127) |
Share-based payments |
|
|
| 87 |
|
|
|
| (15) |
|
|
|
| (115) |
|
|
|
| (289) |
Balance at end of period |
|
| $ | 130,046 |
|
|
| $ | 125,109 |
|
|
| $ | 130,046 |
|
|
| $ | 125,109 |
Retained Earnings |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period |
|
| $ | 58,534 |
|
|
| $ | 59,424 |
|
|
| $ | 57,936 |
|
|
| $ | 58,753 |
Net income attributable to AT&T |
|
|
| 1,281 |
|
|
|
| 3,713 |
|
|
|
| 5,891 |
|
|
|
| 7,809 |
Preferred stock dividends |
|
|
| (36) |
|
|
|
| - |
|
|
|
| (68) |
|
|
|
| - |
Common stock dividends ( $0.52, $0.51, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$1.04, and $1.02 per share) |
|
|
| (3,734) |
|
|
|
| (3,748) |
|
|
|
| (7,421) |
|
|
|
| (7,489) |
Cumulative effect of accounting change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and other adjustments |
|
|
| - |
|
|
|
| - |
|
|
|
| (293) |
|
|
|
| 316 |
Balance at end of period |
|
| $ | 56,045 |
|
|
| $ | 59,389 |
|
|
| $ | 56,045 |
|
|
| $ | 59,389 |
See Notes to Consolidated Financial Statements. |
7
AT&T INC. | AT&T INC. | AT&T INC. |
|
|
|
|
|
|
|
| ||||||||||||||||||
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY - continued | CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY - continued | CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY - continued | ||||||||||||||||||||||||||
Dollars and shares in millions except per share amounts | Dollars and shares in millions except per share amounts | Dollars and shares in millions except per share amounts |
|
|
|
|
|
|
|
| ||||||||||||||||||
(Unaudited) |
|
|
|
|
|
|
|
|
| (Unaudited) |
|
|
|
|
|
|
|
| ||||||||||
| March 31, 2020 |
| March 31, 2019 | Three months ended |
| Six months ended | ||||||||||||||||||||||
| Shares |
| Amount |
| Shares |
| Amount | June 30, 2020 |
| June 30, 2019 |
| June 30, 2020 |
| June 30, 2019 | ||||||||||||||
| Shares |
| Amount |
| Shares |
| Amount |
| Shares |
| Amount |
| Shares |
| Amount | |||||||||||||
Treasury Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Balance at beginning of year | (366) |
| $ | (13,085) |
| (339) |
| $ | (12,059) | |||||||||||||||||||
Balance at beginning of period | (496) |
| $ | (17,957) |
| (324) |
| $ | (11,452) |
| (366) |
| $ | (13,085) |
| (339) |
| $ | (12,059) | |||||||||
Repurchase and acquisition of common stock | (148) |
|
| (5,547) |
| (7) |
|
| (208) | - |
| (34) |
| (2) |
| (72) |
| (148) |
| (5,581) |
| (9) |
| (280) | ||||
Issuance of treasury stock | 18 |
|
| 675 |
| 22 |
|
| 815 | 1 |
| 46 |
| 10 |
| 373 |
| 19 |
| 721 |
| 32 |
| 1,188 | ||||
Balance at end of period | (496) |
| $ | (17,957) |
| (324) |
| $ | (11,452) | (495) |
| $ | (17,945) |
| (316) |
| $ | (11,151) |
| (495) |
| $ | (17,945) |
| (316) |
| $ | (11,151) |
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 | |||||||||||||||||||
Accumulated Other Comprehensive |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Income Attributable to AT&T, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Balance at beginning of period |
|
| $ | (385) |
|
|
| $ | 4,345 |
|
|
| $ | 5,470 |
|
|
| $ | 4,249 | |||||||||
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
attributable to AT&T |
|
| 514 |
|
|
| (1,056) |
|
|
| (5,341) |
|
|
| (960) | |||||||||||||
Balance at end of period |
|
| $ | (385) |
|
|
| $ | 4,345 |
|
| $ | 129 |
|
|
| $ | 3,289 |
|
|
| $ | 129 |
|
|
| $ | 3,289 |
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 | |||||||||||||||||||
Balance at beginning of period |
|
| $ | 17,670 |
|
|
| $ | 9,839 |
|
|
| $ | 17,713 |
|
|
| $ | 9,795 | |||||||||
Net income attributable to |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
noncontrolling interest |
|
| 282 |
|
|
| 261 |
|
|
| 635 |
|
|
| 513 | |||||||||||||
Interest acquired by noncontrolling owners |
|
| - |
|
|
| 1 |
|
|
| 1 |
|
|
| 10 | |||||||||||||
Distributions |
|
|
| (339) |
|
|
|
| (246) |
|
| (387) |
|
|
| (279) |
|
|
| (726) |
|
|
| (525) | ||||
Translation adjustments attributable to noncontrolling |
|
|
|
|
|
|
|
|
| |||||||||||||||||||
interest, net of taxes |
|
|
| (51) |
|
|
|
| - | |||||||||||||||||||
Cumulative effect of accounting changes |
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Translation adjustments attributable to |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
noncontrolling interest, net of taxes |
|
| (8) |
|
|
| 2 |
|
|
| (59) |
|
|
| 2 | |||||||||||||
Cumulative effect of accounting change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
and other adjustments |
|
|
| (7) |
|
|
|
| 29 |
|
| - |
|
|
| - |
|
|
| (7) |
|
|
| 29 | ||||
Balance at end of period |
|
| $ | 17,670 |
|
|
| $ | 9,839 |
|
| $ | 17,557 |
|
|
| $ | 9,824 |
|
|
| $ | 17,557 |
|
|
| $ | 9,824 |
Total Stockholders’ Equity at beginning of year |
|
| $ | 201,934 |
|
|
| $ | 193,884 | |||||||||||||||||||
Total Stockholders’ Equity at end of period |
|
| $ | 195,449 |
|
|
| $ | 194,951 | |||||||||||||||||||
Total Stockholders’ Equity at beginning |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
of period |
|
| $ | 195,449 |
|
|
| $ | 194,951 |
|
|
| $ | 201,934 |
|
|
| $ | 193,884 | |||||||||
Total Stockholders’ Equity at end |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
of period |
|
| $ | 193,453 |
|
|
| $ | 194,081 |
|
|
| $ | 193,453 |
|
|
| $ | 194,081 | |||||||||
See Notes to Consolidated Financial Statements. |
|
|
| See Notes to Consolidated Financial Statements. |
8
AT&T INC.
MARCH 31,JUNE 30, 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. AT&T is a holding company whose subsidiaries and affiliates operate worldwide in the telecommunications, media and technology industries. You should read this document in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2019. The results for the interim periods are not necessarily indicative of those for the full year. These consolidated financial statements include all adjustments that are necessary to present fairly the results for the presented interim periods, consisting of normal recurring accruals and other items.
All significant intercompany transactions are eliminated in the consolidation process. Investments in 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. Actual results could differ from those estimates. Certain prior period amounts have been conformed to the current period’s presentation.presentation, including the combination of our prior Xandr segment with the WarnerMedia segment.
In the tables throughout this document, percentage increases and decreases that are not considered meaningful are denoted with a dash.
Adopted and Pending Accounting Standards and Other Changes
Credit Losses As of January 1, 2020, we adopted, through modified retrospective application, the Financial Accounting Standards Board’s (FASB) Accounting Standards Update (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 prior GAAP with an expected credit loss model. ASU 2016-13 affects trade receivables, loans, contract assets, certain beneficial interests, off-balance-sheet credit exposures not accounted for as insurance and other financial assets that are not subject to fair value through net income, as defined by the standard. Under the expected credit loss model, we are required to consider future economic trends to estimate expected credit losses over the lifetime of the asset. Upon adoption, we recorded a $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 did not have a material impact on our financial statements.
Reference Rate Reform In 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 Driven by significant and adverse economic and political environments in Latin America, including the impact of the COVID-19 pandemic, we have experienced accelerated subscriber losses and revenue decline in the region, as well as closure of our operations in Venezuela. When combining these business trends and higher weighted-average cost of capital resulting from the increase in country-risk premiums in the region, we concluded that it is more likely than not that the
9
AT&T INC.
JUNE 30, 2020
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
fair value of the Vrio reporting unit, estimated using discounted cash flow and market multiple approaches, is less than its carrying amount. We recorded a $2,212 goodwill impairment in the reporting unit, with $105 attributable to noncontrolling interest. The impairment is not deductible for tax purposes and resulted in an increase in our effective tax rate.
During the first quarter of 2020, we reassessed and changed the estimated economic lives of certain trade names in our Latin America business from indefinite to finite-lived and began amortizing them using the straight-line method over their average remaining economic life of 15 years. This change had an insignificant impact on our financial statements.
Also during the first quarter of 2020, in conjunction with the nationwide launch of AT&T TV and our customers’ continued shift from linear to streaming video services, we reassessed the estimated economic lives and renewal assumptions for our orbital slot licenses. As a result, we have changed the estimated lives of these licenses from indefinite to finite-lived, effective January 1, 2020, and began amortizing our orbital slot licenses using the sum-of-months-digits method over their average remaining economic life of 15 years. This change in accounting increased amortization expense $386,379, or $0.04 per diluted share available to common stock during the second quarter and $765, or $0.08, per diluted share available to common stock for the first quartersix months 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 and six months ended March 31,June 30, 2020 and 2019, is shown in the table below:below.
| Three months ended | ||||
| March 31, | ||||
| 2020 |
| 2019 | ||
Numerators |
|
|
|
|
|
Numerator for basic earnings per share: |
|
|
|
|
|
Net income | $ | 4,963 |
| $ | 4,348 |
Less: Net income attributable to noncontrolling interest |
| (353) |
|
| (252) |
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 |
| 6 |
|
| 6 |
Numerator for diluted earnings per share | $ | 4,584 |
| $ | 4,102 |
Denominators (000,000) |
|
|
|
|
|
Denominator for basic earnings per share: |
|
|
|
|
|
Weighted average number of common shares outstanding |
| 7,187 |
|
| 7,313 |
Dilutive potential common shares: |
|
|
|
|
|
Share-based payment (in shares) |
| 27 |
|
| 29 |
Denominator for diluted earnings per share |
| 7,214 |
|
| 7,342 |
Basic earnings per share attributable to Common Stock | $ | 0.63 |
| $ | 0.56 |
Diluted earnings per share attributable to Common Stock | $ | 0.63 |
| $ | 0.56 |
| Three months ended |
| Six months ended | ||||||||
| June 30, |
| June 30, | ||||||||
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Numerators |
|
|
|
|
|
|
|
|
|
|
|
Numerator for basic earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
Net Income | $ | 1,563 |
| $ | 3,974 |
| $ | 6,526 |
| $ | 8,322 |
Less: Net income attributable to noncontrolling interest |
| (282) |
|
| (261) |
|
| (635) |
|
| (513) |
Net Income attributable to AT&T |
| 1,281 |
|
| 3,713 |
|
| 5,891 |
|
| 7,809 |
Less: Preferred stock dividends |
| (52) |
|
| - |
|
| (84) |
|
| - |
Net income attributable to common stock |
| 1,229 |
|
| 3,713 |
|
| 5,807 |
|
| 7,809 |
Dilutive potential common shares: |
|
|
|
|
|
|
|
|
|
|
|
Share-based payment |
| 5 |
|
| 4 |
|
| 11 |
|
| 10 |
Numerator for diluted earnings per share | $ | 1,234 |
| $ | 3,717 |
| $ | 5,818 |
| $ | 7,819 |
Denominators (000,000) |
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding |
| 7,145 |
|
| 7,323 |
|
| 7,166 |
|
| 7,318 |
Dilutive potential common shares: |
|
|
|
|
|
|
|
|
|
|
|
Share-based payment (in shares) |
| 25 |
|
| 30 |
|
| 26 |
|
| 29 |
Denominator for diluted earnings per share |
| 7,170 |
|
| 7,353 |
|
| 7,192 |
|
| 7,347 |
Basic earnings per share attributable to Common Stock | $ | 0.17 |
| $ | 0.51 |
| $ | 0.81 |
| $ | 1.06 |
Diluted earnings per share attributable to Common Stock | $ | 0.17 |
| $ | 0.51 |
| $ | 0.81 |
| $ | 1.06 |
In the first quarter of 2020, we completed an accelerated share repurchase agreement with a third-party financial institution to repurchase AT&T common stock. Under the terms of the agreement, we paid the financial institution $4,000 and received 104.8 million shares.
10
AT&T INC.
MARCH 31,JUNE 30, 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 |
| 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 | Balance as of December 31, 2019 | $ | (3,056) |
| $ | 48 |
| $ | (37) |
| $ | 8,515 |
| $ | 5,470 | Balance as of December 31, 2019 | $ | (3,056) |
| $ | 48 |
| $ | (37) |
| $ | 8,515 |
| $ | 5,470 |
Other comprehensive income | Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(loss) before reclassifications | (loss) before reclassifications |
| (1,803) |
|
| 66 |
|
| (3,657) |
|
| - |
|
| (5,394) | (loss) before reclassifications |
| (1,490) |
|
| 80 |
|
| (3,026) |
|
| - |
|
| (4,436) |
Amounts reclassified from accumulated OCI |
| - | 1 |
| - | 1 |
| - | 2 |
| (461) | 3 |
| (461) | ||||||||||||||||
Amounts reclassified | Amounts reclassified |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
from accumulated OCI | from accumulated OCI |
| - | 1 |
| - | 1 |
| 17 | 2 |
| (922) | 3 |
| (905) | |||||||||||||||
Net other comprehensive | Net other comprehensive |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net other comprehensive |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income (loss) | income (loss) |
| (1,803) |
|
| 66 |
|
| (3,657) |
|
| (461) |
|
| (5,855) | income (loss) |
| (1,490) |
|
| 80 |
|
| (3,009) |
|
| (922) |
|
| (5,341) |
Balance as of March 31, 2020 | $ | (4,859) |
| $ | 114 |
| $ | (3,694) |
| $ | 8,054 |
| $ | (385) | ||||||||||||||||
Balance as of June 30, 2020 | Balance as of June 30, 2020 | $ | (4,546) |
| $ | 128 |
| $ | (3,046) |
| $ | 7,593 |
| $ | 129 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Foreign Currency Translation Adjustment |
| Net Unrealized Gains (Losses) on Securities |
| Net Unrealized Gains (Losses) on Derivative Instruments |
| Defined Benefit Postretirement Plans |
| Accumulated Other Comprehensive Income |
| 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 | Balance as of December 31, 2018 | $ | (3,084) |
| $ | (2) |
| $ | 818 |
| $ | 6,517 |
| $ | 4,249 | Balance as of December 31, 2018 | $ | (3,084) |
| $ | (2) |
| $ | 818 |
| $ | 6,517 |
| $ | 4,249 |
Other comprehensive income | Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(loss) before reclassifications | (loss) before reclassifications |
| 288 |
|
| 16 |
|
| 127 |
|
| - |
|
| 431 | (loss) before reclassifications |
| 159 |
|
| 42 |
|
| (490) |
|
| - |
|
| (289) |
Amounts reclassified from accumulated OCI |
| - | 1 |
| - | 1 |
| 11 | 2 |
| (346) | 3 |
| (335) | ||||||||||||||||
Amounts reclassified | Amounts reclassified |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
from accumulated OCI | from accumulated OCI |
| - | 1 |
| - | 1 |
| 17 | 2 |
| (688) | 3 |
| (671) | |||||||||||||||
Net other comprehensive | Net other comprehensive |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net other comprehensive |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income (loss) | income (loss) |
| 288 |
|
| 16 |
|
| 138 |
|
| (346) |
|
| 96 | income (loss) |
| 159 |
|
| 42 |
|
| (473) |
|
| (688) |
|
| (960) |
Balance as of March 31, 2019 | $ | (2,796) |
| $ | 14 |
| $ | 956 |
| $ | 6,171 |
| $ | 4,345 | ||||||||||||||||
Balance as of June 30, 2019 | Balance as of June 30, 2019 | $ | (2,925) |
| $ | 40 |
| $ | 345 |
| $ | 5,829 |
| $ | 3,289 | |||||||||||||||
1 | (Gains) losses are included in "Other income (expense) - net" in the consolidated statements of income. | (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). | (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 amortization of prior service credits associated with postretirement benefits are included in "Other income (expense) - net" in the | ||||||||||||||||||||||||||||
| the consolidated statements of income (see Note 6). | consolidated statements of income (see Note 6). |
11
AT&T INC.
JUNE 30, 2020
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
NOTE 4. SEGMENT INFORMATION
Our segments are strategic business units that offer products and services to different customer segments over various technology platforms and/or in different geographies that are managed accordingly. We analyze our segments based on segment operating contribution, which consists of operating income, excluding acquisition-related costs and other significant items (as discussed below), and equity in net income (loss) of affiliates for investments managed within each segment. We have 43 reportable segments: (1) Communications, (2) WarnerMedia and (3) Latin America, and (4) Xandr.America.
We have recast our segment results for all prior periods to include our prior Xandr segment within our WarnerMedia segment.
We also evaluate segment and business unit performance based on EBITDA and/or EBITDA margin, which is defined as operating contribution excluding equity in net income (loss) of affiliates and depreciation and amortization. We believe EBITDA to be a relevant and useful measurement to our investors as it is part of our internal management reporting and planning processes and it is an important metric that management uses to evaluate operating performance. EBITDA does not
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. 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 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 Xandr, previously a separate reportable segment, have been combined with the WarnerMedia segment within Eliminations and other. This segment contains the following business units:
Turner primarily operates multichannel basic television networks and digital properties. Turner also sells advertising on its networks and digital properties.
Home Box Office consists of premium pay television and OTT and streaming services domestically and premium pay, basic tier television and OTT services internationally, as well as content licensing and home entertainment.
Warner Bros. primarily consists of the production, distribution and licensing of television programming and feature films, the distribution of home entertainment products and the production and distribution of games.
The Latin America segment provides entertainment and wireless services outside of the U.S. This segment contains the following business units:
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. 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.
Corporate and Other reconciles our segment results to consolidated operating income and income before income taxes, and 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 income (expense) – net.”
Acquisition-related items which consists of items associated with the merger and integration of acquired businesses, including amortization of intangible assets.
12
AT&T INC.
JUNE 30, 2020
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
Certain significant items includes (1) employee separation charges associated with voluntary and/or strategic offers, (2) losses resulting from abandonment or impairment of network assets and impairments and (3) other items for which the segments are not being evaluated.
Eliminations and consolidations, which (1) removes transactions involving dealings between our segments, including content licensing between WarnerMedia and Communications, and (2) includes adjustments for our reporting of the advertising business.
“Interest expense” and “Other income (expense) – net,” are managed only on a total company basis and are, accordingly, reflected only in consolidated results.
1213
AT&T INC.
MARCH 31,JUNE 30, 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 | ||||||||||||||||||||||||||
For the three months ended June 30, 2020 | For the three months ended June 30, 2020 | |||||||||||||||||||||||||||||||||||||||
|
| Revenues |
| Expenses |
| EBITDA |
| Amortization |
| (Loss) |
| Affiliates |
| Contribution |
| Revenues |
| Operations and Support Expenses |
| EBITDA |
| Depreciation and Amortization |
| Operating Income (Loss) |
| Equity in Net Income (Loss) of Affiliates |
| Segment Contribution | ||||||||||||
Communications |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Mobility | $ | 17,402 |
| $ | 9,569 |
| $ | 7,833 |
| $ | 2,045 |
| $ | 5,788 |
| $ | - |
| $ | 5,788 | $ | 17,149 |
| $ | 9,332 |
| $ | 7,817 |
| $ | 2,012 |
| $ | 5,805 |
| $ | - |
| $ | 5,805 |
Entertainment Group |
| 10,515 |
|
| 7,891 |
|
| 2,624 |
| 1,289 |
| 1,335 |
| - |
| 1,335 |
| 10,069 |
|
| 7,730 |
|
| 2,339 |
|
| 1,309 |
|
| 1,030 |
|
| - |
|
| 1,030 | ||||
Business Wireline |
| 6,332 |
|
| 3,951 |
|
| 2,381 |
|
| 1,301 |
|
| 1,080 |
|
| - |
|
| 1,080 |
| 6,374 |
|
| 3,779 |
|
| 2,595 |
|
| 1,318 |
|
| 1,277 |
|
| - |
|
| 1,277 |
Total Communications |
| 34,249 |
| 21,411 |
| 12,838 |
| 4,635 |
| 8,203 |
| - |
| 8,203 |
| 33,592 |
| 20,841 |
| 12,751 |
| 4,639 |
| 8,112 |
| - |
| 8,112 | ||||||||||||
WarnerMedia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Turner |
| 3,162 |
|
| 1,710 |
|
| 1,452 |
| 69 |
| 1,383 |
| 6 |
| 1,389 |
| 2,988 |
|
| 1,347 |
|
| 1,641 |
|
| 69 |
|
| 1,572 |
|
| - |
|
| 1,572 | ||||
Home Box Office |
| 1,497 |
|
| 1,053 |
|
| 444 |
| 21 |
| 423 |
| 20 |
| 443 |
| 1,627 |
|
| 1,489 |
|
| 138 |
|
| 25 |
|
| 113 |
|
| (5) |
|
| 108 | ||||
Warner Bros. |
| 3,240 |
|
| 2,950 |
|
| 290 |
| 41 |
| 249 |
| (8) |
| 241 |
| 3,256 |
|
| 2,583 |
|
| 673 |
|
| 40 |
|
| 633 |
|
| (19) |
|
| 614 | ||||
Other |
| (540) |
|
| (196) |
|
| (344) |
| 12 |
| (356) |
| (3) |
| (359) | ||||||||||||||||||||||||
Eliminations and other |
| (1,057) |
|
| (685) |
|
| (372) |
| 33 |
| (405) |
| 28 |
| (377) | ||||||||||||||||||||||||
Total WarnerMedia |
| 7,359 |
|
| 5,517 |
|
| 1,842 |
| 143 |
| 1,699 |
| 15 |
| 1,714 |
| 6,814 |
|
| 4,734 |
|
| 2,080 |
| 167 |
| 1,913 |
| 4 |
| 1,917 | ||||||||
Latin America |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Vrio |
| 887 |
|
| 783 |
|
| 104 |
| 147 |
| (43) |
| 4 |
| (39) |
| 752 |
|
| 661 |
|
| 91 |
| 127 |
| (36) |
| 8 |
| (28) | ||||||||
Mexico |
| 703 |
|
| 714 |
|
| (11) |
| 134 |
| (145) |
| - |
| (145) |
| 480 |
|
| 538 |
|
| (58) |
| 115 |
| (173) |
| - |
| (173) | ||||||||
Total Latin America |
| 1,590 |
|
| 1,497 |
|
| 93 |
| 281 |
| (188) |
| 4 |
| (184) |
| 1,232 |
|
| 1,199 |
|
| 33 |
| 242 |
| (209) |
| 8 |
| (201) | ||||||||
Xandr |
| 489 |
|
| 170 |
|
| 319 |
| 20 |
| 299 |
| - |
| 299 | ||||||||||||||||||||||||
Segment Total |
| 43,687 |
|
| 28,595 |
|
| 15,092 |
| 5,079 |
| 10,013 |
| $ | 19 |
| $ | 10,032 |
| 41,638 |
|
| 26,774 |
|
| 14,864 |
| 5,048 |
| 9,816 |
| $ | 12 |
| $ | 9,828 | ||||
Corporate and Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Corporate |
| 388 |
|
| 874 |
|
| (486) |
| 87 |
| (573) |
|
|
|
|
| 437 |
|
| 933 |
|
| (496) |
| 93 |
| (589) |
|
|
|
| ||||||||
Acquisition-related items |
| - |
|
| 182 |
|
| (182) |
| 2,056 |
| (2,238) |
|
|
|
|
| - |
|
| 211 |
|
| (211) |
| 2,145 |
| (2,356) |
|
|
|
| ||||||||
Certain significant items |
| - |
|
| (658) |
|
| 658 |
| - |
| 658 |
|
|
|
|
| - |
|
| 3,084 |
|
| (3,084) |
| - |
| (3,084) |
|
|
|
| ||||||||
Eliminations and consolidations |
| (1,296) |
|
| (922) |
|
| (374) |
| - |
| (374) |
|
|
|
|
| (1,125) |
|
| (869) |
|
| (256) |
| (1) |
| (255) |
|
|
|
| ||||||||
AT&T Inc. | $ | 42,779 |
| $ | 28,071 |
| $ | 14,708 |
| $ | 7,222 |
| $ | 7,486 |
|
|
|
| $ | 40,950 |
| $ | 30,133 |
| $ | 10,817 |
| $ | 7,285 |
| $ | 3,532 |
|
|
|
|
1314
AT&T INC.
