UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
(Mark One) ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2020 or | |||
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from
toCommission File Number 1-8610
AT&T INC.
Incorporated under the laws of the State of Delaware
I.R.S. Employer Identification Number 43-1301883
208 S. Akard St., Dallas, Texas 75202
Telephone Number: (210) 821-4105
Securities registered pursuant to Section 12(b) of the Act
Name of each exchange | ||
Title of each class | Trading Symbol(s) | on which registered |
Common Shares (Par Value $1.00 Per Share) | T | New York Stock Exchange |
Depositary Shares, each representing a 1/1000th interest in a share of 5.000% Perpetual Preferred Stock, Series A | T PRA | New York Stock Exchange |
Depositary Shares, each representing a 1/1000th interest in a share of 4.750% Perpetual Preferred Stock, Series C | T PRC | New York Stock Exchange |
AT&T Inc. Floating Rate Global Notes due August 3, 2020 | T 20C | New York Stock Exchange |
AT&T Inc. 1.875% Global Notes due December 4, 2020 | T 20 | New York Stock Exchange |
AT&T Inc. 2.650% Global Notes due December 17, 2021 | T 21B | New York Stock Exchange |
AT&T Inc. 1.450% Global Notes due June 1, 2022 | T 22B | New York Stock Exchange |
AT&T Inc. 2.500% Global Notes due March 15, 2023 | T 23 | New York Stock Exchange |
AT&T Inc. 2.750% Global Notes due May 19, 2023 | T 23C | New York Stock Exchange |
AT&T Inc. Floating Rate Global Notes due September 5, 2023 | T 23D | New York Stock Exchange |
AT&T Inc. 1.050% Global Notes due September 5, 2023 | T 23E | New York Stock Exchange |
AT&T Inc. 1.300% Global Notes due September 5, 2023 | T 23A | New York Stock Exchange |
AT&T Inc. 1.950% Global Notes due September 15, 2023 | T 23F | New York Stock Exchange |
AT&T Inc. 2.400% Global Notes due March 15, 2024 | T 24A | New York Stock Exchange |
AT&T Inc. 3.500% Global Notes due December 17, 2025 | T 25 | New York Stock Exchange |
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 |
Name of each exchange | ||
Title of each class | Trading Symbol(s) | on which registered |
AT&T Inc. 2.900% Global Notes due December 4, 2026 | T 26A | 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. 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. 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. 5.350% Global Notes due November 1, 2066 | TBB | New York Stock Exchange |
AT&T Inc. 5.625% Global Notes due August 1, 2067 | TBC | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See definition of “accelerated filer,” “large accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | [X] | Accelerated filer | [ ] | |
Non-accelerated filer | [ ] | Smaller reporting company | [ ] | |
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, 2019,2020, there were 7,2987,125 million common shares outstanding.
Explanatory Note
AT&T Inc. (AT&T) is filing this Amendment No. 1 to its Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 6, 2019 (the Original Filing) to correct the signature dates and hyperlinks related to Exhibits 31.1, 31.2 and 32 of the Original Filing.
This Amendment is limited in scope to the items identified above. This Amendment does not reflect events occurring after the filing of the Original Filing and no revisions are being made to the Company’s financial statements or disclosures pursuant to this Amendment.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
AT&T INC. | |||||
CONSOLIDATED STATEMENTS OF INCOME | |||||
Dollars in millions except per share amounts | |||||
(Unaudited) | |||||
|
| Three months ended | |||
|
| March 31, | |||
|
| 2020 |
|
| 2019 |
Operating Revenues |
|
|
|
|
|
Service | $ | 38,883 |
| $ | 40,684 |
Equipment |
| 3,896 |
|
| 4,143 |
Total operating revenues |
| 42,779 |
|
| 44,827 |
|
|
|
|
|
|
Operating Expenses |
|
|
|
|
|
Cost of revenues |
|
|
|
|
|
Equipment |
| 4,092 |
|
| 4,502 |
Broadcast, programming and operations |
| 6,847 |
|
| 7,652 |