MARCH 31,JUNE 30, 2020
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
For the three months ended March 31, 2019 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Equity in Net |
|
|
|
|
|
|
|
| Operations |
|
|
|
|
| Depreciation |
|
| Operating |
|
| Income |
|
|
|
|
|
|
|
| and Support |
|
|
|
|
| and |
|
| Income |
|
| (Loss) |
|
| Segment |
|
| Revenues |
|
| Expenses |
|
| EBITDA |
|
| Amortization |
|
| (Loss) |
|
| Affiliates |
|
| Contribution |
Communications |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobility | $ | 17,363 |
| $ | 10,041 |
| $ | 7,322 |
| $ | 2,013 |
| $ | 5,309 |
| $ | - |
| $ | 5,309 |
Entertainment Group |
| 11,328 |
|
| 8,527 |
|
| 2,801 |
|
| 1,323 |
|
| 1,478 |
|
| - |
|
| 1,478 |
Business Wireline |
| 6,478 |
|
| 4,032 |
|
| 2,446 |
|
| 1,222 |
|
| 1,224 |
|
| - |
|
| 1,224 |
Total Communications |
| 35,169 |
|
| 22,600 |
|
| 12,569 |
|
| 4,558 |
|
| 8,011 |
|
| - |
|
| 8,011 |
WarnerMedia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Turner |
| 3,443 |
|
| 2,136 |
|
| 1,307 |
|
| 60 |
|
| 1,247 |
|
| 25 |
|
| 1,272 |
Home Box Office |
| 1,510 |
|
| 921 |
|
| 589 |
|
| 22 |
|
| 567 |
|
| 15 |
|
| 582 |
Warner Bros. |
| 3,518 |
|
| 2,919 |
|
| 599 |
|
| 52 |
|
| 547 |
|
| 6 |
|
| 553 |
Other |
| (92) |
|
| 17 |
|
| (109) |
|
| 9 |
|
| (118) |
|
| 21 |
|
| (97) |
Total WarnerMedia |
| 8,379 |
|
| 5,993 |
|
| 2,386 |
|
| 143 |
|
| 2,243 |
|
| 67 |
|
| 2,310 |
Latin America |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vrio |
| 1,067 |
|
| 866 |
|
| 201 |
|
| 169 |
|
| 32 |
|
| - |
|
| 32 |
Mexico |
| 651 |
|
| 725 |
|
| (74) |
|
| 131 |
|
| (205) |
|
| - |
|
| (205) |
Total Latin America |
| 1,718 |
|
| 1,591 |
|
| 127 |
|
| 300 |
|
| (173) |
|
| - |
|
| (173) |
Xandr |
| 426 |
|
| 160 |
|
| 266 |
|
| 13 |
|
| 253 |
|
| - |
|
| 253 |
Segment Total |
| 45,692 |
|
| 30,344 |
|
| 15,348 |
|
| 5,014 |
|
| 10,334 |
| $ | 67 |
| $ | 10,401 |
Corporate and Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate |
| 433 |
|
| 661 |
|
| (228) |
|
| 204 |
|
| (432) |
|
|
|
|
|
|
Acquisition-related items |
| (42) |
|
| 73 |
|
| (115) |
|
| 1,988 |
|
| (2,103) |
|
|
|
|
|
|
Certain significant items |
| - |
|
| 248 |
|
| (248) |
|
| - |
|
| (248) |
|
|
|
|
|
|
Eliminations and consolidations |
| (1,256) |
|
| (938) |
|
| (318) |
|
| - |
|
| (318) |
|
|
|
|
|
|
AT&T Inc. | $ | 44,827 |
| $ | 30,388 |
| $ | 14,439 |
| $ | 7,206 |
| $ | 7,233 |
|
|
|
|
|
|
For the three months ended June 30, 2019 | ||||||||||||||||||||
|
| Revenues |
|
| Operations and Support Expenses |
|
| EBITDA |
|
| Depreciation and Amortization |
|
| Operating Income (Loss) |
|
| Equity in Net Income (Loss) of Affiliates |
|
| Segment Contribution |
Communications |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobility | $ | 17,292 |
| $ | 9,522 |
| $ | 7,770 |
| $ | 2,003 |
| $ | 5,767 |
| $ | - |
| $ | 5,767 |
Entertainment Group |
| 11,368 |
|
| 8,515 |
|
| 2,853 |
|
| 1,339 |
|
| 1,514 |
|
| - |
|
| 1,514 |
Business Wireline |
| 6,607 |
|
| 3,975 |
|
| 2,632 |
|
| 1,242 |
|
| 1,390 |
|
| - |
|
| 1,390 |
Total Communications |
| 35,267 |
|
| 22,012 |
|
| 13,255 |
|
| 4,584 |
|
| 8,671 |
|
| - |
|
| 8,671 |
WarnerMedia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Turner |
| 3,410 |
|
| 2,217 |
|
| 1,193 |
|
| 39 |
|
| 1,154 |
|
| 11 |
|
| 1,165 |
Home Box Office |
| 1,716 |
|
| 1,131 |
|
| 585 |
|
| 12 |
|
| 573 |
|
| 15 |
|
| 588 |
Warner Bros. |
| 3,389 |
|
| 2,918 |
|
| 471 |
|
| 31 |
|
| 440 |
|
| - |
|
| 440 |
Eliminations and other |
| 320 |
|
| 170 |
|
| 150 |
|
| 22 |
|
| 128 |
|
| 29 |
|
| 157 |
Total WarnerMedia |
| 8,835 |
|
| 6,436 |
|
| 2,399 |
|
| 104 |
|
| 2,295 |
|
| 55 |
|
| 2,350 |
Latin America |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vrio |
| 1,032 |
|
| 881 |
|
| 151 |
|
| 165 |
|
| (14) |
|
| 12 |
|
| (2) |
Mexico |
| 725 |
|
| 813 |
|
| (88) |
|
| 119 |
|
| (207) |
|
| - |
|
| (207) |
Total Latin America |
| 1,757 |
|
| 1,694 |
|
| 63 |
|
| 284 |
|
| (221) |
|
| 12 |
|
| (209) |
Segment Total |
| 45,859 |
|
| 30,142 |
|
| 15,717 |
|
| 4,972 |
|
| 10,745 |
| $ | 67 |
| $ | 10,812 |
Corporate and Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate |
| 450 |
|
| 765 |
|
| (315) |
|
| 170 |
|
| (485) |
|
|
|
|
|
|
Acquisition-related items |
| (30) |
|
| 316 |
|
| (346) |
|
| 1,960 |
|
| (2,306) |
|
|
|
|
|
|
Certain significant items |
| - |
|
| 94 |
|
| (94) |
|
| - |
|
| (94) |
|
|
|
|
|
|
Eliminations and consolidations |
| (1,322) |
|
| (961) |
|
| (361) |
|
| (1) |
|
| (360) |
|
|
|
|
|
|
AT&T Inc. | $ | 44,957 |
| $ | 30,356 |
| $ | 14,601 |
| $ | 7,101 |
| $ | 7,500 |
|
|
|
|
|
|
1415
AT&T INC.
MARCH 31,JUNE 30, 2020
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
For the six months ended June 30, 2020 | ||||||||||||||||||||
|
| Revenues |
|
| Operations and Support Expenses |
|
| EBITDA |
|
| Depreciation and Amortization |
|
| Operating Income (Loss) |
|
| Equity in Net Income (Loss) of Affiliates |
|
| Segment Contribution |
Communications |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobility | $ | 34,551 |
| $ | 18,901 |
| $ | 15,650 |
| $ | 4,057 |
| $ | 11,593 |
| $ | - |
| $ | 11,593 |
Entertainment Group |
| 20,584 |
|
| 15,621 |
|
| 4,963 |
|
| 2,598 |
|
| 2,365 |
|
| - |
|
| 2,365 |
Business Wireline |
| 12,706 |
|
| 7,730 |
|
| 4,976 |
|
| 2,619 |
|
| 2,357 |
|
| - |
|
| 2,357 |
Total Communications |
| 67,841 |
|
| 42,252 |
|
| 25,589 |
|
| 9,274 |
|
| 16,315 |
|
| - |
|
| 16,315 |
WarnerMedia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Turner |
| 6,150 |
|
| 3,057 |
|
| 3,093 |
|
| 138 |
|
| 2,955 |
|
| 6 |
|
| 2,961 |
Home Box Office |
| 3,124 |
|
| 2,542 |
|
| 582 |
|
| 46 |
|
| 536 |
|
| 15 |
|
| 551 |
Warner Bros. |
| 6,496 |
|
| 5,533 |
|
| 963 |
|
| 81 |
|
| 882 |
|
| (27) |
|
| 855 |
Eliminations and other |
| (1,108) |
|
| (711) |
|
| (397) |
|
| 65 |
|
| (462) |
|
| 25 |
|
| (437) |
Total WarnerMedia |
| 14,662 |
|
| 10,421 |
|
| 4,241 |
|
| 330 |
|
| 3,911 |
|
| 19 |
|
| 3,930 |
Latin America |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vrio |
| 1,639 |
|
| 1,444 |
|
| 195 |
|
| 274 |
|
| (79) |
|
| 12 |
|
| (67) |
Mexico |
| 1,183 |
|
| 1,252 |
|
| (69) |
|
| 249 |
|
| (318) |
|
| - |
|
| (318) |
Total Latin America |
| 2,822 |
|
| 2,696 |
|
| 126 |
|
| 523 |
|
| (397) |
|
| 12 |
|
| (385) |
Segment Total |
| 85,325 |
|
| 55,369 |
|
| 29,956 |
|
| 10,127 |
|
| 19,829 |
| $ | 31 |
| $ | 19,860 |
Corporate and Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate |
| 825 |
|
| 1,807 |
|
| (982) |
|
| 180 |
|
| (1,162) |
|
|
|
|
|
|
Acquisition-related items |
| - |
|
| 393 |
|
| (393) |
|
| 4,201 |
|
| (4,594) |
|
|
|
|
|
|
Certain significant items |
| - |
|
| 2,426 |
|
| (2,426) |
|
| - |
|
| (2,426) |
|
|
|
|
|
|
Eliminations and consolidations |
| (2,421) |
|
| (1,791) |
|
| (630) |
|
| (1) |
|
| (629) |
|
|
|
|
|
|
AT&T Inc. | $ | 83,729 |
| $ | 58,204 |
| $ | 25,525 |
| $ | 14,507 |
| $ | 11,018 |
|
|
|
|
|
|
16
AT&T INC.
JUNE 30, 2020
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
For the six months ended June 30, 2019 | ||||||||||||||||||||
|
| Revenues |
|
| Operations and Support Expenses |
|
| EBITDA |
|
| Depreciation and Amortization |
|
| Operating Income (Loss) |
|
| Equity in Net Income (Loss) of Affiliates |
|
| Segment Contribution |
Communications |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobility | $ | 34,655 |
| $ | 19,563 |
| $ | 15,092 |
| $ | 4,016 |
| $ | 11,076 |
| $ | - |
| $ | 11,076 |
Entertainment Group |
| 22,696 |
|
| 17,042 |
|
| 5,654 |
|
| 2,662 |
|
| 2,992 |
|
| - |
|
| 2,992 |
Business Wireline |
| 13,085 |
|
| 8,007 |
|
| 5,078 |
|
| 2,464 |
|
| 2,614 |
|
| - |
|
| 2,614 |
Total Communications |
| 70,436 |
|
| 44,612 |
|
| 25,824 |
|
| 9,142 |
|
| 16,682 |
|
| - |
|
| 16,682 |
WarnerMedia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Turner |
| 6,853 |
|
| 4,353 |
|
| 2,500 |
|
| 99 |
|
| 2,401 |
|
| 36 |
|
| 2,437 |
Home Box Office |
| 3,226 |
|
| 2,052 |
|
| 1,174 |
|
| 34 |
|
| 1,140 |
|
| 30 |
|
| 1,170 |
Warner Bros. |
| 6,907 |
|
| 5,837 |
|
| 1,070 |
|
| 83 |
|
| 987 |
|
| 6 |
|
| 993 |
Eliminations and other |
| 654 |
|
| 347 |
|
| 307 |
|
| 44 |
|
| 263 |
|
| 50 |
|
| 313 |
Total WarnerMedia |
| 17,640 |
|
| 12,589 |
|
| 5,051 |
|
| 260 |
|
| 4,791 |
|
| 122 |
|
| 4,913 |
Latin America |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vrio |
| 2,099 |
|
| 1,747 |
|
| 352 |
|
| 334 |
|
| 18 |
|
| 12 |
|
| 30 |
Mexico |
| 1,376 |
|
| 1,538 |
|
| (162) |
|
| 250 |
|
| (412) |
|
| - |
|
| (412) |
Total Latin America |
| 3,475 |
|
| 3,285 |
|
| 190 |
|
| 584 |
|
| (394) |
|
| 12 |
|
| (382) |
Segment Total |
| 91,551 |
|
| 60,486 |
|
| 31,065 |
|
| 9,986 |
|
| 21,079 |
| $ | 134 |
| $ | 21,213 |
Corporate and Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate |
| 883 |
|
| 1,426 |
|
| (543) |
|
| 374 |
|
| (917) |
|
|
|
|
|
|
Acquisition-related items |
| (72) |
|
| 389 |
|
| (461) |
|
| 3,948 |
|
| (4,409) |
|
|
|
|
|
|
Certain significant items |
| - |
|
| 342 |
|
| (342) |
|
| - |
|
| (342) |
|
|
|
|
|
|
Eliminations and consolidations |
| (2,578) |
|
| (1,899) |
|
| (679) |
|
| (1) |
|
| (678) |
|
|
|
|
|
|
AT&T Inc. | $ | 89,784 |
| $ | 60,744 |
| $ | 29,040 |
| $ | 14,307 |
| $ | 14,733 |
|
|
|
|
|
|
17
AT&T INC.
JUNE 30, 2020
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
The following table is a reconciliation of Segment Contributions to “Income Before Income Taxes” reported on our consolidated statements of income.income:
| Three months ended | |||||||||||||||||
|
| March 31, |
|
| Three months ended June 30, |
|
| Six months ended June 30, | ||||||||||
|
| 2020 |
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 | ||
Communications | Communications | $ | 8,203 |
| $ | 8,011 | Communications | $ | 8,112 |
| $ | 8,671 |
| $ | 16,315 |
| $ | 16,682 |
WarnerMedia | WarnerMedia |
| 1,714 |
|
| 2,310 | WarnerMedia |
| 1,917 |
|
| 2,350 |
|
| 3,930 |
|
| 4,913 |
Latin America | Latin America |
| (184) |
|
| (173) | Latin America |
| (201) |
|
| (209) |
|
| (385) |
|
| (382) |
Xandr |
| 299 |
|
| 253 | |||||||||||||
Segment Contribution | Segment Contribution |
| 10,032 |
|
| 10,401 | Segment Contribution |
| 9,828 |
|
| 10,812 |
|
| 19,860 |
|
| 21,213 |
Reconciling Items: | Reconciling Items: |
|
|
|
|
| Reconciling Items: |
|
|
|
|
|
|
|
|
|
|
|
Corporate and Other | Corporate and Other |
| (573) |
|
| (432) | Corporate and Other |
| (589) |
|
| (485) |
|
| (1,162) |
|
| (917) |
Merger and integration items | Merger and integration items |
| (182) |
|
| (115) | Merger and integration items |
| (211) |
|
| (346) |
|
| (393) |
|
| (461) |
Amortization of intangibles acquired | Amortization of intangibles acquired |
| (2,056) |
|
| (1,988) | Amortization of intangibles acquired |
| (2,145) |
|
| (1,960) |
|
| (4,201) |
|
| (3,948) |
Impairments | Impairments |
| (123) |
|
| - | Impairments |
| (2,319) |
|
| - |
|
| (2,442) |
|
| - |
Gain on spectrum transaction 1 | Gain on spectrum transaction 1 |
| 900 |
|
| - | Gain on spectrum transaction1 |
| - |
|
| - |
|
| 900 |
|
| - |
Employee separation costs and benefit-related losses | Employee separation costs and benefit-related losses |
| (119) |
|
| (248) | Employee separation costs and benefit-related losses |
| (765) |
|
| (94) |
|
| (884) |
|
| (342) |
Segment equity in net income (loss) of affiliates |
| (19) |
|
| (67) | |||||||||||||
Segment equity in net income of affiliates | Segment equity in net income of affiliates |
| (12) |
|
| (67) |
|
| (31) |
|
| (134) | ||||||
Eliminations and consolidations | Eliminations and consolidations |
| (374) |
|
| (318) | Eliminations and consolidations |
| (255) |
|
| (360) |
|
| (629) |
|
| (678) |
AT&T Operating Income | AT&T Operating Income |
| 7,486 |
|
| 7,233 | AT&T Operating Income |
| 3,532 |
|
| 7,500 |
|
| 11,018 |
|
| 14,733 |
Interest Expense | Interest Expense |
| 2,018 |
|
| 2,141 | Interest Expense |
| 2,041 |
|
| 2,149 |
|
| 4,059 |
|
| 4,290 |
Equity in net income (loss) of affiliates | Equity in net income (loss) of affiliates |
| (6) |
|
| (7) | Equity in net income (loss) of affiliates |
| (10) |
|
| 40 |
|
| (16) |
|
| 33 |
Other income (expense) - net | Other income (expense) - net |
| 803 |
|
| 286 | Other income (expense) - net |
| 1,017 |
|
| (318) |
|
| 1,820 |
|
| (32) |
Income Before Income Taxes | Income Before Income Taxes | $ | 6,265 |
| $ | 5,371 | Income Before Income Taxes | $ | 2,498 |
| $ | 5,073 |
| $ | 8,763 |
| $ | 10,444 |
1 | Included as a reduction of "Selling, general and administrative expenses" in the consolidated statement of income. | 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, | 2020 |
| 2019 | 2020 |
|
| 2019 | |||||||
| 2020 |
| 2019 | ||||||||||||
Intersegment revenues |
|
|
|
|
| ||||||||||
Intersegment Revenues |
|
|
|
|
|
|
|
|
|
| |||||
Communications | $ | 2 |
| $ | - | $ | 2 |
| $ | 8 | $ | 4 |
| $ | 8 |
WarnerMedia |
| 816 |
|
| 858 |
| 774 |
|
| 861 |
| 1,591 |
|
| 1,719 |
Latin America |
| - |
|
| - |
| - |
|
| - |
| - |
|
| - |
Xandr |
| 1 |
|
| - | ||||||||||
Total Intersegment Revenues |
| 819 |
|
| 858 |
| 776 |
|
| 869 |
| 1,595 |
|
| 1,727 |
Consolidations |
| 477 |
|
| 398 |
| 349 |
|
| 453 |
| 826 |
|
| 851 |
Eliminations and consolidations | $ | 1,296 |
| $ | 1,256 | $ | 1,125 |
| $ | 1,322 | $ | 2,421 |
| $ | 2,578 |
1518
AT&T INC.
MARCH 31,JUNE 30, 2020
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
NOTE 5. REVENUE RECOGNITION
Revenue Categories
The following tables set forth reported revenue by category and by business unit:
For the three months ended March 31, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Revenue Categories | Revenue Categories | |||||||||||||||||||||||||||||||||||||||||||||||||||
The following tables set forth reported revenue by category and by business unit: | The following tables set forth reported revenue by category and by business unit: | |||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||
For the three months ended June 30, 2020 | For the three months ended June 30, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Service Revenues |
|
|
|
| Service Revenues |
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||
|
| Wireless |
| Advanced Data |
| Legacy Voice & Data |
| Subscription |
| Content |
| Advertising |
| Other |
| Equipment |
| Total |
| Wireless |
| Advanced Data |
| Legacy Voice & Data |
| Subscription |
| Content |
| Advertising |
| Other |
| Equipment |
| Total | ||||||||||||||||
Communications |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Mobility | $ | 13,892 |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | 76 |
| $ | - |
| $ | 3,434 |
| $ | 17,402 | $ | 13,611 |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | 58 |
| $ | - |
| $ | 3,480 |
| $ | 17,149 |
Entertainment Group |
| - |
| 2,109 |
| 581 |
| 6,982 |
| - |
| 413 |
| 419 |
| 11 |
| 10,515 |
| - |
| 2,092 |
| 560 |
| 6,682 |
| - |
| 294 |
| 397 |
| 44 |
| 10,069 | ||||||||||||||||
Business Wireline |
| - |
| 3,275 |
| 2,129 |
| - |
| - |
| - |
| 753 |
| 175 |
| 6,332 |
| - |
| 3,320 |
| 2,067 |
| - |
| - |
| - |
| 782 |
| 205 |
| 6,374 | ||||||||||||||||
WarnerMedia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Turner |
| - |
| - |
|
| - |
|
| 2,049 |
|
| 86 |
|
| 957 |
|
| 70 |
|
| - |
|
| 3,162 |
| - |
| - |
|
| - |
|
| 1,804 |
|
| 334 |
|
| 796 |
|
| 54 |
|
| - |
|
| 2,988 | ||
Home Box Office |
| - |
| - |
|
| - |
|
| 1,338 |
|
| 157 |
|
| - |
|
| 2 |
|
| - |
|
| 1,497 |
| - |
| - |
|
| - |
|
| 1,441 |
|
| 181 |
|
| - |
|
| 5 |
|
| - |
|
| 1,627 | ||
Warner Bros. |
| - |
| - |
|
| - |
|
| 10 |
|
| 3,060 |
|
| 2 |
|
| 168 |
|
| - |
|
| 3,240 |
| - |
| - |
|
| - |
|
| 16 |
|
| 3,179 |
|
| 1 |
|
| 60 |
|
| - |
|
| 3,256 | ||
Eliminations and Other |
| - |
| - |
|
| - |
|
| 63 |
|
| (646) |
|
| 20 |
|
| 23 |
|
| - |
|
| (540) | |||||||||||||||||||||||||||
Eliminations and other |
| - |
| - |
|
| - |
|
| 71 |
|
| (1,516) |
|
| 378 |
|
| 10 |
|
| - |
|
| (1,057) | |||||||||||||||||||||||||||
Latin America |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Vrio |
| - |
| - |
|
| - |
|
| 887 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 887 |
| - |
| - |
|
| - |
|
| 752 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 752 | ||
Mexico |
| 467 |
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 236 |
|
| 703 |
| 345 |
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 135 |
|
| 480 | ||
Xandr |
| - |
| - |
|
| - |
|
| - |
|
| - |
|
| 489 |
|
| - |
|
| - |
|
| 489 | |||||||||||||||||||||||||||
Corporate and Other |
| 117 |
| 14 |
|
| 134 |
|
| - |
|
| - |
|
| - |
|
| 83 |
|
| 40 |
|
| 388 |
| 178 |
| 10 |
|
| 152 |
|
| - |
|
| - |
|
| - |
|
| 62 |
|
| 35 |
|
| 437 | ||
Eliminations and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
consolidations |
| - |
| - |
|
| - |
|
| - |
|
| (794) |
|
| (413) |
|
| (89) |
|
| - |
|
| (1,296) |
| - |
| - |
|
| - |
|
| - |
|
| (765) |
|
| (294) |
|
| (66) |
|
| - |
|
| (1,125) | ||
Total Operating Revenues | $ | 14,476 |
| $ | 5,398 |
| $ | 2,844 |
| $ | 11,329 |
| $ | 1,863 |
| $ | 1,544 |
| $ | 1,429 |
| $ | 3,896 |
| $ | 42,779 | $ | 14,134 |
| $ | 5,422 |
| $ | 2,779 |
| $ | 10,766 |
| $ | 1,413 |
| $ | 1,233 |
| $ | 1,304 |
| $ | 3,899 |
| $ | 40,950 |
1619
AT&T INC.
MARCH 31,JUNE 30, 2020
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
For the three months ended March 31, 2019 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
For the three months ended June 30, 2019 | For the three months ended June 30, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Service Revenues |
|
|
|
| Service Revenues |
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||
|
| Wireless |
| Advanced Data |
| Legacy Voice & Data |
| Subscription |
| Content |
| Advertising |
| Other |
| Equipment |
| Total |
| Wireless |
| Advanced Data |
| Legacy Voice & Data |
| Subscription |
| Content |
| Advertising |
| Other |
| Equipment |
| Total | ||||||||||||||||
Communications |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Mobility | $ | 13,562 |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | 67 |
| $ | - |
| $ | 3,734 |
| $ | 17,363 | $ | 13,753 |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | 71 |
| $ | - |
| $ | 3,468 |
| $ | 17,292 |
Entertainment Group |
| - |
|
| 2,070 |
|
| 683 |
|
| 7,724 |
|
| - |
|
| 350 |
|
| 501 |
|
| - |
|
| 11,328 |
| - |
|
| 2,109 |
|
| 658 |
|
| 7,636 |
|
| - |
|
| 399 |
|
| 563 |
|
| 3 |
|
| 11,368 |
Business Wireline |
| - |
|
| 3,172 |
|
| 2,397 |
|
| - |
|
| - |
|
| - |
|
| 750 |
|
| 159 |
|
| 6,478 |
| - |
|
| 3,208 |
|
| 2,324 |
|
| - |
|
| - |
|
| - |
|
| 897 |
|
| 178 |
|
| 6,607 |
WarnerMedia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Turner |
| - |
|
| - |
|
| - |
|
| 1,965 |
|
| 135 |
|
| 1,261 |
|
| 82 |
|
| - |
|
| 3,443 |
| - |
|
| - |
|
| - |
|
| 1,943 |
|
| 111 |
|
| 1,266 |
|
| 90 |
|
| - |
|
| 3,410 |
Home Box Office |
| - |
|
| - |
|
| - |
|
| 1,334 |
|
| 173 |
|
| - |
|
| 3 |
|
| - |
|
| 1,510 |
| - |
|
| - |
|
| - |
|
| 1,516 |
|
| 198 |
|
| - |
|
| 2 |
|
| - |
|
| 1,716 |
Warner Bros. |
| - |
|
| - |
|
| - |
|
| 21 |
|
| 3,332 |
|
| 10 |
|
| 155 |
|
| - |
|
| 3,518 |
| - |
|
| - |
|
| - |
|
| 23 |
|
| 3,175 |
|
| 10 |
|
| 181 |
|
| - |
|
| 3,389 |
Eliminations and Other |
| - |
|
| - |
|
| - |
|
| 49 |
|
| (152) |
|
| 8 |
|
| 3 |
|
| - |
|
| (92) | ||||||||||||||||||||||||||
Eliminations and other |
| - |
|
| - |
|
| - |
|
| 54 |
|
| (237) |
|
| 494 |
|
| 9 |
|
| - |
|
| 320 | ||||||||||||||||||||||||||
Latin America |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vrio |
| - |
|
| - |
|
| - |
|
| 1,067 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 1,067 |
| - |
|
| - |
|
| - |
|
| 1,032 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 1,032 |
Mexico |
| 442 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 209 |
|
| 651 |
| 479 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 246 |
|
| 725 |
Xandr |
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 426 |
|
| - |
|
| - |
|
| 426 | ||||||||||||||||||||||||||
Corporate and Other |
| 163 |
|
| 13 |
|
| 7 |
|
| - |
|
| - |
|
| - |
|
| 167 |
|
| 41 |
|
| 391 |
| 150 |
|
| 14 |
|
| 7 |
|
| - |
|
| - |
|
| - |
|
| 210 |
|
| 39 |
|
| 420 |
Eliminations and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
consolidations |
| - |
|
| - |
|
| - |
|
| - |
|
| (837) |
|
| (350) |
|
| (69) |
|
| - |
|
| (1,256) |
| - |
|
| - |
|
| - |
|
| - |
|
| (840) |
|
| (399) |
|
| (83) |
|
| - |
|
| (1,322) |
Total Operating Revenues | $ | 14,167 |
| $ | 5,255 |
| $ | 3,087 |
| $ | 12,160 |
| $ | 2,651 |
| $ | 1,772 |
| $ | 1,592 |
| $ | 4,143 |
| $ | 44,827 | $ | 14,382 |
| $ | 5,331 |
| $ | 2,989 |
| $ | 12,204 |
| $ | 2,407 |
| $ | 1,841 |
| $ | 1,869 |
| $ | 3,934 |
| $ | 44,957 |
1720
AT&T INC.
MARCH 31,JUNE 30, 2020
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
For the six months ended June 30, 2020 | ||||||||||||||||||||||||||
| Service Revenues |
|
|
|
|
|
| |||||||||||||||||||
|
| Wireless |
|
| Advanced Data |
|
| Legacy Voice & Data |
|
| Subscription |
|
| Content |
|
| Advertising |
|
| Other |
|
| Equipment |
|
| Total |
Communications |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobility | $ | 27,503 |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | 134 |
| $ | - |
| $ | 6,914 |
| $ | 34,551 |
Entertainment Group |
| - |
|
| 4,201 |
|
| 1,141 |
|
| 13,664 |
|
| - |
|
| 707 |
|
| 816 |
|
| 55 |
|
| 20,584 |
Business Wireline |
| - |
|
| 6,595 |
|
| 4,196 |
|
| - |
|
| - |
|
| - |
|
| 1,535 |
|
| 380 |
|
| 12,706 |
WarnerMedia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Turner |
| - |
|
| - |
|
| - |
|
| 3,853 |
|
| 420 |
|
| 1,753 |
|
| 124 |
|
| - |
|
| 6,150 |
Home Box Office |
| - |
|
| - |
|
| - |
|
| 2,779 |
|
| 338 |
|
| - |
|
| 7 |
|
| - |
|
| 3,124 |
Warner Bros. |
| - |
|
| - |
|
| - |
|
| 26 |
|
| 6,239 |
|
| 3 |
|
| 228 |
|
| - |
|
| 6,496 |
Eliminations and other |
| - |
|
| - |
|
| - |
|
| 134 |
|
| (2,162) |
|
| 887 |
|
| 33 |
|
| - |
|
| (1,108) |
Latin America |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vrio |
| - |
|
| - |
|
| - |
|
| 1,639 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 1,639 |
Mexico |
| 812 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 371 |
|
| 1,183 |
Corporate and Other |
| 295 |
|
| 24 |
|
| 286 |
|
| - |
|
| - |
|
| - |
|
| 145 |
|
| 75 |
|
| 825 |
Eliminations and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
consolidations |
| - |
|
| - |
|
| - |
|
| - |
|
| (1,559) |
|
| (707) |
|
| (155) |
|
| - |
|
| (2,421) |
Total Operating Revenues | $ | 28,610 |
| $ | 10,820 |
| $ | 5,623 |
| $ | 22,095 |
| $ | 3,276 |
| $ | 2,777 |
| $ | 2,733 |
| $ | 7,795 |
| $ | 83,729 |
21
AT&T INC.
JUNE 30, 2020
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
For the six months ended June 30, 2019 | ||||||||||||||||||||||||||
| Service Revenues |
|
|
|
|
|
| |||||||||||||||||||
|
| Wireless |
|
| Advanced Data |
|
| Legacy Voice & Data |
|
| Subscription |
|
| Content |
|
| Advertising |
|
| Other |
|
| Equipment |
|
| Total |
Communications |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobility | $ | 27,315 |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | 138 |
| $ | - |
| $ | 7,202 |
| $ | 34,655 |
Entertainment Group |
| - |
|
| 4,179 |
|
| 1,341 |
|
| 15,360 |
|
| - |
|
| 749 |
|
| 1,063 |
|
| 4 |
|
| 22,696 |
Business Wireline |
| - |
|
| 6,380 |
|
| 4,721 |
|
| - |
|
| - |
|
| - |
|
| 1,647 |
|
| 337 |
|
| 13,085 |
WarnerMedia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Turner |
| - |
|
| - |
|
| - |
|
| 3,908 |
|
| 246 |
|
| 2,527 |
|
| 172 |
|
| - |
|
| 6,853 |
Home Box Office |
| - |
|
| - |
|
| - |
|
| 2,850 |
|
| 371 |
|
| - |
|
| 5 |
|
| - |
|
| 3,226 |
Warner Bros. |
| - |
|
| - |
|
| - |
|
| 44 |
|
| 6,507 |
|
| 20 |
|
| 336 |
|
| - |
|
| 6,907 |
Eliminations and other |
| - |
|
| - |
|
| - |
|
| 103 |
|
| (389) |
|
| 928 |
|
| 12 |
|
| - |
|
| 654 |
Latin America |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vrio |
| - |
|
| - |
|
| - |
|
| 2,099 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 2,099 |
Mexico |
| 921 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 455 |
|
| 1,376 |
Corporate and Other |
| 272 |
|
| 27 |
|
| 14 |
|
| - |
|
| - |
|
| - |
|
| 419 |
|
| 79 |
|
| 811 |
Eliminations and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
consolidations |
| - |
|
| - |
|
| - |
|
| - |
|
| (1,677) |
|
| (749) |
|
| (152) |
|
| - |
|
| (2,578) |
Total Operating Revenues | $ | 28,508 |
| $ | 10,586 |
| $ | 6,076 |
| $ | 24,364 |
| $ | 5,058 |
| $ | 3,613 |
| $ | 3,502 |
| $ | 8,077 |
| $ | 89,784 |
22
AT&T INC.
JUNE 30, 2020
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
Deferred Customer Contract Acquisition and Fulfillment Costs
Costs to acquire and fulfill customer contracts, including commissions on service activations, for our wireless, business wireline and video entertainment services, are deferred and amortized over the contract period or expected customer relationship life, which typically ranges from three years to five years. 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:
|
| March 31, |
|
| December 31, |
| June 30, |
|
| December 31, |
Consolidated Balance Sheets |
| 2020 |
|
| 2019 |
| 2020 |
|
| 2019 |
Deferred Acquisition Costs |
|
|
|
|
|
|
|
|
|
|
Other current assets | $ | 2,592 |
| $ | 2,462 | $ | 2,630 |
| $ | 2,462 |
Other Assets |
| 2,997 |
|
| 2,991 |
| 3,117 |
|
| 2,991 |
Total deferred customer contract acquisition costs |
| 5,589 |
|
| 5,453 | $ | 5,747 |
| $ | 5,453 |
|
|
|
|
|
|
|
|
|
|
|
Deferred Fulfillment Costs |
|
|
|
|
|
|
|
|
|
|
Other current assets |
| 4,438 |
|
| 4,519 | $ | 4,362 |
| $ | 4,519 |
Other Assets |
| 6,279 |
|
| 6,439 |
| 5,980 |
|
| 6,439 |
Total deferred customer contract fulfillment costs | $ | 10,717 |
| $ | 10,958 | $ | 10,342 |
| $ | 10,958 |
The following table presents deferred customer contract acquisition cost and deferred customer contract fulfillment cost amortization included in “Other cost of revenue” for the threesix months ended:
|
| March 31, |
|
| March 31, |
| June 30, |
|
| June 30, |
Consolidated Statements of Income |
| 2020 |
|
| 2019 |
| 2020 |
|
| 2019 |
Deferred acquisition cost amortization | $ | 636 |
| $ | 547 | $ | 1,278 |
| $ | 1,026 |
Deferred fulfillment cost amortization |
| 1,305 |
|
| 1,098 |
| 2,636 |
|
| 2,381 |
Contract Assets and Liabilities
A contract asset is recorded when revenue is recognized in advance of our right to bill and receive consideration. The contract asset will decrease as services are provided and billed. For example, when installment sales include promotional discounts (e.g., “buy one get one free”) the difference between revenue recognized and consideration received is recorded as a contract asset to be amortized over the contract term.
When consideration is received in advance of the delivery of goods or services, a contract liability is recorded for deferred revenue. Reductions in the contract liability will be recorded as we satisfy the performance obligations.
The following table presents contract assets and liabilities on our consolidated balance sheets:
|
|
| March 31, |
|
| December 31, |
|
|
| 2020 |
|
| 2019 |
|
|
|
|
|
|
|
Contract asset |
| $ | 2,598 |
| $ | 2,472 |
Contract liability |
|
| 6,757 |
|
| 6,999 |
|
|
| June 30, |
|
| December 31, |
Consolidated Balance Sheets |
|
| 2020 |
|
| 2019 |
|
|
|
|
|
|
|
Contract asset |
| $ | 2,546 |
| $ | 2,472 |
Contract liability |
|
| 6,533 |
|
| 6,999 |
Our beginning of period contract liability recorded as customer contract revenue during 2020 was $4,519.$5,004.
1823
AT&T INC.
MARCH 31,JUNE 30, 2020
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
Our consolidated balance sheets at March 31,June 30, 2020 and December 31, 2019 included approximately $1,700$1,638 and $1,611, respectively, for the current portion of our contract asset in “Other current assets” and $5,769$5,616 and $5,939, respectively, for the current portion of our contract liability in “Advanced billings and customer deposits.”
Remaining Performance Obligations
Remaining performance obligations represent services we are required to provide to customers under bundled or discounted arrangements, which are satisfied as services are provided over the contract term. In determining the transaction price allocated, we do not include non-recurring charges and estimates for usage, nor do we consider arrangements with an original expected duration of less than one year, which are primarily prepaid wireless, video and residential internet agreements.
Remaining performance obligations associated with business contracts reflect recurring charges billed, adjusted to reflect estimates for sales incentives and revenue adjustments. Performance obligations associated with wireless contracts are estimated using a portfolio approach in which we review all relevant promotional activities, calculating the remaining performance obligation using the average service component for the portfolio and the average device price. As of March 31,June 30, 2020, the aggregate amount of the transaction price allocated to remaining performance obligations was $36,486,$36,362, of which we expect to recognize approximately 86%82% by the end of 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. We do not have significant funding requirements in 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.
19
AT&T INC.
MARCH 31, 2020
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
The following table details pension and postretirement benefit costs included in the accompanying consolidated statements of income. The service cost component of net periodic pension cost (benefit) is recorded in operating expenses in the consolidated statements of income while the remaining components are recorded in “Other income (expense) – net.”
24
AT&T INC.
JUNE 30, 2020
| Three months ended | ||||
| March 31, | ||||
| 2020 |
| 2019 | ||
Pension cost: |
|
|
|
|
|
Service cost – benefits earned during the period | $ | 257 |
| $ | 240 |
Interest cost on projected benefit obligation |
| 422 |
|
| 549 |
Expected return on assets |
| (889) |
|
| (851) |
Amortization of prior service credit |
| (28) |
|
| (33) |
Actuarial (gain) loss |
| - |
|
| 432 |
Net pension (credit) cost | $ | (238) |
| $ | 337 |
|
|
|
|
|
|
Postretirement cost: |
|
|
|
|
|
Service cost – benefits earned during the period | $ | 13 |
| $ | 18 |
Interest cost on accumulated postretirement benefit obligation |
| 104 |
|
| 186 |
Expected return on assets |
| (44) |
|
| (56) |
Amortization of prior service credit |
| (582) |
|
| (426) |
Net postretirement (credit) cost | $ | (509) |
| $ | (278) |
|
|
|
|
|
|
Combined net pension and postretirement (credit) cost | $ | (747) |
| $ | 59 |
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
| Three months ended |
| Six months ended | ||||||||
| June 30, |
| June 30, | ||||||||
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Pension cost: |
|
|
|
|
|
|
|
|
|
|
|
Service cost – benefits earned during the period | $ | 258 |
| $ | 243 |
| $ | 515 |
| $ | 483 |
Interest cost on projected benefit obligation |
| 422 |
|
| 508 |
|
| 844 |
|
| 1,057 |
Expected return on assets |
| (890) |
|
| (880) |
|
| (1,779) |
|
| (1,731) |
Amortization of prior service credit |
| (29) |
|
| (24) |
|
| (57) |
|
| (57) |
Actuarial (gain) loss |
| - |
|
| 1,699 |
|
| - |
|
| 2,131 |
Net pension (credit) cost | $ | (239) |
| $ | 1,546 |
| $ | (477) |
| $ | 1,883 |
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement cost: |
|
|
|
|
|
|
|
|
|
|
|
Service cost – benefits earned during the period | $ | 13 |
| $ | 18 |
| $ | 26 |
| $ | 36 |
Interest cost on accumulated postretirement benefit obligation |
| 104 |
|
| 186 |
|
| 208 |
|
| 372 |
Expected return on assets |
| (45) |
|
| (56) |
|
| (89) |
|
| (112) |
Amortization of prior service credit |
| (582) |
|
| (426) |
|
| (1,164) |
|
| (852) |
Net postretirement (credit) cost | $ | (510) |
| $ | (278) |
| $ | (1,019) |
| $ | (556) |
|
|
|
|
|
|
|
|
|
|
|
|
Combined net pension and postretirement (credit) cost | $ | (749) |
| $ | 1,268 |
| $ | (1,496) |
| $ | 1,327 |
We also provide senior- and middle-management employees with nonqualified, unfunded supplemental retirement and savings plans. For the first quarter of 2020 and 2019, netNet supplemental pension benefits costs not included in the table above were $19 and $25.$25 in the second quarter and $38 and $50 for the first six months of 2020 and 2019, respectively.
NOTE 7. FAIR VALUE MEASUREMENTS AND DISCLOSURE
The Fair Value Measurement and Disclosure framework in ASC 820, “Fair Value Measurement,” provides a three-tiered fair value hierarchy based on the reliability of the inputs used to determine fair value. Level 1 refers to fair values determined based on quoted prices in active markets for identical assets. Level 2 refers to fair values estimated using significant other observable inputs and Level 3 includes fair values estimated using significant unobservable inputs.
The level of an asset or liability within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Our valuation techniques maximize the use of observable inputs and minimize the use of unobservable inputs.
The valuation methodologies described above may produce a fair value calculation that may not be indicative of future net realizable value or reflective of future fair values. We believe our valuation methods are appropriate and consistent with other market participants. The use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date. There have been no changes in the methodologies used since December 31, 2019.
2025
AT&T INC.
MARCH 31,JUNE 30, 2020
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
Long-Term Debt and Other Financial Instruments
The carrying amounts and estimated fair values of our long-term debt, including current maturities, and other financial instruments, are summarized as follows:
|
| March 31, 2020 |
| December 31, 2019 |
| June 30, 2020 |
| December 31, 2019 | ||||||||||||||||
|
| Carrying |
| Fair |
| Carrying |
| Fair |
| Carrying |
| Fair |
| Carrying |
| Fair | ||||||||
|
| Amount |
| Value |
| Amount |
| Value |
| Amount |
| Value |
| Amount |
| Value | ||||||||
Notes and debentures1 | Notes and debentures1 | $ | 159,386 |
| $ | 175,902 |
| $ | 161,109 |
| $ | 182,124 | Notes and debentures1 | $ | 164,099 |
| $ | 190,284 |
| $ | 161,109 |
| $ | 182,124 |
Commercial paper | Commercial paper |
| 3,144 |
|
| 3,144 |
|
| - |
|
| - | Commercial paper |
| 3,001 |
|
| 3,001 |
|
| - |
|
| - |
Bank borrowings | Bank borrowings |
| - |
|
| - |
|
| 4 |
|
| 4 | Bank borrowings |
| - |
|
| - |
|
| 4 |
|
| 4 |
Investment securities2 | Investment securities2 |
| 3,591 |
|
| 3,591 |
|
| 3,723 |
|
| 3,723 | Investment securities2 |
| 3,632 |
|
| 3,632 |
|
| 3,723 |
|
| 3,723 |
1 | Includes credit agreement borrowings. | Includes credit agreement borrowings. | ||||||||||||||||||||||
2 | Excludes investments accounted for under the equity method. | Excludes investments accounted for under the equity method. |
The carrying amount of debt with an original maturity of less than one year approximates fair 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 that are measured at fair value and derivatives as of March 31,June 30, 2020 and December 31, 2019. Derivatives designated as hedging instruments are reflected as “Other assets,” “Other noncurrent liabilities” and, for a portion of interest rate swaps,liabilities,” “Other current assets” and “Accounts payable and accrued liabilities” on our consolidated balance sheets.
|
| March 31, 2020 |
| June 30, 2020 | ||||||||||||||||||||
|
| Level 1 |
| Level 2 |
| Level 3 |
| Total |
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||||||
Equity Securities | Equity Securities |
|
|
|
|
|
|
|
|
|
|
| Equity Securities |
|
|
|
|
|
|
|
|
|
|
|
Domestic equities | Domestic equities | $ | 674 |
| $ | - |
| $ | - |
| $ | 674 | Domestic equities | $ | 832 |
| $ | - |
| $ | - |
| $ | 832 |
International equities | International equities |
| 143 |
|
| - |
|
| - |
|
| 143 | International equities |
| 141 |
|
| - |
|
| - |
|
| 141 |
Fixed income equities | Fixed income equities |
| 233 |
|
| - |
|
| - |
|
| 233 | Fixed income equities |
| 230 |
|
| - |
|
| - |
|
| 230 |
Available-for-Sale Debt Securities | Available-for-Sale Debt Securities |
| - |
|
| 1,514 |
|
| - |
|
| 1,514 | Available-for-Sale Debt Securities |
| - |
|
| 1,522 |
|
| - |
|
| 1,522 |
Asset Derivatives | Asset Derivatives |
|
|
|
|
|
|
|
|
|
|
| Asset Derivatives |
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps |
| - |
|
| 14 |
|
| - |
|
| 14 | |||||||||||||
Cross-currency swaps | Cross-currency swaps |
| - |
|
| 67 |
|
| - |
|
| 67 | ||||||||||||
Foreign exchange contracts | Foreign exchange contracts |
| - |
|
| 77 |
|
| - |
|
| 77 | Foreign exchange contracts |
| - |
|
| 14 |
|
| - |
|
| 14 |
Liability Derivatives | Liability Derivatives |
|
|
|
|
|
|
|
|
|
|
| Liability Derivatives |
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps | Interest rate swaps |
| - |
|
| (3) |
|
| - |
|
| (3) | ||||||||||||
Cross-currency swaps | Cross-currency swaps |
| - |
|
| (8,283) |
|
| - |
|
| (8,283) | Cross-currency swaps |
| - |
|
| (6,767) |
|
| - |
|
| (6,767) |
Interest rate locks |
| - |
|
| (720) |
|
| - |
|
| (720) | |||||||||||||
Foreign exchange contracts | Foreign exchange contracts |
| - |
|
| (11) |
|
| - |
|
| (11) | Foreign exchange contracts |
| - |
|
| (10) |
|
| - |
|
| (10) |
2126
AT&T INC.
MARCH 31,JUNE 30, 2020
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
|
| December 31, 2019 | ||||||||||
|
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||
Equity Securities |
|
|
|
|
|
|
|
|
|
|
| |
Domestic equities | $ | 844 |
| $ | - |
| $ | - |
| $ | 844 | |
International equities |
| 183 |
|
| - |
|
| - |
|
| 183 | |
Fixed income equities |
| 229 |
|
| - |
|
| - |
|
| 229 | |
Available-for-Sale Debt Securities |
| - |
|
| 1,444 |
|
| - |
|
| 1,444 | |
Asset Derivatives |
|
|
|
|
|
|
|
|
|
|
| |
Interest rate swaps |
| - |
|
| 2 |
|
| - |
|
| 2 | |
Cross-currency swaps |
| - |
|
| 172 |
|
| - |
|
| 172 | |
Interest rate locks |
| - |
|
| 11 |
|
| - |
|
| 11 | |
Foreign exchange contracts |
| - |
|
| 89 |
|
| - |
|
| 89 | |
Liability Derivatives |
|
|
|
|
|
|
|
|
|
|
| |
Cross-currency swaps |
| - |
|
| (3,187) |
|
| - |
|
| (3,187) | |
Interest rate locks |
| - |
|
| (95) |
|
| - |
|
| (95) |
Investment Securities
Our investment securities include 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 | ||||
| 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 |
| Three months ended |
| Six months ended | ||||||||
| June 30, |
| June 30, | ||||||||
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Total gains (losses) recognized on equity securities | $ | 161 |
| $ | 50 |
| $ | (42) |
| $ | 210 |
Gains (Losses) recognized on equity securities sold |
| 9 |
|
| 9 |
|
| (24) |
|
| 27 |
Unrealized gains (losses) recognized on equity securities |
|
|
|
|
|
|
|
|
|
|
|
held at end of period |
| 152 |
|
| 41 |
|
| (18) |
|
| 183 |
At March 31,June 30, 2020, available-for-sale debt securities totaling $1,514$1,522 have maturities as follows - less than one year: $78;$64; one to three years: $149;$175; three to five years: $160; for$156; five or more years: $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.
2227
AT&T INC.
MARCH 31,JUNE 30, 2020
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
Fair Value Hedging WePeriodically, we enter into and designate our fixed-to-floating interest rate swaps as fair value hedges. The purpose of these swaps is to manage interest rate risk by managing our mix of fixed-rate and floating-rate debt. These swaps involve the receipt of fixed-rate amounts for floating interest rate payments over the life of the swaps without exchange of the underlying principal amount.
We also designate some of our foreign exchange contracts as fair value hedges. The purpose of these contracts is to hedge currency risk associated with foreign-currency-denominated operating assets and liabilities.
Accrued and realized gains or losses from fair value hedges impact the same category on the consolidated statements of income as the item being hedged. Unrealized gains on fair value hedges are recorded at fair market value as assets, and unrealized losses are recorded at fair market value as liabilities. Changes in the fair value of derivative instruments designated as fair value hedges are offset against the change in fair value of the hedged assets or liabilities through earnings. In the threesix months ended March 31,June 30, 2020 and 2019, no ineffectiveness was measured on fair value hedges.
Cash Flow Hedging We designate our cross-currency swaps as cash flow hedges. We have entered into multiple cross-currency swaps to hedge our exposure to variability in expected future cash flows that are attributable to foreign currency risk generated from the issuance of our foreign-denominated debt. These agreements include initial and final exchanges of principal from fixed foreign currency denominated amounts to fixed U.S. dollar denominated amounts, to be exchanged at a specified rate that is usually determined by the market spot rate upon issuance. They also include an interest rate swap of a fixed or floating foreign currency-denominated interest rate to a fixed U.S. dollar denominated interest rate.
We also designate some of our foreign exchange contracts as cash flow hedges. The purpose of these contracts is to hedge certain film production costs denominated in foreign currencies.
Unrealized gains on derivatives designated as cash flow hedges are recorded at fair value as assets, and unrealized losses are recorded at fair value as liabilities. For derivative instruments designated as cash flow hedges, changes in fair value are reported as a component of accumulated OCI and are reclassified into the consolidated statements of income in the same period the hedged transaction affects earnings.
Periodically, we enter into and designate interest rate locks to partially hedge the risk of changes in interest payments attributable to increases in the benchmark interest rate during the period leading up to the probable issuance of fixed-rate debt. We designate our interest rate locks as cash flow hedges. Gains and losses when we settle our interest rate locks are amortized into income over the life of the related debt. Over the next 12 months, we expect to reclassify $60$98 from accumulated OCI to “Interest expense” due to the amortization of net losses on historical interest rate locks.
We settled all interest rate locks in May 2020 in conjunction with issuance of fixed rate debt obligations that the interest rate locks were hedging. We paid $731 that was largely offset by the return of collateral at the time of settlement. Cash flows from the interest rate lock settlements and return of collateral were reported as Financing Activities in our Statement of Cash Flows, consistent with our accounting policy for these instruments.
Net Investment Hedging We have designated €1,364€1,450 million aggregate principal amount of debt as a hedge of the variability of some of the Euro-denominated net investments of our subsidiaries. The gain or loss on the debt that is designated as, and is effective as, an economic hedge of the net investment in a foreign operation is recorded as a currency translation adjustment within accumulated OCI, net on the consolidated balance sheet. Net gainslosses on net investment hedges recognized in accumulated OCI in the second quarter were $30 and for the first six months of 2020 were $25.$5.
Collateral and Credit-Risk Contingency We have entered into agreements with our derivative counterparties establishing collateral thresholds based on respective credit ratings and netting agreements. At March 31,June 30, 2020, we had posted collateral of $2,809$694 (a deposit asset) and held 0 collateral.collateral of $16 (a receipt liability). Under the agreements, if AT&T’s credit rating had been downgraded one rating level by Fitch Ratings, before the end of March, final collateral exchange in June, we would not have been required to post any additional collateral. of $76. If AT&T’s credit rating had been downgraded four ratingratings 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 $6,149.$5,487. If DIRECTV
28
AT&T INC.
JUNE 30, 2020
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
Holdings LLC’s credit rating had been downgraded below BBB- (S&P),by S&P, we would have been required to post additional collateral of $200.$321. At December 31, 2019, we had posted collateral of $204 (a deposit asset) and held collateral of $44 (a receipt liability). We do not offset the fair value of collateral, whether the right to reclaim cash collateral (a receivable) or the obligation to return cash collateral (a payable) exists, against the fair value of the derivative instruments.