Other cost of revenues (exclusive of depreciation and amortization shown separately below) |
| 8,342 |
|
| 8,585 |
Selling, general and administrative |
| 8,790 |
|
| 9,649 |
Depreciation and amortization |
| 7,222 |
|
| 7,206 |
Total operating expenses |
| 35,293 |
|
| 37,594 |
Operating Income |
| 7,486 |
|
| 7,233 |
Other Income (Expense) |
|
|
|
|
|
Interest expense |
| (2,018) |
|
| (2,141) |
Equity in net income (loss) of affiliates |
| (6) |
|
| (7) |
Other income (expense) – net |
| 803 |
|
| 286 |
Total other income (expense) |
| (1,221) |
|
| (1,862) |
Income Before Income Taxes |
| 6,265 |
|
| 5,371 |
Income tax expense |
| 1,302 |
|
| 1,023 |
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 |
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 |
|
| 7,313 |
Weighted Average Number of Common Shares Outstanding – with Dilution (in millions) |
| 7,214 |
|
| 7,342 |
See Notes to Consolidated Financial Statements. |
|
|
|
|
|
3
| AT&T INC. | |||||
| CONSOLIDATED STATEMENTS OF INCOME | |||||
| Dollars in millions except per share amounts | |||||
| (Unaudited) | |||||
| Three months ended | |||||
| March 31, | |||||
| 2019 | 2018 | ||||
| Operating Revenues | |||||
| Service | $ | 40,684 | $ | 33,646 | |
| Equipment | 4,143 | 4,392 | |||
| Total operating revenues | 44,827 | 38,038 | |||
| Operating Expenses | |||||
| Cost of revenues | |||||
| Equipment | 4,502 | 4,848 | |||
| Broadcast, programming and operations | 7,652 | 5,166 | |||
Other cost of revenues (exclusive of depreciation and amortization shown separately below) | 8,585 | 7,932 | |||
| Selling, general and administrative | 9,649 | 7,897 | |||
| Depreciation and amortization | 7,206 | 5,994 | |||
| Total operating expenses | 37,594 | 31,837 | |||
| Operating Income | 7,233 | 6,201 | |||
| Other Income (Expense) | |||||
| Interest expense | (2,141) | (1,771) | |||
| Equity in net income (loss) of affiliates | (7) | 9 | |||
| Other income (expense) – net | 286 | 1,702 | |||
| Total other income (expense) | (1,862) | (60) | |||
| Income Before Income Taxes | 5,371 | 6,141 | |||
| Income tax expense | 1,023 | 1,382 | |||
| Net Income | 4,348 | 4,759 | |||
| Less: Net Income Attributable to Noncontrolling Interest | (252) | (97) | |||
| Net Income Attributable to AT&T | $ | 4,096 | $ | 4,662 | |
| Basic Earnings Per Share Attributable to AT&T | $ | 0.56 | $ | 0.75 | |
| Diluted Earnings Per Share Attributable to AT&T | $ | 0.56 | $ | 0.75 | |
Weighted Average Number of Common Shares Outstanding – Basic (in millions) | 7,313 | 6,161 | |||
Weighted Average Number of Common Shares Outstanding – with Dilution (in millions) | 7,342 | 6,180 | |||
| See Notes to Consolidated Financial Statements. | |||||
AT&T INC. |
|
|
|
|
|
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME |
|
|
| ||
Dollars in millions |
|
|
|
|
|
(Unaudited) |
|
|
|
|
|
| Three months ended | ||||
| March 31, | ||||
| 2020 |
| 2019 | ||
Net income | $ | 4,963 |
| $ | 4,348 |
Other comprehensive income (loss), net of tax: |
|
|
|
|
|
Foreign currency: |
|
|
|
|
|
Translation adjustment (includes $(51) and $0 attributable to noncontrolling interest), |
|
|
|
|
|
net of taxes of $(62) and $49 |
| (1,854) |
|
| 288 |
Securities: |
|
|
|
|
|
Net unrealized gains, net of taxes of $22 and $5 |
| 66 |
|
| 16 |
Derivative instruments: |
|
|
|
|
|
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 |
| - |
|
| 11 |
Defined benefit postretirement plans: |
|
|
|
|
|
Amortization of net prior service credit included in net income, net of taxes of $(151) |
|
|
|
|
|
and $(113) |
| (461) |
|
| (346) |
Other comprehensive income (loss) |
| (5,906) |
|
| 96 |
Total comprehensive income (loss) |
| (943) |
|
| 4,444 |
Less: Total comprehensive income attributable to noncontrolling interest |
| (302) |
|
| (252) |
Total Comprehensive Income (Loss) Attributable to AT&T | $ | (1,245) |
| $ | 4,192 |
See Notes to Consolidated Financial Statements. |
|
|
|
|
|
4
| AT&T INC. | |||||
| CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | |||||
| Dollars in millions | |||||
| (Unaudited) | |||||
| Three months ended | |||||
| March 31, | |||||
| 2019 | 2018 | ||||
| Net income | $ | 4,348 | $ | 4,759 | |
| Other comprehensive income (loss), net of tax: | |||||
| Foreign currency: | |||||
Translation adjustment (includes $0 and $2 attributable to noncontrolling interest), net of taxes of $49 and $175 | 288 | 108 | |||
| Securities: | |||||
| Net unrealized gains (losses), net of taxes of $5 and $(4) | 16 | (12) | |||
| Derivative instruments: | |||||
| Net unrealized gains, net of taxes of $34 and $180 | 127 | 674 | |||
| Reclassification adjustment included in net income, net of taxes of $2 and $3 | 11 | 12 | |||
| Defined benefit postretirement plans: | |||||
| Net prior service (cost) credit arising during period, net of taxes of $0 and $185 | - | 567 | |||
Amortization of net prior service credit included in net income, net of taxes of $(113) and $(105) | (346) | (323) | |||
| Other comprehensive income (loss) | 96 | 1,026 | |||
| Total comprehensive income | 4,444 | 5,785 | |||
| Less: Total comprehensive income attributable to noncontrolling interest | (252) | (99) | |||
| Total Comprehensive Income Attributable to AT&T | $ | 4,192 | $ | 5,686 | |
| See Notes to Consolidated Financial Statements. | |||||
AT&T INC. | |||||
CONSOLIDATED BALANCE SHEETS | |||||
Dollars in millions except per share amounts | |||||
| March 31, |
| December 31, | ||
| 2020 |
| 2019 | ||
Assets | (Unaudited) |
|
| ||
Current Assets |
|
|
|
|
|
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 |
|
|
|
|
|
Current Liabilities |
|
|
|
|
|
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 |
|
|
|
|
|
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 |
|
|
|
|
|
Preferred stock ($1 par value, 10,000,000 authorized): |
|
|
|
|
|
Series A (48,000 issued and outstanding at March 31, 2020 and December 31, 2019) |
| - |
|
| - |
Series B (20,000 issued and outstanding at March 31, 2020 |
|
|
|
|
|
and 0 issued and outstanding at December 31, 2019) |
| - |
|
| - |
Series C (70,000 issued and outstanding at March 31, 2020 |
|
|
|
|
|
and 0 issued and outstanding at December 31, 2019) |
| - |
|
| - |
Common stock ($1 par value, 14,000,000,000 authorized at March 31, 2020 and |
|
|
|
|
|
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, |
|
|
|
|
|
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. |
|
|
|
|
|
5
| AT&T INC. | |||||
| CONSOLIDATED BALANCE SHEETS | |||||
| Dollars in millions except per share amounts | |||||
| March 31, | December 31, | ||||
| 2019 | 2018 | ||||
| Assets | (Unaudited) | ||||
| Current Assets | |||||
| Cash and cash equivalents | $ | 6,516 | $ | 5,204 | |
| Accounts receivable - net of allowances for doubtful accounts of $905 and $907 | 23,863 | 26,472 | |||
| Prepaid expenses | 1,518 | 2,047 | |||
| Other current assets | 14,575 | 17,704 | |||
| Total current assets | 46,472 | 51,427 | |||
| Noncurrent Inventories and Theatrical Film and Television Production Costs | 10,270 | 7,713 | |||
| Property, plant and equipment | 332,517 | 330,690 | |||
| Less: accumulated depreciation and amortization | (200,466) | (199,217) | |||
| Property, Plant and Equipment – Net | 132,051 | 131,473 | |||
| Goodwill | 146,434 | 146,370 | |||
| Licenses – Net | 97,001 | 96,144 | |||
| Trademarks and Trade Names – Net | 24,218 | 24,345 | |||
| Distribution Networks – Net | 16,623 | 17,069 | |||
| Other Intangible Assets – Net | 24,732 | 26,269 | |||
| Investments in and Advances to Equity Affiliates | 6,230 | 6,245 | |||
| Operating Lease Right-of-Use Assets | 20,235 | - | |||
| Other Assets | 24,118 | 24,809 | |||
| Total Assets | $ | 548,384 | $ | 531,864 | |
| Liabilities and Stockholders’ Equity | |||||
| Current Liabilities | |||||
| Debt maturing within one year | $ | 11,538 | $ | 10,255 | |
| Accounts payable and accrued liabilities | 42,306 | 43,184 | |||
| Advanced billings and customer deposits | 5,956 | 5,948 | |||