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:
| March 31, |
| December 31, |
| June 30, |
| December 31, | ||||
2020 |
| 2019 |
| 2020 |
| 2019 | |||||
Interest rate swaps | $ | 853 |
| $ | 853 | Interest rate swaps | $ | 21 |
| $ | 853 |
Cross-currency swaps |
| 42,325 |
|
| 42,325 | Cross-currency swaps |
| 45,606 |
|
| 42,325 |
Interest rate locks |
| 3,500 |
|
| 3,500 | Interest rate locks |
| - |
|
| 3,500 |
Foreign exchange contracts |
| 106 |
|
| 269 | Foreign exchange contracts |
| 298 |
|
| 269 |
Total | $ | 46,784 |
| $ | 46,947 | Total | $ | 45,925 |
| $ | 46,947 |
Following are the related hedged items affecting our financial position and performance:
Effect of Derivatives on the Consolidated Statements of Income |
|
|
|
|
| Effect of Derivatives on the Consolidated Statements of Income |
|
|
|
|
|
|
|
| ||
| Three months ended | Three months ended |
| Six months ended | ||||||||||||
| March 31, | June 30, |
| June 30, | ||||||||||||
Fair Value Hedging Relationships | 2020 |
| 2019 | 2020 |
| 2019 |
| 2020 |
| 2019 | ||||||
Interest rate swaps (Interest expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on interest rate swaps | $ | 10 |
| $ | 24 | |||||||||||
Gain (loss) on long-term debt |
| (10) |
|
| (24) | |||||||||||
Gain (Loss) on interest rate swaps | $ | (14) |
| $ | 35 |
| $ | (4) |
| $ | 59 | |||||
Gain (Loss) on long-term debt |
| 14 |
|
| (35) |
|
| 4 |
|
| (59) |
In addition, the net swap settlements that accrued and settled in the quarters ended March 31,June 30, 2020 and 2019 were offset against interest expense.
| 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) |
The following table presents information for our cash flow hedging relationships:
| Three months ended |
| Six months ended | ||||||||
| June 30, |
| June 30, | ||||||||
Cash Flow Hedging Relationships | 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Cross-currency swaps: |
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss) recognized in accumulated OCI | $ | 809 |
| $ | (763) |
| $ | (3,170) |
| $ | (595) |
Foreign exchange contracts: |
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss) recognized in accumulated OCI |
| 2 |
|
| 4 |
|
| (11) |
|
| (3) |
Other income (expense) - net reclassified from |
|
|
|
|
|
|
|
|
|
|
|
accumulated OCI into income |
| (3) |
|
| 7 |
|
| 13 |
|
| 10 |
Interest rate locks: |
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss) recognized in accumulated OCI |
| (12) |
|
| (23) |
|
| (648) |
|
| (23) |
Interest income (expense) reclassified from |
|
|
|
|
|
|
|
|
|
|
|
accumulated OCI into income |
| (18) |
|
| (16) |
|
| (34) |
|
| (32) |
29
AT&T INC.
JUNE 30, 2020
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
NOTE 8. ACQUISITIONS, DISPOSITIONS AND OTHER ADJUSTMENTS
Acquisitions
HBO Latin America Group (HBO LAG) In May 2020, we acquired the remaining interest in HBO LAG for $141, net of cash acquired. At acquisition, we remeasured the fair value of the total business, which exceeded the carrying amount of our equity method investment and resulted in a pre-tax gain of $68. We consolidated that business upon close and recorded those assets at fair value, including $640 of trade names, $271 of distribution networks and $343 of goodwill that is reported in the WarnerMedia segment. These estimates are preliminary in nature and subject to adjustments, which will be finalized within one year from the date of acquisition.
Spectrum Auctions In June 2020, we completed the acquisition of $2,379 of 37/39 GHz spectrum in a Federal Communications Commission (FCC) auction. Prior to the auction, we exchanged the 39 GHz licenses with a book value of approximately $300 that were previously acquired through FiberTower Corporation for vouchers to be applied against the winning bids and recorded a $900 gain in the first quarter of 2020. These vouchers yielded a value of approximately $1,200, which was applied toward our gross bids. In the second quarter of 2020, we made the final cash payment of $949, bringing the total cash payment to $1,186.
NOTE 8.9. SALES OF RECEIVABLES
We have agreements with various third-party financial institutions pertaining to the sales of certain types of our accounts receivable. The most significant of these programs are discussed in detail below and generally consist of (1) receivables arising from equipment installment plans, which are sold for cash and a deferred purchase price, and (2) revolving service and trade receivables. Under these programs, we transfer receivables to purchasers in exchange for cash and additional consideration upon settlement of the receivables, where applicable. Under the terms of our agreements for these programs, we continue to bill and collect the payments from our customers on behalf of the financial institutions.
The sales of receivables did not have a material impact on our consolidated statements of income or to “Total Assets” reported on our consolidated balance sheets. We reflect cash receipts on sold receivables as cash flows from 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 revolving receivable programs are discussed in detail below. The following table sets forth a summary of the receivables and accounts being serviced:
|
|
| March 31, 2020 |
|
| December 31, 2019 |
| June 30, 2020 |
| December 31, 2019 | ||||||||||||||
|
| Equipment |
|
|
|
| Equipment |
|
|
|
| Equipment |
|
|
|
| Equipment |
|
|
| ||||
|
| Installment |
| Revolving |
| Installment |
| Revolving |
| Installment |
| Revolving |
| Installment |
| Revolving | ||||||||
Gross receivables: | Gross receivables: | $ | 3,640 |
| $ | 4,057 |
| $ | 4,576 |
| $ | 3,324 | Gross receivables: | $ | 3,931 |
| $ | 3,745 |
| $ | 4,576 |
| $ | 3,324 |
Balance sheet classification | Balance sheet classification |
|
|
|
|
|
|
|
|
|
|
| Balance sheet classification |
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable | Accounts receivable |
|
|
|
|
|
|
|
|
|
|
| Accounts receivable |
|
|
|
|
|
|
|
|
|
|
|
Notes receivable | Notes receivable |
| 1,979 |
|
| - |
|
| 2,467 |
|
| - | Notes receivable |
| 2,056 |
|
| - |
|
| 2,467 |
|
| - |
Trade receivables | Trade receivables |
| 466 |
|
| 3,733 |
|
| 477 |
|
| 2,809 | Trade receivables |
| 496 |
|
| 3,547 |
|
| 477 |
|
| 2,809 |
Other Assets | Other Assets |
|
|
|
|
|
|
|
|
|
|
| Other Assets |
|
|
|
|
|
|
|
|
|
|
|
Noncurrent notes and trade receivables | Noncurrent notes and trade receivables |
| 1,195 |
|
| 324 |
|
| 1,632 |
|
| 515 | Noncurrent notes and trade receivables |
| 1,379 |
|
| 198 |
|
| 1,632 |
|
| 515 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding portfolio of receivables derecognized from | 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 | our consolidated balance sheets |
| 8,917 |
|
| 5,300 |
|
| 9,713 |
|
| 4,300 |
Cash proceeds received, net of remittances1 | Cash proceeds received, net of remittances1 |
| 7,156 |
|
| 5,300 |
|
| 7,211 |
|
| 4,300 | Cash proceeds received, net of remittances1 |
| 6,429 |
|
| 5,300 |
|
| 7,211 |
|
| 4,300 |
1 | Represents amounts to which financial institutions remain entitled, excluding the deferred purchase price. | Represents amounts to which financial institutions remain entitled, excluding the deferred purchase price. |
30
AT&T INC.
JUNE 30, 2020
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
Equipment Installment Receivables Program
We offer our customers the option to purchase certain wireless devices in installments over a specified period of time and, in many cases, once certain conditions are met, they may be eligible to trade in the original equipment for a new device and have the remaining unpaid balance paid or settled.
We maintain a program under which we transfer a portion of these receivables through our bankruptcy-remote subsidiary in exchange for cash and additional consideration upon settlement of the receivables, referred to as the deferred purchase price. In the event a customer trades in a device prior to the end of the installment contract period, we agree to make a payment to the financial institutions equal to any outstanding remaining installment receivable balance. Accordingly, we record a guarantee obligation for this estimated amount at the time the receivables are transferred.
The following table sets forth a summary of equipment installment receivables sold under this program during the three and six months ended March 31,June 30, 2020 and 2019:
|
| Three months ended |
| Six months ended | ||||||||||||||
|
| Three months ended March 31, |
| June 30, |
| June 30, | ||||||||||||
|
|
| 2020 |
|
| 2019 |
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Gross receivables sold | Gross receivables sold | $ | 2,367 |
| $ | 2,701 | Gross receivables sold | $ | 1,506 |
| $ | 2,244 |
| $ | 3,873 |
| $ | 4,945 |
Net receivables sold1 | Net receivables sold1 |
| 2,273 |
|
| 2,546 | Net receivables sold1 |
| 1,449 |
|
| 2,133 |
|
| 3,722 |
|
| 4,679 |
Cash proceeds received | Cash proceeds received |
| 1,950 |
|
| 2,275 | Cash proceeds received |
| 1,225 |
|
| 1,920 |
|
| 3,175 |
|
| 4,195 |
Deferred purchase price recorded | Deferred purchase price recorded |
| 353 |
|
| 309 | Deferred purchase price recorded |
| 232 |
|
| 261 |
|
| 585 |
|
| 570 |
Guarantee obligation recorded | Guarantee obligation recorded |
| 44 |
|
| 101 | Guarantee obligation recorded |
| 27 |
|
| 93 |
|
| 71 |
|
| 194 |
1 | Receivables net of allowance, imputed interest and equipment trade-in right guarantees. | Receivables net of allowance, imputed interest and equipment trade-in right guarantees. |
The deferred purchase price and guarantee obligation are initially recorded at estimated fair value and subsequently adjusted for changes in present value of 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 presents the previously transferred equipment installment receivables, which we repurchased in exchange for the associated deferred purchase price during the three and six months ended March 31,June 30, 2020 and 2019:
|
| Three months ended |
| Six months ended | ||||||||||||||
|
| Three months ended March 31, |
| June 30, |
| June 30, | ||||||||||||
|
|
| 2020 |
|
| 2019 |
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Fair value of repurchased receivables | Fair value of repurchased receivables | $ | 288 |
| $ | 423 | Fair value of repurchased receivables | $ | 285 |
| $ | 235 |
| $ | 573 |
| $ | 658 |
Carrying value of deferred purchase price | Carrying value of deferred purchase price |
| 277 |
|
| 407 | Carrying value of deferred purchase price |
| 281 |
|
| 225 |
|
| 558 |
|
| 632 |
Gain on repurchases1 | Gain on repurchases1 | $ | 11 |
| $ | 16 | Gain on repurchases1 | $ | 4 |
| $ | 10 |
| $ | 15 |
| $ | 26 |
1 | These gains are included in “Selling, general and administrative” in the consolidated statements of income. | These gains are included in “Selling, general and administrative” in the consolidated statements of income. |
At March 31,June 30, 2020 and December 31, 2019, our deferred purchase price receivable was $2,378$2,319 and $2,336, respectively, of which $1,583$1,591 and $1,569 are included in “Other current assets” on our consolidated balance sheets, with the remainder in “Other Assets.” The guarantee obligation at March 31,June 30, 2020 and December 31, 2019 was $351$315 and $384, respectively, of which $189$213 and $148 are included in “Accounts payable and accrued liabilities” on our consolidated balance sheets, with the remainder in “Other noncurrent liabilities.” Our maximum exposure to loss as a result of selling these equipment installment receivables is limited to the total amount of our deferred purchase price and guarantee obligation.
31
AT&T INC.
JUNE 30, 2020
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
Revolving Receivables Program
In 2019, we entered into a one-year revolving agreement to transfer up to $4,300 of certain receivables through our bankruptcy-remote subsidiaries to various financial institutions on a recurring basis in exchange for cash equal to the gross receivables transferred. In the first quarter of 2020, we expanded the program limit to $5,300. In the second quarter of 2020, we extended the agreement by one year. As customers pay their balances, we transfer additional receivables into the program, resulting in our gross receivables sold exceeding net cash flow impacts (e.g., collect and reinvest). The transferred receivables are fully guaranteed by our bankruptcy-remote subsidiaries, which hold additional receivables in the amount of $4,057$3,745 that are pledged as collateral under this agreement. The transfers are recorded at fair value of the proceeds received and obligations assumed less derecognized receivables. The obligation is subsequently adjusted for changes in estimated expected credit losses.losses and interest rates. Our maximum exposure to loss related to these receivables transferred is limited to the amount outstanding.
The fair value measurement used for the obligation is considered Level 3 under the Fair Value Measurement and Disclosure framework (see Note 7).
The following table sets forth a summary of receivables sold:
|
| Three months ended |
| Six months ended | ||||||||||||||
|
|
| Three months ended March 31, |
| June 30, |
| June 30, | |||||||||||
|
|
| 2020 |
|
| 2019 |
| 2020 |
| 2019 |
| 2020 |
| 2019 | ||||
Gross receivables sold/cash proceeds received1 | Gross receivables sold/cash proceeds received1 | $ | 4,222 |
| $ | 1,400 | Gross receivables sold/cash proceeds received1 | $ | 3,805 |
| $ | 4,452 |
| $ | 8,027 |
| $ | 5,852 |
Collections reinvested under revolving agreement | Collections reinvested under revolving agreement |
| 3,222 |
|
| - | Collections reinvested under revolving agreement |
| 3,805 |
|
| 2,127 |
|
| 7,027 |
|
| 2,127 |
Net cash proceeds received (remitted) | Net cash proceeds received (remitted) | $ | 1,000 |
| $ | 1,400 | Net cash proceeds received (remitted) | $ | - |
| $ | 2,325 |
| $ | 1,000 |
| $ | 3,725 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net receivables sold2 | Net receivables sold2 | $ | 4,138 |
| $ | 1,363 | Net receivables sold2 | $ | 3,819 |
| $ | 4,134 |
| $ | 7,957 |
| $ | 5,497 |
Obligations recorded |
| 126 |
|
| 52 | |||||||||||||
Obligations recorded (reversed) | Obligations recorded (reversed) |
| (12) |
|
| 384 |
|
| 114 |
|
| 436 | ||||||
1 | Includes initial sale of receivables of $1,000 and $1,400 for the three months ended March 31, 2020 and 2019, respectively. | Includes initial sale of receivables of $0 and $2,325 for the three months and $1,000 and $3,725 for the six months ended | ||||||||||||||||
| June 30, 2020 and 2019, respectively. |
|
|
|
|
|
|
|
|
|
|
| ||||||
2 | Receivables net of allowance, return and incentive reserves and imputed interest. | Receivables net of allowance, return and incentive reserves and imputed interest |
NOTE 9.10. LEASES
We have operating and finance leases for certain facilities and equipment used in operations. Our leases generally have remaining lease terms of up to 15 years. Some of our real estate operating leases contain renewal options that may be exercised, and some of our leases include options to terminate the leases within one year.
26
AT&T INC.
MARCH 31, 2020
NOTES 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 will be updated on a quarterly basis for measurement of new lease liabilities.
32
AT&T INC.
JUNE 30, 2020
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
The components of lease expense were as follows:
| Three months ended |
| Six months ended | |||||||||||||
| Three months ended March 31, | June 30, |
| June 30, | ||||||||||||
| 2020 |
| 2019 | 2020 |
| 2019 |
| 2020 |
| 2019 | ||||||
Operating lease cost | $ | 1,377 |
| $ | 1,242 | $ | 1,449 |
| $ | 1,610 |
| $ | 2,826 |
| $ | 2,852 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance lease cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of right-of-use assets | $ | 67 |
| $ | 66 | $ | 73 |
| $ | 70 |
| $ | 140 |
| $ | 136 |
Interest on lease obligation |
| 41 |
|
| 42 |
| 36 |
|
| 42 |
|
| 77 |
|
| 84 |
Total finance lease cost | $ | 108 |
| $ | 108 | $ | 109 |
| $ | 112 |
| $ | 217 |
| $ | 220 |
The following tables set forth supplementalSupplemental balance sheet information related to leases:leases is as follows:
|
| 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 | % |
| June 30, | December 31, |
| ||
| 2020 | 2019 |
| ||
Operating Leases |
|
|
|
|
|
Operating lease right-of-use assets | $ | 24,692 | $ | 24,039 |
|
|
|
|
|
|
|
Accounts payable and accrued liabilities | $ | 3,474 | $ | 3,451 |
|
Operating lease obligation |
| 22,230 |
| 21,804 |
|
Total operating lease obligation | $ | 25,704 | $ | 25,255 |
|
|
|
|
|
|
|
Finance Leases |
|
|
|
|
|
Property, plant and equipment, at cost | $ | 3,468 | $ | 3,534 |
|
Accumulated depreciation and amortization |
| (1,347) |
| (1,296) |
|
Property, plant and equipment, net | $ | 2,121 | $ | 2,238 |
|
|
|
|
|
|
|
Current portion of long-term debt | $ | 180 | $ | 162 |
|
Long-term debt |
| 1,683 |
| 1,872 |
|
Total finance lease obligation | $ | 1,863 | $ | 2,034 |
|
|
|
|
|
|
|
Weighted-Average Remaining Lease Term (years) |
|
|
|
|
|
Operating leases |
| 8.5 |
| 8.4 |
|
Finance leases |
| 10.2 |
| 10.7 |
|
|
|
|
|
|
|
Weighted-Average Discount Rate |
|
|
|
|
|
Operating leases |
| 4.2 | % | 4.7 | % |
Finance leases |
| 8.2 | % | 8.5 | % |
2733
AT&T INC.
MARCH 31,JUNE 30, 2020
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
Future minimum maturities of lease liabilitiesobligations are as follows:
At March 31, 2020 | Operating |
| Finance | |||||||
At June 30, 2020 | Operating |
| Finance | |||||||
| Leases |
| Leases | Leases |
| Leases | ||||
Remainder of 2020 | $ | 3,519 |
| $ | 275 | $ | 2,447 |
| $ | 190 |
2021 |
| 4,391 |
|
| 275 |
| 4,582 |
|
| 309 |
2022 |
| 4,068 |
|
| 258 |
| 4,277 |
|
| 291 |
2023 |
| 3,663 |
|
| 232 |
| 3,889 |
|
| 262 |
2024 |
| 3,140 |
|
| 214 |
| 3,357 |
|
| 242 |
Thereafter |
| 11,788 |
|
| 1,509 |
| 13,031 |
|
| 1,632 |
Total lease payments |
| 30,569 |
|
| 2,763 |
| 31,583 |
|
| 2,926 |
Less imputed interest |
| (5,542) |
|
| (1,024) |
| (5,879) |
|
| (1,063) |
Total | $ | 25,027 |
| $ | 1,739 | $ | 25,704 |
| $ | 1,863 |
NOTE 10.11. PREFERRED SHARES
We have authorized 10 million preferred shares of AT&T stock, each with a par value of $1.00 per share. Cumulative perpetual preferred shares consist of the following:
Series A: 48 thousand shares outstanding at March 31,June 30, 2020 and December 31, 2019, with a $25,000 per share liquidation preference and a dividend rate of 5.00%.
Series B: 20 thousand shares outstanding at March 31,June 30, 2020 and 0 issued and outstanding at December 31, 2019, with a €100,000 per share liquidation preference, and an initial dividend rate of 2.875%, subject to reset beginning on May 1, 2025.
Series C: 70 thousand shares outstanding at March 31,June 30, 2020 and 0 issued and outstanding at December 31, 2019, with a $25,000 per share liquidation preference and a dividend rate of 4.75%.
So long as the preferred dividends are declared and paid on a timely basis on each series of preferred shares, there are no limitations on our ability to declare a dividend on or repurchase AT&T common shares. The preferred shares are optionally redeemable by AT&T at the liquidation price generally on or after five years from the issuance date, or upon certain other contingent events.
NOTE 11.12. ADDITIONAL FINANCIAL INFORMATION
Cash and Cash Flows
We typically maintain our restricted cash balances for purchases and sales of certain investment securities and funding of certain deferred compensation benefit payments.payments:
| 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 |
|
| June 30, |
| December 31, | ||||||||
|
|
| 2020 |
|
| 2019 |
|
| 2019 |
|
| 2018 |
Cash and cash equivalents |
| $ | 16,941 |
| $ | 8,423 |
| $ | 12,130 |
| $ | 5,204 |
Restricted cash in Other current assets |
|
| 3 |
|
| 15 |
|
| 69 |
|
| 61 |
Restricted cash in Other Assets |
|
| 87 |
|
| 216 |
|
| 96 |
|
| 135 |
Cash and Cash Equivalents and Restricted Cash |
| $ | 17,031 |
| $ | 8,654 |
| $ | 12,295 |
| $ | 5,400 |
2834
AT&T INC.
MARCH 31,JUNE 30, 2020
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
Consolidated Statements of Cash Flows | Six months ended | |||||||||
| Three months ended | June 30, | ||||||||
| March 31, | |||||||||
Cash Paid (Received) During the Period for: |
| 2020 |
|
| 2019 | |||||
Cash paid (received) during the period for: |
| 2020 |
|
| 2019 | |||||
Interest | $ | 2,376 |
| $ | 2,507 | $ | 4,202 |
| $ | 4,410 |
Income taxes, net of refunds |
| (354) |
|
| (379) |
| (214) |
|
| (32) |
| 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 |
|
| Six months ended | ||||
|
| June 30, | ||||
|
| 2020 |
| 2019 | ||
Cash Flows from Operating Activities |
|
|
|
|
|
|
Cash paid for amounts included in lease obligations |
|
|
|
|
|
|
Operating cash flows from operating leases |
| $ | 2,424 |
| $ | 2,464 |
|
|
|
|
|
|
|
Supplemental Lease Cash Flow Disclosures |
|
|
|
|
|
|
Operating lease right-of-use assets obtained |
|
|
|
|
|
|
in exchange for new operating lease obligations |
|
| 2,895 |
|
| 3,899 |
Other Noncash Investing and Financing Activities In connection with capital improvements and the acquisition of other productive assets, we negotiate favorable payment terms (referred to as vendor financing), which are reported as financing activities when paid. For the first six months, we recorded vendor financing commitments related to capital investments of approximately $1,680 in 2020 and $1,265 in 2019.
Financing Activities
Term Loan
Debt Transactions OnAt June 30, 2020, our total long-term debt obligations totaled $168,964. Our debt activity primarily consisted of the following:
Net borrowings of approximately $2,960 of debt under our commercial paper program.
In April 6, 2020, we enteredentry into and drewdraw 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 entire principal amount will beagent, which was redeemed in May 2020 (originally due and payable on December 31, 2020.2020).
Issuance of $16,545 of AT&T global notes due 2027 to 2060.
Issuance of €3,000 million global notes ($3,281 at issuance) due 2028 to 2038.
Redemptions of $12,689 of AT&T global notes due 2020 to 2047.
Redemptions of $1,800 under term loan credit agreements with certain banks.
Redemptions of $1,000 annual put reset securities issued by BellSouth.
Our long-term debt issuances carried a weighted average interest rate of 3.5%, and our long-term debt redemptions had a weighted average interest rate of 3.4%.
Subsequent Events In July 2020, we completed redemptions of $4,264 of AT&T, WarnerMedia and DIRECTV notes due 2022, with an average interest rate of 3.4%.
In August 2020, we issued $11,000 of global notes due 2028 to 2061, with an average interest rate of 2.7%.
2935
AT&T INC.
MARCH 31,JUNE 30, 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 have fourthree reportable segments: (1) Communications, (2) WarnerMedia and (3) Latin America and (4) Xandr.America. Our segment results presented in Note 4 and discussed below follow our internal management reporting. We analyze our segments based on segment operating contribution, which consists of operating income, excluding acquisition-related costs and other significant items and equity in net income (loss) of affiliates for investments managed within each segment. Percentage increases and decreases that are not considered meaningful are denoted with a dash.
| First Quarter |
| |||||
|
|
|
|
|
| Percent |
|
| 2020 |
| 2019 | Change |
| ||
Operating Revenues |
|
|
|
|
|
|
|
Communications | $ | 34,249 |
| $ | 35,169 | (2.6) | % |
WarnerMedia |
| 7,359 |
|
| 8,379 | (12.2) |
|
Latin America |
| 1,590 |
|
| 1,718 | (7.5) |
|
Xandr |
| 489 |
|
| 426 | 14.8 |
|
Corporate and other |
| 388 |
|
| 391 | (0.8) |
|
Eliminations and consolidation |
| (1,296) |
|
| (1,256) | (3.2) |
|
AT&T Operating Revenues |
| 42,779 |
|
| 44,827 | (4.6) |
|
|
|
|
|
|
|
|
|
Operating Contribution |
|
|
|
|
|
|
|
Communications |
| 8,203 |
|
| 8,011 | 2.4 |
|
WarnerMedia |
| 1,714 |
|
| 2,310 | (25.8) |
|
Latin America |
| (184) |
|
| (173) | (6.4) |
|
Xandr |
| 299 |
|
| 253 | 18.2 |
|
Segment Operating Contribution | $ | 10,032 |
| $ | 10,401 | (3.5) | % |
We have recast our segment results for all prior periods to include our prior Xandr segment within our WarnerMedia segment.
| Second Quarter |
|
| Six-Month Period |
| ||||||||||
|
|
|
|
|
| Percent |
|
|
|
|
|
|
| Percent |
|
| 2020 |
| 2019 | Change |
|
| 2020 |
| 2019 | Change |
| ||||
Operating Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Communications | $ | 33,592 |
| $ | 35,267 | (4.7) | % |
| $ | 67,841 |
| $ | 70,436 | (3.7) | % |
WarnerMedia |
| 6,814 |
|
| 8,835 | (22.9) |
|
|
| 14,662 |
|
| 17,640 | (16.9) |
|
Latin America |
| 1,232 |
|
| 1,757 | (29.9) |
|
|
| 2,822 |
|
| 3,475 | (18.8) |
|
Corporate and other |
| 437 |
|
| 420 | 4.0 |
|
|
| 825 |
|
| 811 | 1.7 |
|
Eliminations and consolidation |
| (1,125) |
|
| (1,322) | 14.9 |
|
|
| (2,421) |
|
| (2,578) | 6.1 |
|
AT&T Operating Revenues |
| 40,950 |
|
| 44,957 | (8.9) |
|
|
| 83,729 |
|
| 89,784 | (6.7) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Contribution |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Communications |
| 8,112 |
|
| 8,671 | (6.4) |
|
|
| 16,315 |
|
| 16,682 | (2.2) |
|
WarnerMedia |
| 1,917 |
|
| 2,350 | (18.4) |
|
|
| 3,930 |
|
| 4,913 | (20.0) |
|
Latin America |
| (201) |
|
| (209) | 3.8 |
|
|
| (385) |
|
| (382) | (0.8) |
|
Segment Operating Contribution | $ | 9,828 |
| $ | 10,812 | (9.1) | % |
| $ | 19,860 |
| $ | 21,213 | (6.4) | % |
The Communications segment provides services to businesses and consumers located in the U.S. and businesses globally. Our business strategies reflect bundled product offerings that cut across product lines and utilize shared assets. This segment contains the following business units:
Mobility provides nationwide wireless service and equipment.
Entertainment Group provides video, including over-the-top (OTT) services, broadband and voice communications services primarily to residential customers. This segment also sells advertising on distribution platforms.
Business Wireline provides advanced IP-based services, as well as traditional voice and data services to business customers.
3036
AT&T INC.
MARCH 31,JUNE 30, 2020
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
The WarnerMedia segment develops, produces and distributes feature films, television, gaming and other content overin various physical and digital formats.formats globally. Historical financial results from Xandr, previously a separate reportable segment, have been combined with the WarnerMedia segment within Eliminations and other. This segment contains the following business units:
Turner primarily operates multichannel basic television networks and digital properties. Turner also sells advertising on its networks and digital properties.
Home Box Office consists of premium pay television and OTT and streaming services domestically and premium pay, basic tier television and OTT services internationally, as well as content licensing and home entertainment.
Warner Bros. primarily consists of the production, distribution and licensing of television programming and feature films, the distribution of home entertainment products and the production and distribution of games.
The Latin America segment provides entertainment and wireless services outside of the U.S. This segment contains the following business units:
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 Xandrsegment provides advertising services. These services utilize data insights to develop and deliver targeted advertising across video and digital platforms.
COVID-19 UPDATE
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. InWe recorded approximately $320, or $0.03 per diluted share, in the second quarter and $750, or $0.08 per diluted share, for the first quartersix months 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 shutdowndisruption costs. We expect more than half of these incremental charges will be short-term in nature.
In addition to these incremental costs, we estimate that our operations and comparability were impacted by approximately $510, or $0.06 per diluted share, in the second quarter and $470, or $0.05 per diluted share, for the first six months of 2020, for the following COVID-19 related pressures: (1) the cancellation and postponement of the NCAA Division I Men’s Basketball Tournament (NCAA tournament),televised sporting events, resulting in lower advertising revenues and associated expenses, (2) closuresthe closure of retail stores, contributingmovie theaters and postponement of theatrical releases, leading to a decline in wireless equipment sales, with a corresponding reduction in equipment expenselower content revenues and associated expenses, (3) the imposition of travel restrictions, driving significantly lower international wireless roaming services that do not have a directly correlated expense reduction. The netreduction and most significantly impact profitability and (4) closures of these items on profitability was not significant.retail stores, contributing to lower wireless equipment sales, with a corresponding reduction in equipment expense.
All subscriber counts at and for the period ended March 31,June 30, 2020, exclude customers who we have agreed not to terminate service under the Federal Communications Commission (FCC)FCC’s “Keep Americans Connected Pledge.” For reporting purposes, we count thesethe following nonpaying subscribers as if they had disconnected, service.even though they are still receiving service:
Postpaid subscribers totaling 466,0000 (including 338,000 postpaid phone) in the second quarter and 521,000 (including 382,000 postpaid phone) for the first six months;
Premium TV connections totaling 91,000 in the second quarter and 157,000 for the first six months; and
Broadband connections totaling 159,000 (including 48,000 fiber) in the second quarter and 194,000 (including 58,000 fiber) for the first six months.
The economic effects of the pandemic and resulting societal changes are currently not predictable. 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.
We expect operating results and
Due cash flows to continue to be adversely impacted by COVID-19 for at least the uncertaintyduration of the COVID-19 pandemic and recovery, we have withdrawnpandemic. We expect our prior financial guidance.
third-quarter results to be impacted by the following:
3137
AT&T INC.
MARCH 31,JUNE 30, 2020
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
The shift in timing of advertising revenues from the postponement, restarting or cancellation of sporting events and the related timing of the sports costs;
Lower revenues from the closure of movie theaters and postponement of theatrical releases, partially offset by lower production and marketing costs, and other programming expenses;
The decline in revenues from international roaming wireless services due to reduced travel;
Higher expenses to protect front-line employees, contractors and customers; and
The continued transition of customers to our fiber broadband services and the acceleration of the disconnection of linear TV services due to the pandemic.
RESULTS OF OPERATIONS
Consolidated Results Our financial results are summarized in the following discussions.discussions that follow. Additional analysis is discussed in our “Segment Results” section. Certain prior period amounts have been reclassified to conform to the current period’s presentation.
| First Quarter |
| Second Quarter |
|
| Six-Month Period |
| |||||||||||||||
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|
|
| Percent |
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|
|
|
|
| Percent |
|
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|
|
|
|
| Percent |
|
| 2020 |
| 2019 | Change |
| 2020 |
| 2019 | Change |
|
| 2020 |
| 2019 | Change |
| ||||||
Operating Revenues |
|
|
|
|
|
|
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|
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|
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|
| |||
Service | $ | 38,883 |
| $ | 40,684 | (4.4) | % | $ | 37,051 |
| $ | 41,023 | (9.7) | % |
| $ | 75,934 |
| $ | 81,707 | (7.1) | % |
Equipment |
| 3,896 |
|
| 4,143 | (6.0) |
|
| 3,899 |
|
| 3,934 | (0.9) |
|
|
| 7,795 |
|
| 8,077 | (3.5) |
|
Total Operating Revenues |
| 42,779 |
|
| 44,827 | (4.6) |
|
| 40,950 |
|
| 44,957 | (8.9) |
|
|
| 83,729 |
|
| 89,784 | (6.7) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Operations and support |
| 28,071 |
|
| 30,388 | (7.6) |
|
| 30,133 |
|
| 30,356 | (0.7) |
|
|
| 58,204 |
|
| 60,744 | (4.2) |
|
Depreciation and amortization |
| 7,222 |
|
| 7,206 | 0.2 |
|
| 7,285 |
|
| 7,101 | 2.6 |
|
|
| 14,507 |
|
| 14,307 | 1.4 |
|
Total Operating Expenses |
| 35,293 |
|
| 37,594 | (6.1) |
|
| 37,418 |
|
| 37,457 | (0.1) |
|
|
| 72,711 |
|
| 75,051 | (3.1) |
|
Operating Income |
| 7,486 |
|
| 7,233 | 3.5 |
|
| 3,532 |
|
| 7,500 | (52.9) |
|
|
| 11,018 |
|
| 14,733 | (25.2) |
|
Interest expense |
| 2,018 |
|
| 2,141 | (5.7) |
|
| 2,041 |
|
| 2,149 | (5.0) |
|
|
| 4,059 |
|
| 4,290 | (5.4) |
|
Equity in net income (loss) of affiliates |
| (6) |
|
| (7) | 14.3 |
| |||||||||||||||
Equity in net income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
of affiliates |
| (10) |
|
| 40 | - |
|
|
| (16) |
|
| 33 | - |
| |||||||
Other income (expense) – net |
| 803 |
|
| 286 | - |
|
| 1,017 |
|
| (318) | - |
|
|
| 1,820 |
|
| (32) | - |
|
Income Before Income Taxes |
| 6,265 |
|
| 5,371 | 16.6 |
|
| 2,498 |
|
| 5,073 | (50.8) |
|
|
| 8,763 |
|
| 10,444 | (16.1) |
|
Net Income |
| 4,963 |
|
| 4,348 | 14.1 |
|
| 1,563 |
|
| 3,974 | (60.7) |
|
|
| 6,526 |
|
| 8,322 | (21.6) |
|
Net Income Attributable to AT&T |
| 4,610 |
|
| 4,096 | 12.5 |
|
| 1,281 |
|
| 3,713 | (65.5) |
|
|
| 5,891 |
|
| 7,809 | (24.6) |
|
Net Income Attributable to Common Stock | $ | 4,578 |
| $ | 4,096 | 11.8 | % | |||||||||||||||
Net Income Attributable to |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Common Stock | $ | 1,229 |
| $ | 3,713 | (66.9) | % |
| $ | 5,807 |
| $ | 7,809 | (25.6) | % |
Operating revenues decreased in the second quarter and in the first quartersix months of 2020. The decrease was2020, driven by declines in our WarnerMedia, Communications and Latin America segments. Lower WarnerMedia segment revenues reflect unfavorablelower advertising revenue from cancelled and postponed live sports programming comparisons, including strong carryover theatrical revenues in the first quarter of 2019, and lower advertising revenues from the cancellation of the NCAA tournament.revenue due to postponed theatrical releases. Communications segment revenue declines were driven by continued declines in video and legacy services, and lower wireless equipment sales resultingrevenues from store closures.the imposition of international travel restrictions and closure of retail stores. Latin America segment revenue declines were primarily due to foreign exchange pressure.rate pressure and store closures related to COVID-19. Partially offsetting these decreases were revenue increases in wireless service and strategic and managed business service in our Communications segment.
Operations and support expenses decreased in the second quarter and in the first quartersix months of 2020. The decrease wasdecreases were driven by lower broadcast and programming costs in our Communications and WarnerMedia segments. Expense declines in the first six months were also driven by a noncash gain of $900 on a spectrum transaction, lower broadcast and programming costs in our Communications and WarnerMedia segments, reduced wireless equipment costs
38
AT&T INC.
JUNE 30, 2020
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
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 decreasesexpense declines were charges for a goodwill impairment at our Vrio business unit, employee separation charges and incremental costs related to COVID-19, including increased first-quarter 2020 bad debt associated with COVID-19.expense. As part of our cost and efficiency initiatives, we expect operations and support expense improvements to continue as we size our operations to reflect the new economic activity level.
Depreciation and amortization expense increased in the second quarter and for the first quartersix months of 2020.
Depreciation expense increased $29,$36, or 0.7% in the second quarter and $65, or 0.6%, for the first six months of 2020, primarily due to ongoing capital spend for network upgrades and expansion in our Communications segment.
Amortizationexpense decreased $13,increased $148, or 0.6%,7.1% in the second quarter and $135, or 3.2% for the first six months of 2020 primarily due to the decreased amortization of intangibles associated with WarnerMedia, largely offset by commencement of amortization for orbital slot licenses, beginningwhich began in the first quarter of 2020 (see Note 1).
Operatingincome decreased in the second quarter and the first six months of 2020. Our operating income margin for the second quarter decreased from 16.7% in 2019 to 8.6% in 2020 and for the first six months decreased from 16.4% in 2019 to 13.2% in 2020.
Interest expense decreased in the second quarter and first six months of 2020, primarily due to lower debt balances and interest rates.
Equity in net income of affiliates decreased in the second quarter and for the first six months of 2020, reflecting changes in our investment portfolio, including our second-quarter 2020 acquisition of the remaining interest in HBO Latin America Group (HBO LAG).
Other income (expense) – net increased in the second quarter and for the first six months of 2020. The increases were primarily due to the recognition of actuarial losses in 2019, with no comparable interim remeasurement in 2020, totaling $1,699 and $2,131 in the second quarter and for the first six months of 2019, respectively, and higher prior service credit amortization in 2020 (see Note 6). The increase was partially offset by the write-off of certain investments in 2020 and the second-quarter 2019 gain on sale of our interest in Hulu.
Income taxes decreased in the second quarter and increased for the first six months of 2020. The decrease in income tax expense in the second quarter was primarily attributable to lower income before tax.
Our effective tax rate was 37.5% for the second quarter and 25.5% for the first six months of 2020, versus 21.7% and 20.3% for the comparable year-prior periods, respectively. The increases in our effective tax rates were primarily due to the Vrio goodwill impairment, which is not deductible for tax purposes.
3239
AT&T INC.
MARCH 31,JUNE 30, 2020
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
COMMUNICATIONS SEGMENT | Second Quarter |
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| Six-Month Period |
| ||||||||||
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|
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|
| Percent |
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|
|
|
|
|
| Percent |
|
| 2020 |
| 2019 | Change |
|
| 2020 |
| 2019 | Change |
| ||||
Segment Operating Revenues |
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
Mobility | $ | 17,149 |
| $ | 17,292 | (0.8) | % |
| $ | 34,551 |
| $ | 34,655 | (0.3) | % |
Entertainment Group |
| 10,069 |
|
| 11,368 | (11.4) |
|
|
| 20,584 |
|
| 22,696 | (9.3) |
|
Business Wireline |
| 6,374 |
|
| 6,607 | (3.5) |
|
|
| 12,706 |
|
| 13,085 | (2.9) |
|
Total Segment Operating Revenues |
| 33,592 |
|
| 35,267 | (4.7) |
|
|
| 67,841 |
|
| 70,436 | (3.7) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Operating Contribution |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobility |
| 5,805 |
|
| 5,767 | 0.7 |
|
|
| 11,593 |
|
| 11,076 | 4.7 |
|
Entertainment Group |
| 1,030 |
|
| 1,514 | (32.0) |
|
|
| 2,365 |
|
| 2,992 | (21.0) |
|
Business Wireline |
| 1,277 |
|
| 1,390 | (8.1) |
|
|
| 2,357 |
|
| 2,614 | (9.8) |
|
Total Segment Operating Contribution | $ | 8,112 |
| $ | 8,671 | (6.4) | % |
| $ | 16,315 |
| $ | 16,682 | (2.2) | % |
Selected Subscribers and Connections |
|
|
| |
| June 30, | |||
(000s) | 2020 |
| 2019 | |
Mobility Subscribers1 | 171,407 |
| 158,622 | |
Total domestic broadband connections1 | 15,201 |
| 15,698 | |
Network access lines in service | 7,878 |
| 9,207 | |
U-verse VoIP connections | 4,058 |
| 4,766 | |
1 | Excludes 521 wireless and 194 broadband customers who we have agreed not to terminate service under the FCC's "Keep Americans | |||
| Connected Pledge," which was implemented March 13, 2020. |
Operating revenues decreased in the second quarter and for the first six months of 2020, driven by declines in each of our business units, Entertainment Group, Business Wireline and Mobility. The decreases reflect the continued shift away from linear video and legacy services, lower wireless service revenues from a decline in international travel and waived fees, and suppressed equipment sales in the first quarter of 2020 attributable to store closures. Partially offsetting these declines was growth in our prepaid subscriber base.
Operating contribution decreased in the second quarter and for the first six months of 2020, reflecting declines in our Business Wireline and Entertainment Group business units, largely offset by improvement in our Mobility business unit. Our Communications segment operating income margin in the second quarter decreased from 24.6% in 2019 to 24.1% in 2020 and for the first six months increased from 23.7% in 2019 to 24.0% in 2020.
40
AT&T INC.
JUNE 30, 2020
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
Communications Business Unit Discussion | |||||||||||||||
Mobility Results |
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|
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|
|
|
| Second Quarter |
| Six-Month Period | ||||||||||||
|
|
|
|
|
| Percent |
|
|
|
|
|
| Percent | ||
| 2020 |
| 2019 | Change |
| 2020 |
| 2019 | Change | ||||||
Operating revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service | $ | 13,669 |
| $ | 13,824 | (1.1) | % |
| $ | 27,637 |
| $ | 27,453 | 0.7 | % |
Equipment |
| 3,480 |
|
| 3,468 | 0.3 |
|
|
| 6,914 |
|
| 7,202 | (4.0) |
|
Total Operating Revenues |
| 17,149 |
|
| 17,292 | (0.8) |
|
|
| 34,551 |
|
| 34,655 | (0.3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations and support |
| 9,332 |
|
| 9,522 | (2.0) |
|
|
| 18,901 |
|
| 19,563 | (3.4) |
|
Depreciation and amortization |
| 2,012 |
|
| 2,003 | 0.4 |
|
|
| 4,057 |
|
| 4,016 | 1.0 |
|
Total Operating Expenses |
| 11,344 |
|
| 11,525 | (1.6) |
|
|
| 22,958 |
|
| 23,579 | (2.6) |
|
Operating Income |
| 5,805 |
|
| 5,767 | 0.7 |
|
|
| 11,593 |
|
| 11,076 | 4.7 |
|
Equity in Net Income (Loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of Affiliates |
| - |
|
| - | - |
|
|
| - |
|
| - | - |
|
Operating Contribution | $ | 5,805 |
| $ | 5,767 | 0.7 | % |
| $ | 11,593 |
| $ | 11,076 | 4.7 | % |
The following tables highlight other key measures of performance for Mobility:
Subscribers |
|
|
|
|
|
|
|
|
|
|
| ||
|
|
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|
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|
| June 30, | Percent | ||||
(in 000s) |
|
|
|
|
|
| 2020 |
| 2019 | Change | |||
Postpaid |
|
|
|
|
|
|
| 74,919 |
| 75,478 | (0.7) | % | |
Prepaid |
|
|
|
|
|
|
| 18,008 |
| 17,434 | 3.3 |
| |
Reseller |
|
|
|
|
|
|
| 6,718 |
| 7,323 | (8.3) |
| |
Connected devices1 |
|
|
|
|
|
|
| 71,762 |
| 58,387 | 22.9 |
| |
Total Mobility Subscribers2 |
|
|
|
|
|
|
| 171,407 |
| 158,622 | 8.1 | % | |
1 | Includes data-centric devices such as session-based tablets, monitoring devices and primarily wholesale automobile systems. | ||||||||||||
2 | Excludes 521 customers who we have agreed not to terminate service under the FCC's "Keep Americans Connected Pledge." |
41
AT&T INC.
JUNE 30, 2020
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
Net Additions |
|
|
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|
|
|
| |
| Second Quarter |
|
|
|
| Six-Month Period |
| ||||||
|
|
|
| Percent |
|
|
|
|
| Percent | |||
(in 000s) | 2020 |
| 2019 | Change |
|
| 2020 |
| 2019 | Change | |||
Postpaid Phone Net Additions | (151) |
| 74 | - | % |
|
| 12 |
| 153 | (92.2) | % | |
Total Phone Net Additions | (16) |
| 357 | - |
|
|
| 104 |
| 525 | (80.2) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Postpaid2, 5 | (154) |
| (146) | (5.5) |
|
|
| (127) |
| (353) | 64.0 |
| |
Prepaid | 165 |
| 341 | (51.6) |
|
|
| 120 |
| 442 | (72.9) |
| |
Reseller | (58) |
| (204) | 71.6 |
|
|
| (248) |
| (446) | 44.4 |
| |
Connected devices3 | 2,255 |
| 3,959 | (43.0) |
|
|
| 5,773 |
| 7,047 | (18.1) |
| |
Mobility Net Subscriber Additions1, 5 | 2,208 |
| 3,950 | (44.1) | % |
|
| 5,518 |
| 6,690 | (17.5) | % | |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Postpaid Churn4, 5 | 1.05 |
| 1.07 | (2) | BP |
|
| 1.06 |
| 1.12 | (6) | BP | |
Postpaid Phone-Only Churn4, 5 | 0.84 |
| 0.86 | (2) | BP |
|
| 0.85 |
| 0.89 | (4) | BP | |
1 | Excludes acquisition-related additions during the period. | ||||||||||||
2 | In addition to postpaid phones, includes tablets and wearables and other. Tablet net (losses) were (159) and (357) for the three months | ||||||||||||
| and (426) and (767) for the six months ended June 30, 2020 and 2019, respectively. Wearables and other net adds were 155 and 137 for | ||||||||||||
| the three months and 287 and 264 for the six months ended June 30, 2020 and 2019, respectively. | ||||||||||||
3 | Includes data-centric devices such as session-based tablets, monitoring devices and primarily wholesale automobile systems. Excludes | ||||||||||||
| postpaid tablets. | ||||||||||||
4 | Calculated by dividing the aggregate number of wireless subscribers who canceled service during a month divided by the total number | ||||||||||||
| of wireless subscribers at the beginning of that month. The churn rate for the period is equal to the average of the churn rate for | ||||||||||||
| each month of that period. | ||||||||||||
5 | The second quarter and six-month period ended June 30, 2020, exclude 466 (338 phone) and 521 (382 phone), respectively, who we | ||||||||||||
| have agreed not to terminate service under the FCC’s “Keep Americans Connected Pledge.” The second quarter and six-month | ||||||||||||
| period ended June 30, 2020, postpaid churn includes 21 bps (18 bps phone) and 22 bps (19 bps phone) pressure for these customers. |
Service revenue decreased in the second quarter and increased for the first six months of 2020. The second quarter decrease is due to lower roaming revenue from decreased international travel and waived fees, reflecting a full quarter of pandemic-related impacts. Revenues from the first six months were not as affected by the pandemic, with approximately 15 days of impact in the first quarter. Increases in postpaid phone average revenue per subscriber (ARPU) and gains in prepaid subscribers, largely offset by impacts of the pandemic for the first six months.
ARPU
Postpaid ARPU decreased in the second quarter and increased for the first six months. ARPU during 2020 has been pressured by the decline in international roaming revenues and waived fees.
Churn
The effective management of subscriber churn is critical to our ability to maximize revenue growth and to maintain and improve margins. Postpaid churn and postpaid phone-only churn were lower in the first six months due to migrations to unlimited plans, continued network improvements and industry-wide store closures from COVID-19, partially offset by higher accrual for subscriber disconnections under the “Keep Americans Connected Pledge.”
Equipment revenue was stable in the second quarter and decreased for the first six months of 2020 driven by lower postpaid smartphone sales reflecting store closures.
Operations and support expenses decreased in the second quarter and for the first six months of 2020. The decreases were primarily due to higher bad debt expense in 2019 resulting from prior-year charges in response to credit easing policies, cost initiatives and asset optimization, and lower marketing and sales costs, partially offset by higher commission deferral
42
AT&T INC.
JUNE 30, 2020
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
Operatingincome increased in the first quarter of 2020. Our operating income margin in the first quarter increased from 16.1% in 2019 to 17.5% in 2020.
Interest expense decreased in the first quarter of 2020, primarily due to lower debt balances.
Equity in net income (loss) of affiliates was essentially flat in the first quarter of 2020, reflecting changes in our investment portfolio,amortization, including the second-quarter 2019 sale of Hulu.
Other income (expense) – net increased in the first quarter of 2020 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 on investments in equity securities resulting from market declines in the first quarter of 2020.
Income taxes increased in the first quarter of 2020. Our effective tax rate was 20.8% for the first quarter of 2020, versus 19.0% for the comparable year prior. The increase in income tax expense was primarily due to higher income before income taxes and the impacts of tax settlements insecond-quarter 2020 updates to extend the first quarterexpected economic life of 2019. The increase in our effective tax rate was primarily due to the impacts of tax settlements.
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 | % |
Selected Subscribers and Connections |
|
|
|
| March 31, | ||
(000s) | 2020 |
| 2019 |
Mobility Subscribers | 169,198 |
| 154,670 |
Total domestic broadband connections | 15,315 |
| 15,737 |
Network access lines in service | 8,160 |
| 9,587 |
U-verse VoIP connections | 4,213 |
| 4,935 |
Operating revenues decreased in the first quarter of 2020, driven by declines in our Entertainment Group and Business Wireline business units, partially offset by increases in our Mobility business unit. The decrease reflects the continued shift away from linear video and legacy services and lower wireless equipment sales attributable to store closures. Largely offsetting these declines were higher wireless service revenues from growth in our prepaid subscriber base and growth in our postpaid phone subscribers and average revenue per subscriber (ARPU).
33
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
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 lower in the first quarter due to pricing changes, competitive offers and industry-wide store closures from COVID-19.
Equipment revenue decreased in the first quarter of 2020 driven by lower postpaid smartphone sales reflecting store closures from COVID-19.
Operations and support expenses decreased in the first quarter of 2020 primarily due to lower cost of equipment sales from lower volumes and advertising expense and continued improvements in cost efficiencies, partially offset by higher bad debt expense.customers.
Depreciation expense increased in the second quarter and for the first quartersix months of 2020 primarily due to ongoing capital spending for network upgrades and expansion partially offset by fully depreciated assets.
Operating income increased in the second quarter and for the first quartersix months of 2020. Our Mobility operating income margin in the firstsecond quarter increased from 30.6%33.4% in 2019 to 33.3%33.9% in 2020, and for the first six months increased from 32.0% in 2019 to 33.6% in 2020. Our Mobility EBITDA margin in the firstsecond quarter increased from 42.2%44.9% in 2019 to
35
AT&T INC.
MARCH 31, 45.6% in 2020,
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connectionsfor the first six months increased from 43.5% in millions, except per share and per subscriber amounts
45.0%2019 to 45.3% in 2020. EBITDA is defined as operating contribution excluding equity in net income (loss) of affiliates and depreciation and amortization.
Subscriber Relationships
As the wireless industry has matured, we believe future wireless growth will depend on our ability to offer innovative services, plans and devices that take advantage of our premier 5G wireless network, which recently went nationwide (in July 2020), and to provide these services in bundled product offerings. Subscribers that purchase two or more services from us have significantly lower churn than subscribers that purchase only one service. To support higher mobile data usage, our priority is to best utilize a wireless network that has sufficient spectrum and capacity to support these innovations on as broad a geographic basis as possible.
To attract and retain subscribers in a 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. 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. We offer unlimited data plans and such subscribers also tend to have higher retention and lower churn rates. Our offerings are intended to encourage existing subscribers to upgrade their current services and/or add devices, attract subscribers from other providers and/or minimize subscriber churn.
Connected Devices
Connected devices include data-centric devices such as wholesale automobile systems, monitoring devices, fleet management and session-based tablets. The number of connected device subscriber relationshipssubscribers increased in 2020, and during the second quarter and for the first quartersix months of 2020, driven by the addition ofwe added approximately 2.51.3 million and 3.6 million wholesale connected cars through agreements with various carmakers, and experienced strong growth in other Internet of Things (IoT) connections. We believe that these connected car agreements give us the opportunity to create future retail relationships with the car owners.
Entertainment Group Results |
|
|
|
|
|
|
|
| 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) | % |
3643
AT&T INC.
MARCH 31,JUNE 30, 2020
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
Entertainment Group Results |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Second Quarter |
|
| Six-Month Period |
| ||||||||||
|
|
|
|
|
| Percent |
|
|
|
|
|
| Percent | ||
| 2020 |
| 2019 | Change |
| 2020 |
| 2019 | Change | ||||||
Operating revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Video entertainment | $ | 6,976 |
| $ | 8,035 | (13.2) | % |
| $ | 14,371 |
| $ | 16,109 | (10.8) | % |
High-speed internet |
| 2,092 |
|
| 2,109 | (0.8) |
|
|
| 4,201 |
|
| 4,179 | 0.5 |
|
Legacy voice and data services |
| 560 |
|
| 658 | (14.9) |
|
|
| 1,141 |
|
| 1,341 | (14.9) |
|
Other service and equipment |
| 441 |
|
| 566 | (22.1) |
|
|
| 871 |
|
| 1,067 | (18.4) |
|
Total Operating Revenues |
| 10,069 |
|
| 11,368 | (11.4) |
|
|
| 20,584 |
|
| 22,696 | (9.3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations and support |
| 7,730 |
|
| 8,515 | (9.2) |
|
|
| 15,621 |
|
| 17,042 | (8.3) |
|
Depreciation and amortization |
| 1,309 |
|
| 1,339 | (2.2) |
|
|
| 2,598 |
|
| 2,662 | (2.4) |
|
Total Operating Expenses |
| 9,039 |
|
| 9,854 | (8.3) |
|
|
| 18,219 |
|
| 19,704 | (7.5) |
|
Operating Income |
| 1,030 |
|
| 1,514 | (32.0) |
|
|
| 2,365 |
|
| 2,992 | (21.0) |
|
Equity in Net Income (Loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of Affiliates |
| - |
|
| - | - |
|
|
| - |
|
| - | - |
|
Operating Contribution | $ | 1,030 |
| $ | 1,514 | (32.0) | % |
| $ | 2,365 |
| $ | 2,992 | (21.0) | % |
44
AT&T INC.
JUNE 30, 2020
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
The following tables highlight other key measures of performance for the Entertainment Group business unit:Group:
Connections | Connections |
|
|
|
|
| Connections |
|
|
|
|
|
|
|
|
|
|
|
| |
|
| March 31, | Percent |
|
|
|
|
|
|
| June 30, | Percent | ||||||||
(in 000s) | (in 000s) | 2020 |
|
| 2019 | Change | (in 000s) |
|
|
|
|
|
| 2020 |
| 2019 | Change | |||
Video Connections | Video Connections | Video Connections |
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Premium TV1 | Premium TV1 | 18,576 |
|
| 22,359 | (16.9) | % | Premium TV1 |
|
|
|
|
|
|
| 17,690 |
| 21,581 | (18.0) | % |
AT&T TV Now | AT&T TV Now | 788 |
|
| 1,508 | (47.7) |
| AT&T TV Now |
|
|
|
|
|
|
| 720 |
| 1,340 | (46.3) |
|
Total Video Connections1 | 19,364 |
|
| 23,867 | (18.9) |
| ||||||||||||||
Total Video Connections | Total Video Connections |
|
|
|
|
|
|
| 18,410 |
| 22,921 | (19.7) |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Broadband Connections1 | 14,046 |
|
| 14,454 | (2.8) |
| ||||||||||||||
Total Broadband Connections | Total Broadband Connections |
|
|
|
|
|
|
| 13,944 |
| 14,420 | (3.3) |
| |||||||
Fiber Broadband Connections | Fiber Broadband Connections | 4,096 |
|
| 3,060 | 33.9 | % | Fiber Broadband Connections |
|
|
|
|
|
|
| 4,321 |
| 3,378 | 27.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Retail Consumer Switched Access Lines | Retail Consumer Switched Access Lines | 3,196 |
|
| 3,787 | (15.6) |
| Retail Consumer Switched Access Lines |
|
|
|
|
|
|
| 3,096 |
| 3,630 | (14.7) |
|
U-verse Consumer VoIP Connections | U-verse Consumer VoIP Connections | 3,630 |
|
| 4,393 | (17.4) |
| U-verse Consumer VoIP Connections |
|
|
|
|
|
|
| 3,480 |
| 4,211 | (17.4) |
|
Total Retail Consumer Voice Connections | Total Retail Consumer Voice Connections | 6,826 |
|
| 8,180 | (16.6) |
| Total Retail Consumer Voice Connections |
|
|
|
| 6,576 |
| 7,841 | (16.1) | % | |||
1 | Excludes 157 premium TV and 194 broadband connections who we have agreed not to terminate service under the FCC's "Keep | |||||||||||||||||||
| Americans Connected Pledge." | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Additions | Net Additions |
|
|
|
|
|
| Net Additions |
|
|
|
|
|
|
|
|
|
|
|
|
|
| First Quarter |
|
| Second Quarter |
|
|
|
| Six-Month Period |
|
| ||||||||
|
|
|
|
|
| Percent |
|
|
|
| Percent |
|
|
|
|
| Percent | |||
(in 000s) | (in 000s) | 2020 |
|
| 2019 | Change | (in 000s) | 2020 |
| 2019 | Change |
|
| 2020 |
| 2019 | Change | |||
Video Net Additions | Video Net Additions |
|
|
|
|
|
| Video Net Additions |
|
|
|
|
|
|
|
|
|
|
|
|
Premium TV1 | Premium TV1 | (897) |
|
| (544) | (64.9) | % | Premium TV1 | (886) |
| (778) | (13.9) | % |
|
| (1,783) |
| (1,322) | (34.9) | % |
AT&T TV Now | AT&T TV Now | (138) |
|
| (83) | (66.3) |
| AT&T TV Now | (68) |
| (168) | 59.5 |
|
|
| (206) |
| (251) | 17.9 |
|
Net Video Additions1 | Net Video Additions1 | (1,035) |
|
| (627) | (65.1) |
| Net Video Additions1 | (954) |
| (946) | (0.8) |
|
|
| (1,989) |
| (1,573) | (26.4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Broadband Additions1 | Net Broadband Additions1 | (73) |
|
| 45 | - |
| Net Broadband Additions1 | (102) |
| (34) | - |
|
|
| (175) |
| 11 | - |
|
Fiber Broadband Net Additions | Fiber Broadband Net Additions | 209 |
|
| 297 | (29.6) | % | Fiber Broadband Net Additions | 225 |
| 318 | (29.2) | % |
|
| 434 |
| 615 | (29.4) | % |
1 | Excludes 66 premium TV and 35 broadband connections who we have agreed not to terminate service under the FCC's "Keep Americans | The second quarter and six-month period ended June 30, 2020, exclude 91 and 157 premium TV and 159 and 194 broadband (48 and 58 | ||||||||||||||||||
| Connected Pledge." | fiber) connections, respectively, who we have agreed not to terminate service under the FCC's "Keep Americans Connected Pledge." |
Video entertainment revenues are comprised of subscription and advertising revenues. Revenues decreased in the second quarter and for the first quartersix months of 2020, largely driven by a decline in premium TV and OTT subscribers as we continue to focus on retention of existing subscribers with a particular focus on our high-value customers, partially offset bysubscribers, and lower subscription-based advertising growth.revenues driven by impacts of the pandemic. Consistent with the rest of the industry, our customers continue to shift from a premium linear service to our more economically priced OTT and subscription video on demand services, which has pressured our video revenues.
High-speed internet revenues increaseddecreased in the second quarter and increased for the first six months of 2020. The decrease in the second quarter of 2020, reflectingwas driven by a decline in the average subscriber base, partially offset by higher ARPU. The increase for the six months reflects higher ARPU resulting from pricing actions and an increase in high-speed fiber connections. Our bundling strategy is helping to lower churn with subscribers who bundle broadband with another AT&T service.and pricing.
Legacy voice and data service revenues decreased in the second quarter and for the first quartersix months of 2020, reflecting the continued migrationdecline in the number of customers to our more advanced IP-based offerings or to competitors.customers.
Operations and support expenses decreased in the first quarter of 2020, primarily due to lower content costs from fewer subscribers and ongoing cost initiatives, partially offset by higher amortization of fulfillment cost deferrals and higher annual content rate increases.
3745
AT&T INC.
MARCH 31,JUNE 30, 2020
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
Operations and support expenses decreased in the second quarter and for the first six months of 2020. Contributing to the decreases were lower content and selling costs largely due to fewer subscribers, lower marketing costs and our ongoing focus on cost initiatives. Partially offsetting the decreases were annual content rate increases, higher amortization of fulfillment cost deferrals, including the impact of second-quarter 2020 updates to decrease the estimated economic life for our Entertainment Group customers, and pandemic-related compassion payments.
Depreciation expense decreased in the second quarter and for the first quartersix months of 2020 due to network assets becoming fully depreciated. Partially offsetting the decreases was ongoing capital spending for network upgrades and expansion.
Operating income decreased in the second quarter and for the first quartersix months of 2020. Our Entertainment Group operating income margin in the firstsecond quarter decreased from 13.0%13.3% in 2019 to 12.7%10.2% in 2020, and for the first six months decreased from 13.2% in 2019 to 11.5% in 2020. Our Entertainment Group EBITDA margin in the firstsecond quarter increaseddecreased from 24.7%25.1% in 2019 to 25.0%23.2% in 2020, and for the first six months decreased from 24.9% in 2019 to 24.1% in 2020.
Business Wireline Results |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| First Quarter |
| Second Quarter |
|
| Six-Month Period |
| |||||||||||||||
|
|
|
|
|
| Percent |
|
|
|
|
| Percent |
|
|
|
|
|
| Percent | |||
| 2020 |
| 2019 | Change | 2020 |
| 2019 | Change |
| 2020 |
| 2019 | Change | |||||||||
Operating revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Strategic and managed services | $ | 3,879 |
| $ | 3,779 | 2.6 | % | $ | 3,943 |
| $ | 3,834 | 2.8 | % |
| $ | 7,822 |
| $ | 7,613 | 2.7 | % |
Legacy voice and data services |
| 2,129 |
|
| 2,397 | (11.2) |
|
| 2,067 |
|
| 2,324 | (11.1) |
|
|
| 4,196 |
|
| 4,721 | (11.1) |
|
Other service and equipment |
| 324 |
|
| 302 | 7.3 |
|
| 364 |
|
| 449 | (18.9) |
|
|
| 688 |
|
| 751 | (8.4) |
|
Total Operating Revenues |
| 6,332 |
|
| 6,478 | (2.3) |
|
| 6,374 |
|
| 6,607 | (3.5) |
|
|
| 12,706 |
|
| 13,085 | (2.9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Operations and support |
| 3,951 |
|
| 4,032 | (2.0) |
|
| 3,779 |
|
| 3,975 | (4.9) |
|
|
| 7,730 |
|
| 8,007 | (3.5) |
|
Depreciation and amortization |
| 1,301 |
|
| 1,222 | 6.5 |
|
| 1,318 |
|
| 1,242 | 6.1 |
|
|
| 2,619 |
|
| 2,464 | 6.3 |
|
Total Operating Expenses |
| 5,252 |
|
| 5,254 | - |
|
| 5,097 |
|
| 5,217 | (2.3) |
|
|
| 10,349 |
|
| 10,471 | (1.2) |
|
Operating Income |
| 1,080 |
|
| 1,224 | (11.8) |
|
| 1,277 |
|
| 1,390 | (8.1) |
|
|
| 2,357 |
|
| 2,614 | (9.8) |
|
Equity in Net Income (Loss) of Affiliates |
| - |
|
| - | - |
| |||||||||||||||
Equity in Net Income (Loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
of Affiliates |
| - |
|
| - | - |
|
|
| - |
|
| - | - |
| |||||||
Operating Contribution | $ | 1,080 |
| $ | 1,224 | (11.8) | % | $ | 1,277 |
| $ | 1,390 | (8.1) | % |
| $ | 2,357 |
| $ | 2,614 | (9.8) | % |
Strategic and managed services revenues increased in the second quarter and for the first quartersix months of 2020. Our strategic services are made up of (1) data services, including our VPN, dedicated internet ethernet and broadband, (2) voice service, including VoIP and cloud-based voice solutions, (3) security and cloud solutions, and (4) managed, professional and outsourcing services. Revenue increases were primarily attributable to growth in our security and cloud solutions, dedicated internet business internet and security services.managed services and also includes the impact of higher demand for connectivity due to the pandemic.
Legacy voice and data service revenues decreased in the second quarter and for the first quartersix months of 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 equipment revenues increaseddecreased in the second quarter and for the first quartersix months of 2020, drivenreflecting prior-year licensing of intellectual property assets. Revenue trends are impacted by revenues from customer premises equipment. Revenues from the licensing of intellectual property assets, which vary from period-to-period and can impact revenue trends.period-to-period. Other service revenues include project-based revenue, which is nonrecurring in nature, as well as revenues from customer premises equipment.
Operations and support expenses decreased in the second quarter and for the first quartersix months of 2020, primarily due to our continued efforts to drive efficiencies in our network operations through automation and reductions in customer support expenses through digitization.
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.
3846
AT&T INC.
MARCH 31,JUNE 30, 2020
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
WARNERMEDIA 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) | % |
Depreciation expense increased in the second quarter and for the first six months of 2020, primarily due to increases in capital spending for network upgrades and expansion.
Operating income decreased in the second quarter and for the first six months of 2020. Our Business Wireline operating income margin in the second quarter decreased from 21.0% in 2019 to 20.0% in 2020, and for the first six months decreased from 20.0% in 2019 to 18.6% in 2020. Our Business Wireline EBITDA margin in the second quarter increased from 39.8% in 2019 to 40.7% in 2020, and for the first six months increased from 38.8% in 2019 to 39.2% in 2020.
WARNERMEDIA SEGMENT | Second Quarter |
| Six-Month Period |
| |||||||||||
|
|
|
|
|
| Percent |
|
|
|
|
|
| Percent | ||
| 2020 |
| 2019 | Change |
| 2020 |
| 2019 | Change | ||||||
Segment Operating Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Turner | $ | 2,988 |
| $ | 3,410 | (12.4) | % |
| $ | 6,150 |
| $ | 6,853 | (10.3) | % |
Home Box Office |
| 1,627 |
|
| 1,716 | (5.2) |
|
|
| 3,124 |
|
| 3,226 | (3.2) |
|
Warner Bros. |
| 3,256 |
|
| 3,389 | (3.9) |
|
|
| 6,496 |
|
| 6,907 | (6.0) |
|
Eliminations and other |
| (1,057) |
|
| 320 | - |
|
|
| (1,108) |
|
| 654 | - |
|
Total Segment Operating Revenues |
| 6,814 |
|
| 8,835 | (22.9) |
|
|
| 14,662 |
|
| 17,640 | (16.9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Turner |
| 965 |
|
| 1,796 | (46.3) |
|
|
| 2,285 |
|
| 3,476 | (34.3) |
|
Home Box Office |
| 1,095 |
|
| 839 | 30.5 |
|
|
| 1,911 |
|
| 1,509 | 26.6 |
|
Warner Bros. |
| 2,233 |
|
| 2,492 | (10.4) |
|
|
| 4,579 |
|
| 4,922 | (7.0) |
|
Selling, general and administrative |
| 1,324 |
|
| 1,344 | (1.5) |
|
|
| 2,788 |
|
| 2,716 | 2.7 |
|
Eliminations and other |
| (883) |
|
| (35) | - |
|
|
| (1,142) |
|
| (34) | - |
|
Depreciation and amortization |
| 167 |
|
| 104 | 60.6 |
|
|
| 330 |
|
| 260 | 26.9 |
|
Total Operating Expenses |
| 4,901 |
|
| 6,540 | (25.1) |
|
|
| 10,751 |
|
| 12,849 | (16.3) |
|
Operating Income |
| 1,913 |
|
| 2,295 | (16.6) |
|
|
| 3,911 |
|
| 4,791 | (18.4) |
|
Equity in Net Income (Loss) of Affiliates |
| 4 |
|
| 55 | (92.7) |
|
|
| 19 |
|
| 122 | (84.4) |
|
Total Segment Operating Contribution | $ | 1,917 |
| $ | 2,350 | (18.4) | % |
| $ | 3,930 |
| $ | 4,913 | (20.0) | % |
Our WarnerMedia segment consists ofincludes our Turner, Home Box Office (HBO) and Warner Bros. business units. The order of presentation reflects the consistency of revenue streams, rather than overall magnitude as that is subject to timing and frequency of studio releases.
Operating revenues decreased in the second quarter and for the first quartersix months of 2020, primarily due to lower advertising revenues from the postponement or cancellation of televised sporting events at Turner; lower theatrical product revenues, reflecting the pandemic-related closure of movie theaters and postponement of theatrical releases, and unfavorable programming comparisons, including strong carryover revenues in the first quarter of 2019 at Warner Bros.; and lower content licensinglinear subscription revenue at HBO.
Operating contribution decreased in the second quarter and for the first quartersix months of 2020. OurThe WarnerMedia segment operating income margin in the firstsecond quarter decreasedincreased from 26.8%26.0% in 2019 to 23.1%28.1% in 2020 and for the first six months decreased from 27.2% in 2019 to 26.7% in 2020.
3947
AT&T INC.
MARCH 31,JUNE 30, 2020
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
WarnerMedia Business Unit Discussion | WarnerMedia Business Unit Discussion | WarnerMedia Business Unit Discussion | ||||||||||||||||||||
Turner Results |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| First Quarter | Second Quarter |
| Six-Month Period | ||||||||||||||||||
|
|
|
|
|
| Percent |
|
|
|
|
| Percent |
|
|
|
|
|
| Percent | |||
| 2020 |
| 2019 | Change | 2020 |
| 2019 | Change |
| 2020 |
| 2019 | Change | |||||||||
Operating revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Subscription | $ | 2,049 |
| $ | 1,965 | 4.3 | % | $ | 1,804 |
| $ | 1,943 | (7.2) | % |
| $ | 3,853 |
| $ | 3,908 | (1.4) | % |
Advertising |
| 957 |
|
| 1,261 | (24.1) |
|
| 796 |
|
| 1,266 | (37.1) |
|
|
| 1,753 |
|
| 2,527 | (30.6) |
|
Content and other |
| 156 |
|
| 217 | (28.1) |
|
| 388 |
|
| 201 | 93.0 |
|
|
| 544 |
|
| 418 | 30.1 |
|
Total Operating Revenues |
| 3,162 |
|
| 3,443 | (8.2) |
|
| 2,988 |
|
| 3,410 | (12.4) |
|
|
| 6,150 |
|
| 6,853 | (10.3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues |
| 1,320 |
|
| 1,680 | (21.4) |
|
| 965 |
|
| 1,796 | (46.3) |
|
|
| 2,285 |
|
| 3,476 | (34.3) |
|
Selling, general and administrative |
| 390 |
|
| 456 | (14.5) |
|
| 382 |
|
| 421 | (9.3) |
|
|
| 772 |
|
| 877 | (12.0) |
|
Depreciation and amortization |
| 69 |
|
| 60 | 15.0 |
|
| 69 |
|
| 39 | 76.9 |
|
|
| 138 |
|
| 99 | 39.4 |
|
Total Operating Expenses |
| 1,779 |
|
| 2,196 | (19.0) |
|
| 1,416 |
|
| 2,256 | (37.2) |
|
|
| 3,195 |
|
| 4,452 | (28.2) |
|
Operating Income |
| 1,383 |
|
| 1,247 | 10.9 |
|
| 1,572 |
|
| 1,154 | 36.2 |
|
|
| 2,955 |
|
| 2,401 | 23.1 |
|
Equity in Net Income (Loss) of Affiliates |
| 6 |
|
| 25 | (76.0) |
|
| - |
|
| 11 | - |
|
|
| 6 |
|
| 36 | (83.3) |
|
Operating Contribution | $ | 1,389 |
| $ | 1,272 | 9.2 | % | $ | 1,572 |
| $ | 1,165 | 34.9 | % |
| $ | 2,961 |
| $ | 2,437 | 21.5 | % |
Operating revenues decreased in the second quarter and for the first quartersix months of 2020, primarily due to decreases in advertising revenue largely due toresulting from the postponement of the NBA season and the cancellation of the NCAA Division I Men’s Basketball Tournament. Partially offsettingTournament, in the decreasefirst quarter of 2020. Subscription revenue declines reflect lower regional sports network revenue and unfavorable exchange rates. These decreases were higher subscription revenues that benefitted from higher domestic affiliate rates, partlypartially offset by unfavorable exchange rates.higher content and other revenue, including internal sales to HBO Max, which are eliminated in consolidation within the WarnerMedia segment.
Cost of revenues decreased in the second quarter and for the first quartersix months of 2020, primarily due to lower programming costs, including NCAAa decline of approximately $850 in the second quarter and $1,125 for the first six months in sports licensing costs resulting from the postponement of the NBA season, the cancellation of the NCAA tournament.tournament and other smaller items.
Selling, general and administrative decreased in the second quarter and for the first quartersix months of 2020, primarily due to lower marketing costs.
Operating income increased in the second quarter and for the first quartersix months of 2020. Our Turner operating income margin in the firstsecond quarter increased from 36.2%33.8% in 2019 to 43.7%52.6% in 2020, and for the first six months increased from 35.0% in 2019 to 48.0% in 2020.
4048
AT&T INC.
MARCH 31,JUNE 30, 2020
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
Home Box Office Results |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| First Quarter | Second Quarter |
| Six-Month Period | ||||||||||||||||||
|
|
|
|
|
| Percent |
|
|
|
|
| Percent |
|
|
|
|
|
| Percent | |||
| 2020 |
| 2019 | Change | 2020 |
| 2019 | Change |
| 2020 |
| 2019 | Change | |||||||||
Operating revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Subscription | $ | 1,338 |
| $ | 1,334 | 0.3 | % | $ | 1,441 |
| $ | 1,516 | (4.9) | % |
| $ | 2,779 |
| $ | 2,850 | (2.5) | % |
Content and other |
| 159 |
|
| 176 | (9.7) |
|
| 186 |
|
| 200 | (7.0) |
|
|
| 345 |
|
| 376 | (8.2) |
|
Total Operating Revenues |
| 1,497 |
|
| 1,510 | (0.9) |
|
| 1,627 |
|
| 1,716 | (5.2) |
|
|
| 3,124 |
|
| 3,226 | (3.2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues |
| 816 |
|
| 670 | 21.8 |
|
| 1,095 |
|
| 839 | 30.5 |
|
|
| 1,911 |
|
| 1,509 | 26.6 |
|
Selling, general and administrative |
| 237 |
|
| 251 | (5.6) |
|
| 394 |
|
| 292 | 34.9 |
|
|
| 631 |
|
| 543 | 16.2 |
|
Depreciation and amortization |
| 21 |
|
| 22 | (4.5) |
|
| 25 |
|
| 12 | - |
|
|
| 46 |
|
| 34 | 35.3 |
|
Total Operating Expenses |
| 1,074 |
|
| 943 | 13.9 |
|
| 1,514 |
|
| 1,143 | 32.5 |
|
|
| 2,588 |
|
| 2,086 | 24.1 |
|
Operating Income |
| 423 |
|
| 567 | (25.4) |
|
| 113 |
|
| 573 | (80.3) |
|
|
| 536 |
|
| 1,140 | (53.0) |
|
Equity in Net Income (Loss) of Affiliates |
| 20 |
|
| 15 | 33.3 |
|
| (5) |
|
| 15 | - |
|
|
| 15 |
|
| 30 | (50.0) |
|
Operating Contribution | $ | 443 |
| $ | 582 | (23.9) | % | $ | 108 |
| $ | 588 | (81.6) | % |
| $ | 551 |
| $ | 1,170 | (52.9) | % |
Operating revenuesdecreased in the second quarter and for the first quartersix months of 2020, primarily due to lower content licensing. Subscriptiondecreases in subscription revenue was flat,resulting from domestic linear subscriber decline, including Cinemax depackaging, partially offset by growth in digital and international, growth that was partially offset by lower domestic linear subscribers.including HBO Latin America Group, following our May 2020 acquisition of the remaining interest in this entity. At June 30, 2020, we had 36.3 million U.S. subscribers from HBO Max and HBO, up from 34.6 million at December 31, 2019.
Cost of revenues increased in the second quarter and for the first quartersix months of 2020, primarily due to higher programming costs and expenses related to HBO Max.
Selling, general and administrative increased in the launchsecond quarter and for the first six months of 2020, primarily due to higher marketing costs associated with HBO Max.
Operating income decreased in the second quarter and for the first six months of 2020. Our HBO operating income margin in the second quarter decreased from 33.4% in 2019 to 6.9% in 2020, and for the first six months decreased from 35.3% in 2019 to 17.2% in 2020.
49
AT&T INC.
JUNE 30, 2020
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
Warner Bros. Results |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Second Quarter |
| Six-Month Period | ||||||||||||
|
|
|
|
|
| Percent |
|
|
|
|
|
| Percent | ||
| 2020 |
| 2019 | Change |
| 2020 |
| 2019 | Change | ||||||
Operating revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Theatrical product | $ | 1,029 |
| $ | 1,527 | (32.6) | % |
| $ | 2,135 |
| $ | 3,033 | (29.6) | % |
Television product |
| 1,876 |
|
| 1,310 | 43.2 |
|
|
| 3,645 |
|
| 2,923 | 24.7 |
|
Games and other |
| 351 |
|
| 552 | (36.4) |
|
|
| 716 |
|
| 951 | (24.7) |
|
Total Operating Revenues |
| 3,256 |
|
| 3,389 | (3.9) |
|
|
| 6,496 |
|
| 6,907 | (6.0) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues |
| 2,233 |
|
| 2,492 | (10.4) |
|
|
| 4,579 |
|
| 4,922 | (7.0) |
|
Selling, general and administrative |
| 350 |
|
| 426 | (17.8) |
|
|
| 954 |
|
| 915 | 4.3 |
|
Depreciation and amortization |
| 40 |
|
| 31 | 29.0 |
|
|
| 81 |
|
| 83 | (2.4) |
|
Total Operating Expenses |
| 2,623 |
|
| 2,949 | (11.1) |
|
|
| 5,614 |
|
| 5,920 | (5.2) |
|
Operating Income |
| 633 |
|
| 440 | 43.9 |
|
|
| 882 |
|
| 987 | (10.6) |
|
Equity in Net Income (Loss) of Affiliates |
| (19) |
|
| - | - |
|
|
| (27) |
|
| 6 | - |
|
Operating Contribution | $ | 614 |
| $ | 440 | 39.5 | % |
| $ | 855 |
| $ | 993 | (13.9) | % |
Operating revenues decreased in the second quarter and for the first six months of 2020, primarily due to lower theatrical product resulting from the absence of theatrical releases in the second quarter of 2020 and, for the six months, unfavorable comparisons to the prior year, which included, in 2019, carryover revenues from the theatrical release of Aquaman. Games and other revenue declines were primarily due to unfavorable games comparison to the prior year, which included the release of Mortal Kombat 11, and other revenue decreased due to reduced studio operations. Partially offsetting these decreases were higher television product revenues, driven by licensing, including internal sales to HBO Max, scheduledpartially offset by lower initial telecast revenues resulting from pandemic-related television production delays.
Cost of revenues decreased in the second quarter and for second quarter.the first six months of 2020, primarily due to lower marketing of theatrical product, partially offset by incremental costs incurred due to the production hiatus.
Selling, general and administrative decreased in the second quarter and increased for the first six months of 2020. The decrease in the quarter of 2020,was primarily due to lower marketing expenses.distribution fees and favorable collection experience that allowed us to reduce our first quarter bad debt estimates for COVID-19. The increase for the six months primarily resulted from higher first-quarter pandemic-relatedbad debt expense and other charges.
Operating income decreasedincreased in the second quarter and decreased for the first quartersix months of 2020. Our HBOWarner Bros. operating income margin in the firstsecond quarter decreasedincreased from 37.5%13.0% in 2019 to 28.3%19.4% in 2020, and for the first six months decreased from 14.3% in 2019 to 13.6% 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) | % |
4150
AT&T INC.
MARCH 31,JUNE 30, 2020
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
LATIN AMERICA SEGMENT | Second Quarter |
| Six-Month Period | ||||||||||||
|
|
|
|
|
| Percent |
|
|
|
|
|
| Percent | ||
| 2020 |
| 2019 | Change |
| 2020 |
| 2019 | Change | ||||||
Segment Operating Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vrio | $ | 752 |
| $ | 1,032 | (27.1) | % |
| $ | 1,639 |
| $ | 2,099 | (21.9) | % |
Mexico |
| 480 |
|
| 725 | (33.8) |
|
|
| 1,183 |
|
| 1,376 | (14.0) |
|
Total Segment Operating Revenues |
| 1,232 |
|
| 1,757 | (29.9) |
|
|
| 2,822 |
|
| 3,475 | (18.8) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Operating Contribution |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vrio |
| (28) |
|
| (2) | - |
|
|
| (67) |
|
| 30 | - |
|
Mexico |
| (173) |
|
| (207) | 16.4 |
|
|
| (318) |
|
| (412) | 22.8 |
|
Total Segment Operating Contribution | $ | (201) |
| $ | (209) | 3.8 | % |
| $ | (385) |
| $ | (382) | (0.8) | % |
Operating Results
Our Latin America operations conduct business in their local currency and operating results are converted to U.S. dollars using official exchange rates, subjecting results to foreign currency fluctuations. In May 2020, we found it necessary to close our DIRECTV operations in Venezuela dueto political instability in the country and to comply with sanctions of the U.S. government.
Operating revenues decreased in the second quarter and for the first six months of 2020 primarily driven by foreign exchange pressures and the impact of COVID-19.
Operating contribution increased in the second quarter and decreased for the first six months of 2020, reflecting foreign exchange pressures and the impact of COVID-19. Our Latin America segment operating income margin in the second quarter decreased from (12.6)% in 2019 to (17.0)% in 2020, and for the first six months decreased from (11.3)% in 2019 to (14.1)% in 2020.
Latin America Business Unit Discussion |
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Vrio Results |
|
|
|
|
|
|
|
|
|
|
|
|
| ||
| Second Quarter |
| Six-Month Period | ||||||||||||
|
|
|
|
|
| Percent |
|
|
|
|
|
| Percent | ||
| 2020 |
| 2019 | Change |
| 2020 |
| 2019 | Change | ||||||
Operating revenues | $ | 752 |
| $ | 1,032 | (27.1) | % |
| $ | 1,639 |
| $ | 2,099 | (21.9) | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations and support |
| 661 |
|
| 881 | (25.0) |
|
|
| 1,444 |
|
| 1,747 | (17.3) |
|
Depreciation and amortization |
| 127 |
|
| 165 | (23.0) |
|
|
| 274 |
|
| 334 | (18.0) |
|
Total Operating Expenses |
| 788 |
|
| 1,046 | (24.7) |
|
|
| 1,718 |
|
| 2,081 | (17.4) |
|
Operating Income |
| (36) |
|
| (14) | - |
|
|
| (79) |
|
| 18 | - |
|
Equity in Net Income (Loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of Affiliates |
| 8 |
|
| 12 | (33.3) |
|
|
| 12 |
|
| 12 | - |
|
Operating Contribution | $ | (28) |
| $ | (2) | - | % |
| $ | (67) |
| $ | 30 | - | % |
51
AT&T INC.
JUNE 30, 2020
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
Operating revenues decreased in the first quarter of 2020, primarily due to lower theatrical product driven by unfavorable comparisons to the prior comparable period, which included, in 2019, carryover revenues from the theatrical release of 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, partly offset by lower initial telecast revenues driven by television production delays.
Cost of revenues decreased in the first quarter of 2020, primarily due to lower marketing of theatrical product, partially offset by incremental costs incurred due to the production hiatus.
Selling, general and administrative increased in the first quarter of 2020, primarily due to higher bad debt expense and other charges.
Operating income decreased in the first quarter of 2020. Our Warner Bros. operating income margin in the first quarter decreased from 15.5% in 2019 to 7.7% in 2020.
LATIN AMERICA SEGMENT | First Quarter | ||||||
|
|
|
|
|
| Percent | |
| 2020 |
| 2019 | Change | |||
Segment Operating Revenues |
|
|
|
|
|
|
|
Vrio | $ | 887 |
| $ | 1,067 | (16.9) | % |
Mexico |
| 703 |
|
| 651 | 8.0 |
|
Total Segment Operating Revenues |
| 1,590 |
|
| 1,718 | (7.5) |
|
|
|
|
|
|
|
|
|
Segment Operating Contribution |
|
|
|
|
|
|
|
Vrio |
| (39) |
|
| 32 | - |
|
Mexico |
| (145) |
|
| (205) | 29.3 |
|
Total Segment Operating Contribution | $ | (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 first quarter of 2020 driven by lower revenues for Vrio, primarily resulting from foreign exchange pressure, that more than offset growth in Mexico.
Operating contribution decreased in the first quarter of 2020, reflecting foreign exchange pressure. Our Latin America segment operating income margin in the first quarter was (11.8)% in 2020 and (10.1)% in 2019.
42
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
Latin America Business Unit Discussion |
|
|
|
|
| ||
Vrio Results |
|
|
|
|
| ||
| First Quarter | ||||||
|
|
|
|
|
| Percent | |
| 2020 |
| 2019 | Change | |||
Operating revenues | $ | 887 |
| $ | 1,067 | (16.9) | % |
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
Operations and support |
| 783 |
|
| 866 | (9.6) |
|
Depreciation and amortization |
| 147 |
|
| 169 | (13.0) |
|
Total Operating Expenses |
| 930 |
|
| 1,035 | (10.1) |
|
Operating Income |
| (43) |
|
| 32 | - |
|
Equity in Net Income (Loss) of Affiliates |
| 4 |
|
| - | - |
|
Operating Contribution | $ | (39) |
| $ | 32 | - | % |
The following tables highlight other key measures of performance for Vrio:
|
| March 31, | Percent |
|
|
|
|
|
|
|
| June 30, | Percent | ||||||||||
(in 000s) | (in 000s) | 2020 |
| 2019 | Change | (in 000s) |
|
|
|
|
|
|
| 2020 |
|
| 2019 | Change | |||||
Vrio Video Subscribers | Vrio Video Subscribers |
| 13,217 |
|
| 13,584 | (2.7) | % | Vrio Video Subscribers |
|
|
|
|
|
|
|
| 10,664 |
|
| 13,473 | (20.8) | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
| First Quarter |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
| Percent |
|
| Second Quarter |
| Six -Month Period | |||||||||||
|
|
|
|
|
|
| Percent |
|
|
|
|
| Percent | ||||||||||
(in 000s) | (in 000s) | 2020 |
| 2019 | Change | (in 000s) |
| 2020 |
|
| 2019 | Change |
| 2020 |
|
| 2019 | Change | |||||
Vrio Video Net Subscriber Additions |
| (114) |
|
| (32) | - | % | ||||||||||||||||
Vrio Video Net Additions1 | Vrio Video Net Additions1 |
| (312) |
|
| (111) | - | % |
| (426) |
|
| (143) | - | % | ||||||||
1 | The second-quarter and six-month period ended June 30, 2020, exclude the impact of 2.2 million subscriber disconnections resulting | ||||||||||||||||||||||
| from the closure of our DIRECTV operations in Venezuela. |
Operating revenues decreased in the second quarter and for the first quartersix months of 2020, primarily due todriven by foreign exchange and COVID-19 pressures.
Operations and support expenses decreased in the second quarter and for the first quartersix months of 2020, primarily due to changes indriven by foreign currency exchange rates.and COVID-19 pressures. Approximately 20%21% of Vrio expenses are U.S. dollar based, with the remainder in the local currency.
Depreciation expense decreased in the second quarter and for the first quartersix months of 2020, primarily due to changes in foreign currency exchange rates in most of the region.rates.
Operating income decreased in the second quarter and for the first quartersix months of 2020. Our Vrio operating income margin in the firstsecond quarter decreased from 3.0%(1.4)% in 2019 to (4.8)% in 2020, and for the first six months decreased from 0.9% in 2019 to (4.8)% in 2020. Our Vrio EBITDA margin in the firstsecond quarter decreased from 18.8%14.6% in 2019 to 11.7%12.1% in 2020, and for the first six months decreased from 16.8% in 2019 to 11.9% in 2020.
Mexico Results |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Second Quarter |
|
| Six-Month Period |
| ||||||||||
| 2020 |
| 2019 | Percent Change |
| 2020 |
| 2019 | Percent Change | ||||||
Operating revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service | $ | 345 |
| $ | 479 | (28.0) | % |
| $ | 812 |
| $ | 921 | (11.8) | % |
Equipment |
| 135 |
|
| 246 | (45.1) |
|
|
| 371 |
|
| 455 | (18.5) |
|
Total Operating Revenues |
| 480 |
|
| 725 | (33.8) |
|
|
| 1,183 |
|
| 1,376 | (14.0) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations and support |
| 538 |
|
| 813 | (33.8) |
|
|
| 1,252 |
|
| 1,538 | (18.6) |
|
Depreciation and amortization |
| 115 |
|
| 119 | (3.4) |
|
|
| 249 |
|
| 250 | (0.4) |
|
Total Operating Expenses |
| 653 |
|
| 932 | (29.9) |
|
|
| 1,501 |
|
| 1,788 | (16.1) |
|
Operating Income (Loss) |
| (173) |
|
| (207) | 16.4 |
|
|
| (318) |
|
| (412) | 22.8 |
|
Equity in Net Income (Loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of Affiliates |
| - |
|
| - | - |
|
|
| - |
|
| - | - |
|
Operating Contribution | $ | (173) |
| $ | (207) | 16.4 | % |
| $ | (318) |
| $ | (412) | 22.8 | % |
4352
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 |
|
|
|
|
|
|
|
| First Quarter |
| |||||
|
|
|
|
|
| Percent | |
| 2020 |
| 2019 | Change | |||
Operating revenues |
|
|
|
|
|
|
|
Service | $ | 467 |
| $ | 442 | 5.7 | % |
Equipment |
| 236 |
|
| 209 | 12.9 |
|
Total Operating Revenues |
| 703 |
|
| 651 | 8.0 |
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
Operations and support |
| 714 |
|
| 725 | (1.5) |
|
Depreciation and amortization |
| 134 |
|
| 131 | 2.3 |
|
Total Operating Expenses |
| 848 |
|
| 856 | (0.9) |
|
Operating Income (Loss) |
| (145) |
|
| (205) | 29.3 |
|
Equity in Net Income (Loss) of Affiliates |
| - |
|
| - | - |
|
Operating Contribution | $ | (145) |
| $ | (205) | 29.3 | % |
The following tables highlight other key measures of performance for Mexico:
|
| March 31, | Percent | |||||
(in 000s) | 2020 |
| 2019 | Change | ||||
Mexico Wireless Subscribers |
|
|
|
|
|
|
| |
Postpaid |
| 4,962 |
|
| 5,642 | (12.1) | % | |
Prepaid |
| 13,692 |
|
| 11,779 | 16.2 |
| |
Reseller |
| 504 |
|
| 301 | 67.4 |
| |
Total Mexico Wireless Subscribers |
| 19,158 |
|
| 17,722 | 8.1 | % | |
|
|
|
|
|
|
| ||
|
| First Quarter | ||||||
|
|
|
|
|
|
| Percent | |
(in 000s) | 2020 |
| 2019 | Change | ||||
Mexico Wireless Net Additions |
|
|
|
|
|
|
| |
Postpaid |
| (141) |
|
| (69) | - | % | |
Prepaid |
| 108 |
|
| 114 | (5.3) |
| |
Reseller |
| 32 |
|
| 48 | (33.3) |
| |
Mexico Wireless Net Subscriber Additions |
| (1) |
|
| 93 | - | % |
Service revenues increased in the first quarter of 2020, primarily due to growth in our prepaid subscriber base.
Equipment revenues increased in the first quarter of 2020, primarily due to higher demand 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.
44
AT&T INC.
MARCH 31,JUNE 30, 2020
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
Operating income increased in the first quarterThe following tables highlight other key measures of 2020. Our Mexico operating income margin in the first quarter increased from (31.5)% in 2019 to (20.6)% in 2020. Our Mexico EBITDA margin in the first quarter increased from (11.4)% in 2019 to (1.6)% in 2020.performance for Mexico:
XANDR SEGMENT |
| ||||||
| First Quarter |
| |||||
|
|
|
|
|
| Percent | |
| 2020 |
| 2019 | Change | |||
Operating revenues | $ | 489 |
| $ | 426 | 14.8 | % |
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
Operations and support |
| 170 |
|
| 160 | 6.3 |
|
Depreciation and amortization |
| 20 |
|
| 13 | 53.8 |
|
Total Operating Expenses |
| 190 |
|
| 173 | 9.8 |
|
Operating Income |
| 299 |
|
| 253 | 18.2 |
|
Equity in Net Income (Loss) of Affiliates |
| - |
|
| - | - |
|
Operating Contribution | $ | 299 |
| $ | 253 | 18.2 | % |
|
|
|
|
|
|
|
|
|
| June 30, | Percent | |||||
(in 000s) |
|
|
|
|
|
|
|
| 2020 |
|
| 2019 | Change | |||
Mexico Wireless Subscribers |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Postpaid |
|
|
|
|
|
|
|
|
| 4,771 |
|
| 5,489 | (13.1) | % | |
Prepaid |
|
|
|
|
|
|
|
|
| 12,777 |
|
| 12,180 | 4.9 |
| |
Reseller |
|
|
|
|
|
|
|
|
| 425 |
|
| 352 | 20.7 |
| |
Total Mexico Wireless Subscribers |
|
|
|
|
|
|
|
|
| 17,973 |
|
| 18,021 | (0.3) | % | |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
|
| Second Quarter |
|
| Six-Month Period | |||||||||||
|
|
|
|
|
|
| Percent |
|
|
|
|
|
| Percent | ||
(in 000s) |
| 2020 |
|
| 2019 | Change |
|
| 2020 |
|
| 2019 | Change | |||
Mexico Wireless Net Additions1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Postpaid |
| (191) |
|
| (153) | (24.8) | % |
|
| (332) |
|
| (222) | (49.5) | % | |
Prepaid |
| (915) |
|
| 401 | - |
|
|
| (807) |
|
| 515 | - |
| |
Reseller |
| 21 |
|
| 51 | (58.8) |
|
|
| 53 |
|
| 99 | (46.5) |
| |
Mexico Wireless Net Additions |
| (1,085) |
|
| 299 | - | % |
|
| (1,086) |
|
| 392 | - | % | |
1 | The second-quarter and six-month period ended June 30, 2020, exclude the impact of 101 subscriber disconnections resulting from | |||||||||||||||
| conforming our policy on reporting of fixed wireless resellers. |
Operating revenuesService increasedrevenues decreased in the second quarter and for the first quartersix months of 2020, primarily due to strong demandforeign exchange pressures, as well as lower volumes and store traffic related to COVID-19.
Equipment revenues decreased in the second quarter and for addressable advertising, including political advertising.the first six months of 2020, primarily due to lower equipment sales volumes related to COVID-19 and foreign exchange rates.
Operations and supportexpenses increaseddecreased in the second quarter and for the first quartersix months of 2020, driven by ongoing developmentprimarily due to changes in foreign exchange rates and growthlower equipment sales. Approximately 8% of Mexico expenses are U.S. dollar based, with the remainder in the business.local currency.
Depreciation and amortization expense decreased in the second quarter and for the first six months of 2020, primarily due to foreign exchange pressures.
Operating income increased in the second quarter and first quartersix months of 2020. Our Xandr segmentMexico operating income margin in the firstsecond quarter increaseddecreased from 59.4%(28.6)% in 2019 to 61.1%(36.0)% in 2020, and for the first six months increased from (29.9)% in 2019 to (26.9)% in 2020. Our Mexico EBITDA margin in the second quarter was stable at (12.1)% in 2019 and 2020, and for the first six months increased from (11.8)% in 2019 to (5.8)% in 2020.
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 |
|
|
|
|
|
|
|
| First Quarter |
| |||||
|
|
|
|
|
| Percent | |
| 2020 |
| 2019 | Change | |||
Operating Revenues |
|
|
|
|
|
|
|
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) | % |
4553
AT&T INC.
MARCH 31,JUNE 30, 2020
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
SUPPLEMENTAL TOTAL ADVERTISING REVENUE INFORMATION
As a supplemental presentation, we are providing a view of total advertising revenues generated by AT&T. See revenue categories tables in Note 5 for a reconciliation.
Total Advertising Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Second Quarter |
|
| Six-Month Period |
| ||||||||||
|
|
|
|
|
| Percent |
|
|
|
|
|
| Percent | ||
| 2020 |
| 2019 | Change |
| 2020 |
| 2019 | Change | ||||||
Operating Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Turner | $ | 796 |
| $ | 1,266 | (37.1) | % |
| $ | 1,753 |
| $ | 2,527 | (30.6) | % |
Entertainment Group |
| 294 |
|
| 399 | (26.3) |
|
|
| 707 |
|
| 749 | (5.6) |
|
Xandr |
| 362 |
|
| 485 | (25.4) |
|
|
| 851 |
|
| 911 | (6.6) |
|
Other |
| 75 |
|
| 90 | (16.7) |
|
|
| 173 |
|
| 175 | (1.1) |
|
Eliminations |
| (294) |
|
| (399) | 26.3 |
|
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| (707) |
|
| (749) | 5.6 |
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Total Advertising Revenues | $ | 1,233 |
| $ | 1,841 | (33.0) | % |
| $ | 2,777 |
| $ | 3,613 | (23.1) | % |
SUPPLEMENTAL COMMUNICATIONS OPERATING INFORMATION
As a supplemental presentation to our Communications segment operating results, we are providing a view of our AT&T Business Solutions results which includes both wireless and wireline operations. This combined view presents a complete profile of the entire business customer relationship and underscores the importance of mobile solutions to serving our business customers. Results have been recast to conform to the current period's classification of consumer and business wireless subscribers. See “Discussion and Reconciliation of Non-GAAP Measure” for a reconciliation of these supplemental measures to the most directly comparable financial measures calculated and presented in accordance with GAAP.
Business Solutions Results |
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| Second Quarter |
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| Six-Month Period |
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| 2020 |
| 2019 | Percent Change | 2020 |
| 2019 | Percent Change |
| 2020 |
| 2019 | Percent Change | |||||||||
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Operating revenues |
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Wireless service | $ | 1,949 |
| $ | 1,777 | 9.7 | % | $ | 1,884 |
| $ | 1,881 | 0.2 | % |
| $ | 3,833 |
| $ | 3,658 | 4.8 | % |
Strategic and managed services |
| 3,879 |
|
| 3,779 | 2.6 |
|
| 3,943 |
|
| 3,834 | 2.8 |
|
|
| 7,822 |
|
| 7,613 | 2.7 |
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Legacy voice and data services |
| 2,129 |
|
| 2,397 | (11.2) |
|
| 2,067 |
|
| 2,324 | (11.1) |
|
|
| 4,196 |
|
| 4,721 | (11.1) |
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Other service and equipment |
| 324 |
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| 302 | 7.3 |
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| 364 |
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| 449 | (18.9) |
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| 688 |
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| 751 | (8.4) |
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Wireless equipment |
| 710 |
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| 590 | 20.3 |
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| 585 |
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| 617 | (5.2) |
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| 1,295 |
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| 1,207 | 7.3 |
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Total Operating Revenues |
| 8,991 |
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| 8,845 | 1.7 |
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| 8,843 |
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| 9,105 | (2.9) |
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| 17,834 |
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| 17,950 | (0.6) |
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Operating expenses |
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Operations and support |
| 5,710 |
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| 5,614 | 1.7 |
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| 5,424 |
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| 5,512 | (1.6) |
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|
| 11,134 |
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| 11,126 | 0.1 |
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Depreciation and amortization |
| 1,625 |
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| 1,525 | 6.6 |
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| 1,637 |
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| 1,545 | 6.0 |
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| 3,262 |
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| 3,070 | 6.3 |
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Total Operating Expenses |
| 7,335 |
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| 7,139 | 2.7 |
|
| 7,061 |
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| 7,057 | 0.1 |
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|
| 14,396 |
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| 14,196 | 1.4 |
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Operating Income |
| 1,656 |
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| 1,706 | (2.9) |
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| 1,782 |
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| 2,048 | (13.0) |
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|
| 3,438 |
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| 3,754 | (8.4) |
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Equity in Net Income (Loss) of Affiliates |
| - |
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| - |
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Equity in Net Income (Loss) |
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of Affiliates |
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| - | - |
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| - | - |
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Operating Contribution | $ | 1,656 |
| $ | 1,706 | (2.9) | % | $ | 1,782 |
| $ | 2,048 | (13.0) | % |
| $ | 3,438 |
| $ | 3,754 | (8.4) | % |
54
AT&T INC.
JUNE 30, 2020
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
OTHER BUSINESS MATTERS
Spectrum Auction WeIn March 2020, we were the winning bidder of high-frequency 37/39 GHz licenses in FCC Auction 103 covering an average of 786 MHz nationwide for approximately $2,400. Prior to the auction, we exchanged the 39 GHz licenses with a book value of approximately $300 that were previously acquired through FiberTower Corporation for vouchers to be applied against the winning bids.bids and recorded a $900 gain in the first quarter of 2020. These vouchers yielded a value of approximately $1,200 which was applied toward our $2,400 gross bids. We made our final payment of approximately $950 for the Auction 103 payment in April 2020. We expect theThe FCC will grantgranted the licenses in mid-2020.June 2020.
Labor Contracts As of March 31,June 30, 2020, we employed approximately 244,000243,000 persons. Approximately 40% of our employees are represented by the Communications Workers of America (CWA), the International Brotherhood of Electrical Workers (IBEW) or other unions. After expiration of the collective bargaining agreements, work stoppages or labor disruptions may occur in the absence of new contracts or other agreements being reached.
A contract covering approximately 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.
46
AT&T INC.
MARCH 31, 2020A contract covering approximately 14,000 employees in the Southwest region scheduled to expire in April 2021 was extended 4 years and will now expire in April 2025.
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
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. Nonetheless, over the ensuing two decades, the 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. More recently, the FCC has pursued a more deregulatory agenda, eliminating a variety of antiquated and unnecessary regulations and streamlining its processes in a number of areas. In addition, we are pursuing, at both the state and federal levels, additional legislative and regulatory measures to reduce regulatory burdens that are no longer appropriate in a competitive telecommunications market and that inhibit our ability to compete more effectively and offer services wanted and needed by our customers, including initiatives to transition services from traditional networks to all IP-based networks. At the same time, we also seek to ensure that legacy regulations are not further extended to broadband or wireless services, which are subject to vigorous competition.
Communications Segment
Internet The FCC currently classifies fixed and mobile consumer broadband services as information services, subject to light-touch regulation. Although theThe D.C. Circuit upheld the FCC’s current classification, challengesalthough it remanded three discrete issues to the FCC for further consideration. No party sought Supreme Court review of the D.C. Circuit’s decision, so that decision remainis final, although the FCC’s consideration of the three issues remains pending.
A number ofSome states have adopted legislation or issued executive orders that would reimpose net neutrality rules repealed by the FCC, and in some cases, established additional requirements.FCC. Suits have been filed concerning such laws in certain 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 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.
two states. In October 2016, the 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
55
AT&T INC.
JUNE 30, 2020
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
Facebook. In April 2017, the presidentPresident signed a resolution passed by Congress repealing the new rules under the Congressional Review Act.
Privacy-related legislation has been considered or adopted in a number of states. Legislative and regulatory action and ballot initiatives could result in increased costs of compliance, claims against broadband internet access service providers and others, and increased uncertainty in the value and availability of data. Effective as of January 1, 2020, a California state law gives 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 out of the sale of personal 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 federal and local wireless infrastructure review processes 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 were appealed to the 9th Circuit Court of 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 now expectIn July 2020, we announced nationwide 5G coverage this summer; wecoverage. We anticipate the introduction of 5G handsets and devices will contribute to a renewed interest in equipment upgrades.
56
AT&T INC.
JUNE 30, 2020
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
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 $9,955$16,941 in “Cash and cash equivalents” available at March 31,June 30, 2020. “Cash and cash equivalents” included cash of $3,287$3,781 and money market funds and other cash equivalents of $6,668.$13,160. Approximately $2,485$2,529 of our “Cash and cash equivalents” were held by our foreign entities in accounts predominantly outside of the U.S. and may be subject to restrictions on repatriation.
The Company's liquidity and capital resources were not materially impacted by COVID-19 and related economic conditions during the first six months of 2020. We will continue to monitor impacts on the COVID-19 pandemic on our liquidity and capital resources.
“Cash and cash equivalents” decreased $2,175increased $4,811 since December 31, 2019. In the first threesix months of 2020, cash inflows were primarily provided by the cash receipts from operations, including cash from our sale and transfer of our receivables to third parties, issuance of long-term debt, issuanceand the issuances of commercial paper, long-term debt and 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, spectrum acquisitions, 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 threesix months of 2020, cash provided by operating activities was $8,866,$20,925, compared to $11,052 $25,336for the first threesix months of 2019. Lower operating cash flows in 2020 were primarily driven by WarnerMedia profits, including increased HBO Max investments and higher production spend; lower incremental receivable securitization; and working capital pressures, specifically lower business collections late in the quarter.securitization (see Note 9).
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 havemake 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 decrease working capital $1,075$1,452 and $904$496 for the threesix months ended March 31,June 30, 2020 and 2019, respectively. All supplier financing payments are due within one year.
Cash Used in or Provided by Investing Activities
For the first threesix months of 2020, cash used in investing activities totaled $5,022,$10,278, and consisted primarily of $4,966$9,432 (including interest during construction) for capital expenditures, ($216 lower than the prior-year comparable period), and $99 of wireless spectrum deposits. Subsequent to the first quarter of 2020, in April we made our final payment of approximately $950 for wireless spectrum licenses won in Auction 103, and on May 4, we acquired our$141 for acquiring the remaining interest in HBO Latin America Group (HBO LAG) for $230.LAG.
For capital improvements, we have negotiated favorable vendor payment terms of 120 days or more (referred to as vendor financing) with some of our vendors, which are excluded from capital expenditures and reported as financing activities. For the first threesix months of 2020, vendor financing payments were $791,$1,354, compared to $819$1,836 for the first threesix months of 2019. Capital expenditures in the first six months of 2020 were $9,432, and when including $1,354 cash paid for vendor financing and excluding $79 of FirstNet reimbursements, gross capital investment was $10,865 ($1,728 lower than the 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 six months, we placed $1,681 of equipment in service under vendor financing arrangements (compared to $1,265 in the prior-year comparable period) and approximately $640 of assets related to the FirstNet build (compared to $600 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 six months of 2020, cash used in financing activities totaled $5,911 and was comprised of debt issuances and repayments, issuances of preferred stock, share repurchase, payments of dividends and required collateral deposits.
4857
AT&T INC.
MARCH 31,JUNE 30, 2020
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
Capital expenditures in the first three months of 2020 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 vendor financing arrangements (compared to $733 in the 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 threesix months of 2020, debt issuances included proceeds of $3,132$8,440 in net short-term borrowings and $4,357$21,060 of net proceeds from long-term debt, whichdebt. Borrowing activity consisted primarily of approximately $2,940 in commercial paper draws and the following issuances:
Issued and redeemed in 2020:
March draw of $750 on a private financing agreement (repaid in the second quarter).
April draw of $5,500 on a term loan credit agreement with certain commercial banks and Bank of America, N.A., as lead agent (repaid in the second quarter).
Issued and outstanding in 2020:
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.
May issuances totaling $12,500 in global notes, comprised of $2,500 of 2.300% global notes due 2027, $3,000 of 2.750% global notes due 2031, $2,500 of 3.500% global notes due 2041, $3,000 of 3.650% global notes due 2051 and $1,500 of 3.850% global notes due 2060.
May issuances totaling €3,000 million in global notes (approximately $3,281 at issuance), comprised of €1,750 million of 1.600% global notes due 2028, €750 million of 2.050% global notes due 2032 and €500 million of 2.600% global notes due 2038.
June issuance of $1,050 of 3.750% global notes due 2050.
During the first threesix months of 2020, repaymentrepayments of debt included $5,975 of short-term borrowings and $17,284 of long-term debt totaled $4,422.debt. Repayments primarily consistedwere comprised of $475 in commercial paper and the following:
Notes redeemed at maturity:
$800 of AT&T floating-rate notes redeemed at maturity.in the first quarter.
$687 of AT&T floating-rate notes in the second quarter.
Notes redeemed prior to maturity:
$2,619 of 4.600% AT&T global notes with original maturitiesmaturity in 2045.2045, in the first quarter.
$2,750 of 2.450% AT&T global notes with original maturity in 2020, in the second quarter
$1,000 of annual put reset securities issued by BellSouth, in the second quarter.
$683 of 4.600% AT&T global notes with original maturity in 2021, in the second quarter.
$1,695 of 2.800% AT&T global notes with original maturity in 2021, in the second quarter.
$853 of 4.450% AT&T global notes with original maturity in 2021, in the second quarter.
$1,172 of 3.875% AT&T global notes with original maturity in 2021, in the second quarter.
$1,430 of 5.500% AT&T global notes with original maturity in 2047, in the second quarter.
Credit facilities repaid and other borrowings:
$750 of borrowings under a private financing agreement.agreement, in the first quarter.
$750 of borrowings under a private financing agreement, in the second quarter.
$5,500 under our April 2020 term loan credit agreement with certain commercial banks and Bank of America, in the second quarter.
$1,300 under our term loan credit agreement with Bank of America, in the second quarter.
$500 under our term loan credit agreement with Bank of Communications Co., in the second quarter.
Our weighted average interest rate of our entire long-term debt portfolio, including the impact of derivatives, was approximately 4.3% as of March 31,June 30, 2020 and 4.4% as of December 31, 2019. We had $159,386$164,099 of total notes and debentures outstanding at March 31,June 30, 2020, which included Euro, British pound sterling, Canadian dollar, Swiss franc, Australian dollar, Brazilian real, and Mexican peso denominated debt that totaled approximately $40,712.$44,798.
58
AT&T INC.
JUNE 30, 2020
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
At March 31,June 30, 2020, we had $17,067$15,576 of debt maturing within one year, including $3,144consisting of $3,001 of commercial paper borrowings and $13,923$12,575 of long-term debt issuances. Debt maturing within one year includes the following notes that may be put back to us by the holders:
$1,000 of annual put reset securities issued by BellSouth that may be put back to us each April until maturity in 2021. 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 threesix months of 2020, we paid $791$1,354 of cash under our vendor financing program, compared to $819$1,836 in the first threesix months of 2019. Total vendor financing payables included in our March 31,June 30, 2020 consolidated balance sheet were approximately $1,361,$1,556, with $997$718 due within one year (in “Accounts payable and accrued liabilities”) and the remainder predominantly due within two to three years (in “Other noncurrent liabilities”).
Financing activities in the first threesix months of 2020 also included $3,869 for the February issuance of Series B and Series C preferred stock. (Seestock (see Note 10)11).
During the first three months of 2020, weWe repurchased approximately 142 million shares of common stock, predominantly in the first quarter, and completed the share repurchase authorization approved by the Board of Directors in 2013. AtIn March 31, 2020, we had approximately 178 million shares remaining from share repurchase authorizations approved by the Board of Directors in 2014. On March 19,
49
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
2020, we announced the cancellation ofcancelled 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. At June 30, 2020, we had approximately 178 million shares remaining from our share repurchase authorizations approved by the Board of Directors in 2014.
We paid dividends on common and preferred shares of $3,737$7,474 during the first threesix months of 2020, compared with $3,714$7,436 for the first threesix months of 2019. Dividends were higher in 2020, primarily due to dividend payments to preferred stockholders and the increase in our quarterly dividend on common stock approved by our Board of Directors in December 2019, partially offset by fewer shares outstanding.
Dividends on common stock declared by our Board of Directors totaled $0.52$1.04 per share in the first threesix months of 2020 and $0.51$1.02 per share for the first threesix months of 2019. Our dividend policy considers the expectations and requirements of stockholders, capital funding requirements of AT&T and long-term growth opportunities. It is our intent to provide the financial flexibility to allow our Board of Directors to consider dividend growth and to recommend an increase in dividends to be paid in future periods. All dividends remain subject to declaration by our Board of Directors.
Financing Activities Subsequent to the Second Quarter
Taking advantage of attractive rates, we completed the following financing activities subsequent to the second quarter of 2020.
In July 2020, we redeemed a total of $4,264 in notes:
$1,457 of 3.000% global notes due 2022 issued by AT&T.
$1,250 of 3.200% global notes due 2022 issued by AT&T.
$1,012 of 3.800% global notes due 2022 issued by AT&T.
$422 of 4.000% global notes due 2022 issued by AT&T.
$60 of 3.800% senior notes due 2022 issued by DIRECTV.
$63 of 4.00% notes due 2022 issued by WarnerMedia.
In August 2020, we issued a total of $11,000 in global notes and will use the proceeds to pay down near-term debt:
$2,250 of 1.650% global notes due 2028.
$2,500 of 2.250 % global notes due 2032.
$2,500 of 3.100% global notes due 2043.
$2,250 of 3.300% global notes due 2052.
$1,500 of 3.500% senior notes due 2061.
59
AT&T INC.
JUNE 30, 2020
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
Credit Facilities
The following summary of our various credit and loan agreements does not purport to be complete and is qualified in its entirety by reference to each agreement filed as exhibits to our Annual Report on Form 10-K.
We use credit facilities as a tool in managing our liquidity status. In December 2018, we amended our five-year revolving credit agreement (the “Amended and Restated Credit Agreement”) and concurrently entered into a new five-year agreement (the “Five Year Credit Agreement”) such that we now have two $7,500 revolving credit agreements totaling $15,000. The Amended and Restated Credit Agreement terminates on December 11, 2021 and the Five Year Credit Agreement terminates on December 11, 2023. No amounts were outstanding under either agreement as of March 31,June 30, 2020.
In September 2019, we entered into and drew on a $1,300 term loan credit agreement containing (i) a 1.25 year $400 facility due in 2020 (BAML Tranche A Facility), (ii) a 2.25 year $400 facility due in 2021 (BAML Tranche B Facility), and (iii) a 3.25 year $500 facility due in 2022 (BAML Tranche C Facility), with Bank of America, N.A., as agent. No repayment had been made under theseThese facilities aswere repaid and terminated in the second quarter of March 31, 2020.
On April 6, 2020, we entered into and drew on a $5,500 Term Loan Credit Agreement (Term Loan), with 11 commercial banks and Bank of America, N.A., as lead agent. The Term Loan is not subject to amortizationWe repaid and the entire principal amount ofterminated the Term Loan will be due and payable on December 31,in May 2020.
We also utilize other external financing sources, which include various credit arrangements supported by government agencies to support network equipment purchases as well as a commercial paper program.
Each of our credit and loan agreements contains covenants that are customary for an issuer with an investment grade senior debt credit rating as well as a net debt-to-EBITDA financial ratio covenant requiring AT&T to maintain, as of the last day of each fiscal quarter, a ratio of not more than 3.5-to-1. As of March 31,June 30, 2020, we were in compliance with the covenants for our credit facilities.
Collateral Arrangements
During 2019 and 2020, we amended collateral arrangements with certain counterparties to require cash collateral posting by AT&T only when derivative market values exceed certain thresholds. Under these arrangements, counterparties are still required to post collateral. During the first threesix months of 2020, we deposited approximately $2,650$518 of cash collateral, on a net basis as we exceeded the market value thresholds with some of the counterparties. Cash postings under these arrangements vary with changes in credit ratings and netting agreements. (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 March 31,June 30, 2020, our debt ratio was 45.7%46.6%, compared to 47.4%46.8% at March 31,June 30, 2019 and 44.7% at December 31, 2019. Our net debt ratio was 42.9%41.9% at March 31,June 30, 2020,
50
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
compared to 45.6%44.5% at March 31,June 30, 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 and repayments and debt acquired in business combinations.
During the first threesix months of 2020, we have received $118$347 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 $1,046 of spectrum acquisitions, was approximately $1,000.$300. We plan to continue to explore similar opportunities throughout 2020.
5160
AT&T INC.
MARCH 31,JUNE 30, 2020
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
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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| First Quarter |
| Three Months Ended | ||||||||||||||||||||||||||||||
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| March 31, 2020 |
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| March 31, 2019 |
| June 30, 2020 |
|
| June 30, 2019 | ||||||||||||||||||||||||
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| Mobility |
| Business Wireline |
| Adjustments1 |
| Business Solutions |
|
| Mobility |
| Business Wireline |
| Adjustments1 |
| Business Solutions |
| Mobility |
| Business Wireline |
| Adjustments1 |
| Business Solutions |
|
| Mobility |
| Business Wireline |
| Adjustments1 |
| Business Solutions |
Operating Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wireless service | $ | 13,968 | $ | - | $ | (12,019) | $ | 1,949 |
| $ | 13,629 | $ | - | $ | (11,852) | $ | 1,777 | $ | 13,669 | $ | - | $ | (11,785) | $ | 1,884 |
| $ | 13,824 | $ | - | $ | (11,943) | $ | 1,881 |
Strategic and managed services |
| - |
| 3,879 |
| - |
| 3,879 |
|
| - |
| 3,779 |
| - |
| 3,779 |
| - |
| 3,943 |
| - |
| 3,943 |
|
| - |
| 3,834 |
| - |
| 3,834 |
Legacy voice and data services |
| - |
| 2,129 |
| - |
| 2,129 |
|
| - |
| 2,397 |
| - |
| 2,397 |
| - |
| 2,067 |
| - |
| 2,067 |
|
| - |
| 2,324 |
| - |
| 2,324 |
Other service and equipment |
| - |
| 324 |
| - |
| 324 |
|
| - |
| 302 |
| - |
| 302 |
| - |
| 364 |
| - |
| 364 |
|
| - |
| 449 |
| - |
| 449 |
Wireless equipment |
| 3,434 |
| - |
| (2,724) |
| 710 |
|
| 3,734 |
| - |
| (3,144) |
| 590 |
| 3,480 |
| - |
| (2,895) |
| 585 |
|
| 3,468 |
| - |
| (2,851) |
| 617 |
Total Operating Revenues |
| 17,402 |
| 6,332 |
| (14,743) |
| 8,991 |
|
| 17,363 |
| 6,478 |
| (14,996) |
| 8,845 |
| 17,149 |
| 6,374 |
| (14,680) |
| 8,843 |
|
| 17,292 |
| 6,607 |
| (14,794) |
| 9,105 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations and support |
| 9,569 |
| 3,951 |
| (7,810) |
| 5,710 |
|
| 10,041 |
| 4,032 |
| (8,459) |
| 5,614 |
| 9,332 |
| 3,779 |
| (7,687) |
| 5,424 |
|
| 9,522 |
| 3,975 |
| (7,985) |
| 5,512 |
EBITDA |
| 7,833 |
| 2,381 |
| (6,933) |
| 3,281 |
|
| 7,322 |
| 2,446 |
| (6,537) |
| 3,231 |
| 7,817 |
| 2,595 |
| (6,993) |
| 3,419 |
|
| 7,770 |
| 2,632 |
| (6,809) |
| 3,593 |
Depreciation and amortization |
| 2,045 |
| 1,301 |
| (1,721) |
| 1,625 |
|
| 2,013 |
| 1,222 |
| (1,710) |
| 1,525 |
| 2,012 |
| 1,318 |
| (1,693) |
| 1,637 |
|
| 2,003 |
| 1,242 |
| (1,700) |
| 1,545 |
Total Operating Expense |
| 11,614 |
| 5,252 |
| (9,531) |
| 7,335 |
|
| 12,054 |
| 5,254 |
| (10,169) |
| 7,139 |
| 11,344 |
| 5,097 |
| (9,380) |
| 7,061 |
|
| 11,525 |
| 5,217 |
| (9,685) |
| 7,057 |
Operating Income |
| 5,788 |
| 1,080 |
| (5,212) |
| 1,656 |
|
| 5,309 |
| 1,224 |
| (4,827) |
| 1,706 |
| 5,805 |
| 1,277 |
| (5,300) |
| 1,782 |
|
| 5,767 |
| 1,390 |
| (5,109) |
| 2,048 |
Equity in net income (loss) of affiliates |
| - |
| - |
| - |
| - |
|
| - |
| - |
| - |
| - |
| - |
| - |
| - |
| - |
|
| - |
| - |
| - |
| - |
Operating Contribution | $ | 5,788 | $ | 1,080 | $ | (5,212) | $ | 1,656 |
| $ | 5,309 | $ | 1,224 | $ | (4,827) | $ | 1,706 | $ | 5,805 | $ | 1,277 | $ | (5,300) | $ | 1,782 |
| $ | 5,767 | $ | 1,390 | $ | (5,109) | $ | 2,048 |
1Non-business wireless reported in the Communications segment under the Mobility business unit. | 1Non-business wireless reported in the Communications segment under the Mobility business unit. | 1Non-business wireless reported in the Communications segment under the Mobility business unit. |
5261
AT&T INC.
MARCH 31,JUNE 30, 2020
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
|
| Six Months Ended | |||||||||||||||
|
| June 30, 2020 |
|
| June 30, 2019 | ||||||||||||
|
| Mobility |
| Business Wireline |
| Adjustments1 |
| Business Solutions |
|
| Mobility |
| Business Wireline |
| Adjustments1 |
| Business Solutions |
Operating Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wireless service | $ | 27,637 | $ | - | $ | (23,804) | $ | 3,833 |
| $ | 27,453 | $ | - | $ | (23,795) | $ | 3,658 |
Strategic and managed services |
| - |
| 7,822 |
| - |
| 7,822 |
|
| - |
| 7,613 |
| - |
| 7,613 |
Legacy voice and data services |
| - |
| 4,196 |
| - |
| 4,196 |
|
| - |
| 4,721 |
| - |
| 4,721 |
Other service and equipment |
| - |
| 688 |
| - |
| 688 |
|
| - |
| 751 |
| - |
| 751 |
Wireless equipment |
| 6,914 |
| - |
| (5,619) |
| 1,295 |
|
| 7,202 |
| - |
| (5,995) |
| 1,207 |
Total Operating Revenues |
| 34,551 |
| 12,706 |
| (29,423) |
| 17,834 |
|
| 34,655 |
| 13,085 |
| (29,790) |
| 17,950 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations and support |
| 18,901 |
| 7,730 |
| (15,497) |
| 11,134 |
|
| 19,563 |
| 8,007 |
| (16,444) |
| 11,126 |
EBITDA |
| 15,650 |
| 4,976 |
| (13,926) |
| 6,700 |
|
| 15,092 |
| 5,078 |
| (13,346) |
| 6,824 |
Depreciation and amortization |
| 4,057 |
| 2,619 |
| (3,414) |
| 3,262 |
|
| 4,016 |
| 2,464 |
| (3,410) |
| 3,070 |
Total Operating Expense |
| 22,958 |
| 10,349 |
| (18,911) |
| 14,396 |
|
| 23,579 |
| 10,471 |
| (19,854) |
| 14,196 |
Operating Income |
| 11,593 |
| 2,357 |
| (10,512) |
| 3,438 |
|
| 11,076 |
| 2,614 |
| (9,936) |
| 3,754 |
Equity in net income (loss) of affiliates |
| - |
| - |
| - |
| - |
|
| - |
| - |
| - |
| - |
Operating Contribution | $ | 11,593 | $ | 2,357 | $ | (10,512) | $ | 3,438 |
| $ | 11,076 | $ | 2,614 | $ | (9,936) | $ | 3,754 |
1Non-business wireless reported in the Communications segment under the Mobility business unit. |
62
AT&T INC.
JUNE 30, 2020
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Dollars in millions except per share amounts
At March 31,June 30, 2020, we had interest rate swaps with a notional value of $853$21 and a fair value of $14.$(3).
We have fixed-to-fixed and floating-to-fixed cross-currency swaps on foreign currency-denominated debt instruments with a U.S. dollar notional value of $42,325$45,606 to hedge our exposure to changes in foreign currency exchange rates. These derivatives have been designated at inception and qualify as cash flow hedges with a net fair value of $(8,283)$(6,700) at March 31,June 30, 2020. We have no rate locks with a notional value of $3,500 and a fair value of $(720) at March 31,June 30, 2020.
We have foreign exchange contracts with a U.S. dollar notional value of $106$298 to provide currency at a fixed rate to hedge a portion of the exchange risk involved in foreign currency-denominated transactions. These foreign exchange contracts include fair value hedges, cash flow hedges and economic (nonqualifying) hedges with a total net fair value of $66$4 at March 31,June 30, 2020.
We have designated €1,364€1,450 million aggregate principal amount of debt as a hedge of the variability of certainsome of the Euro-denominated net investments of our subsidiaries. The gain or loss on the debt that is designated as, and is effective as, an economic hedge of the net investment in a foreign operation is recorded as a currency translation adjustment within accumulated other comprehensive income, net on the consolidated balance sheet.
Item 4. Controls and Procedures
The registrant maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed by the registrant is recorded, processed, summarized, accumulated and communicated to its management, including its principal executive and principal financial officers, to allow timely decisions regarding required disclosure, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. The chief executive officer and chief financial officer have performed an evaluation of the effectiveness of the design and operation of the registrant’s disclosure controls and procedures as of March 31,June 30, 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 March 31,June 30, 2020.
There have not been any changes in our internal control over financial reporting during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.Due to the COVID-19 pandemic, most of our corporate employees are working remotely. We continue to monitor and assess the COVID-19 situation on our internal controls over financial reporting to address any potential impact on their design and operating effectiveness.
5363
AT&T INC.
MARCH 31,JUNE 30, 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, pending Notices of Apparent Liability; the transition from legacy technologies to IP-based infrastructure, including the withdrawal of legacy TDM-based services; universal service; broadband deployment; wireless equipment siting regulations and, in particular, siting for 5G service; E911 services; competition policy; privacy; net neutrality; multichannel video programming distributor services and equipment; content licensing and copyright protection; availability of new spectrum on fair and balanced terms; and wireless and satellite license awards and renewals.
•Enactment of additional state, local, federal and/or foreign regulatory and tax laws and regulations, or changes to existing standards and actions by tax agencies and judicial authorities including the resolution of disputes with any taxing jurisdictions, pertaining to our subsidiaries and foreign investments, including laws and regulations that reduce our incentive to invest in our networks, resulting in lower revenue growth and/or higher operating costs.
•Potential changes to the electromagnetic spectrum currently used for broadcast television and satellite distribution being considered by the FCC could negatively impact WarnerMedia’s ability to deliver linear network feeds of its domestic cable networks to its affiliates, and in some cases, WarnerMedia’s ability to produce high-value news and entertainment programming on location.
•U.S. and foreign laws and regulations regarding intellectual property rights protection and privacy, personal data protection and user consent are complex and rapidly evolving and could result in adverse impacts to our business plans, increased costs, or claims against us that may harm our reputation.
•The ability of our competitors to offer product/service offerings at lower prices due to lower cost structures and regulatory and legislative actions adverse to us, including non-regulation of comparable alternative technologies and/or government-owned or subsidized networks.
•Disruption in our supply chain for a number of reasons, including, difficulties in obtaining export licenses for certain technology, inability to secure component parts, general business disruption, natural disasters, safety issues, economic and political instability and public health emergencies.
•The continued development and delivery of attractive and profitable wireless, video and broadband offerings and devices, and, in particular, the success of our new HBO Max platform; the extent to which regulatory and build-out requirements apply to our offerings; our ability to match speeds offered by our competitors and the availability, cost and/or reliability of the various technologies and/or content required to provide such offerings.
•Our ability to generate advertising revenue from attractive video content, especially from WarnerMedia, in the face of unpredictable and rapidly evolving public viewing habits and legal restrictions on the use of personal data.
•The availability and cost and our ability to adequately fund additional wireless spectrum and network upgrades; and regulations and conditions relating to spectrum use, licensing, obtaining additional spectrum, technical standards and deployment and usage, including network management rules.
•Our ability to manage growth in wireless data services, including network quality and acquisition of adequate spectrum at reasonable costs and terms.
64
AT&T INC.
JUNE 30, 2020
CAUTIONARY LANGUAGE CONCERNING FORWARD-LOOKING STATEMENTS
•The outcome of pending, threatened or potential litigation (which includes arbitrations), including, without limitation, patent and product safety claims by or against third parties.
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 including flooding and hurricanes, natural disasters including earthquakes and forest fires, pandemics, energy shortages, wars or terrorist attacks.
•The issuance by the Financial Accounting Standards Board or other accounting oversight bodies of new accounting standards or changes to existing standards.
•Our ability to successfully integrate our WarnerMedia operations, including the ability to manage various businesses in widely dispersed business locations and with decentralized management.
•Changes in our corporate strategies, such as changing network-related requirements or acquisitions and dispositions, which may require significant amounts of cash or stock, to respond to competition and regulatory, legislative and technological developments.
•The uncertainty surrounding further congressional action to address spending reductions, which may result in a significant decrease in government spending and reluctance of businesses and consumers to spend in general.
Readers are cautioned that other factors discussed in this report, although not enumerated here, also could materially affect our future earnings.
5565
AT&T INC.
MARCH 31,JUNE 30, 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 for the year ended December 31, 2019 and in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 various risks that may materially affect our business. We use this section to update this discussion to reflect material developments since our Form 10-K was filed.developments. F
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 COVID-19 pandemic. The COVID-19 pandemic has caused, and may continue to cause, delays in the development, manufacturing (including the sourcing of key 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 required 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 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,second quarter 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.
2020, there were no such material developments.
5666
AT&T INC.
MARCH 31,JUNE 30, 2020
PART II – OTHER INFORMATION - CONTINUED
Dollars in millions except per share amounts
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.
|