| Accrued taxes | 1,130 | 1,179 | |||
| Dividends payable | 3,722 | 3,854 | |||
| Total current liabilities | 64,652 | 64,420 | |||
| Long-Term Debt | 163,942 | 166,250 | |||
| Deferred Credits and Other Noncurrent Liabilities | |||||
| Deferred income taxes | 59,207 | 57,859 | |||
| Postemployment benefit obligation | 19,664 | 19,218 | |||
| Operating lease liabilities | 18,253 | - | |||
| Other noncurrent liabilities | 27,715 | 30,233 | |||
| Total deferred credits and other noncurrent liabilities | 124,839 | 107,310 | |||
| Stockholders’ Equity | |||||
Common stock ($1 par value, 14,000,000,000 authorized at March 31, 2019 and December 31, 2018: issued 7,620,748,598 at March 31, 2019 and December 31, 2018) | 7,621 | 7,621 | |||
| Additional paid-in capital | 125,174 | 125,525 | |||
| Retained earnings | 59,424 | 58,753 | |||
| Treasury stock (323,523,763 at March 31, 2019 and 339,120,073 | |||||
| at December 31, 2018, at cost) | (11,452) | (12,059) | |||
| Accumulated other comprehensive income | 4,345 | 4,249 | |||
| Noncontrolling interest | 9,839 | 9,795 | |||
| Total stockholders’ equity | 194,951 | 193,884 | |||
| Total Liabilities and Stockholders’ Equity | $ | 548,384 | $ | 531,864 | |
| See Notes to Consolidated Financial Statements. | |||||
AT&T INC. | |||||
CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||
Dollars in millions | |||||
(Unaudited) |
|
|
| ||
| Three months ended | ||||
| March 31, | ||||
| 2020 |
| 2019 | ||
Operating Activities |
|
|
|
|
|
Net income | $ | 4,963 |
| $ | 4,348 |
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
Depreciation and amortization |
| 7,222 |
|
| 7,206 |
Amortization of television and film costs |
| 2,269 |
|
| 2,497 |
Undistributed earnings from investments in equity affiliates |
| 39 |
|
| 112 |
Provision for uncollectible accounts |
| 780 |
|
| 592 |
Deferred income tax expense |
| 259 |
|
| 753 |
Net (gain) loss on assets, net of impairments |
| (646) |
|
| (175) |
Pension and postretirement benefit expense (credit) |
| (748) |
|
| (369) |
Actuarial (gain) loss on pension and postretirement benefits |
| - |
|
| 432 |
Changes in operating assets and liabilities: |
|
|
|
|
|
Receivables |
| 1,695 |
|
| 2,125 |
Other current assets, inventories and theatrical film and television production costs |
| (3,267) |
|
| (2,510) |
Accounts payable and other accrued liabilities |
| (3,884) |
|
| (3,686) |
Equipment installment receivables and related sales |
| 535 |
|
| 652 |
Deferred customer contract acquisition and fulfillment costs |
| 105 |
|
| (375) |
Postretirement claims and contributions |
| (111) |
|
| (193) |
Other - net |
| (345) |
|
| (357) |
Total adjustments |
| 3,903 |
|
| 6,704 |
Net Cash Provided by Operating Activities |
| 8,866 |
|
| 11,052 |
Investing Activities |
|
|
|
|
|
Capital expenditures: |
|
|
|
|
|
Purchase of property and equipment |
| (4,938) |
|
| (5,121) |
Interest during construction |
| (28) |
|
| (61) |
Acquisitions, net of cash acquired |
| (100) |
|
| (117) |
Dispositions |
| 118 |
|
| 10 |
(Purchases), sales and settlement of securities and investments, net |
| (6) |
|
| (1) |
Advances to and investments in equity affiliates, net |
| (68) |
|
| (111) |
Net Cash Used in Investing Activities |
| (5,022) |
|
| (5,401) |
Financing Activities |
|
|
|
|
|
Net change in short-term borrowings with original maturities of three months or less |
| 1,742 |
|
| (256) |
Issuance of other short-term borrowings |
| 1,390 |
|
| 296 |
Repayment of other short-term borrowings |
| - |
|
| (176) |
Issuance of long-term debt |
| 4,357 |
|
| 9,182 |
Repayment of long-term debt |
| (4,422) |
|
| (9,840) |
Payment of vendor financing |
| (791) |
|
| (819) |
Issuance of preferred stock |
| 3,869 |
|
| - |
Purchase of treasury stock |
| (5,463) |
|
| (189) |
Issuance of treasury stock |
| 58 |
|
| 167 |
Dividends paid |
| (3,737) |
|
| (3,714) |
Other |
| (3,102) |
|
| 928 |
Net Cash Used in Financing Activities |
| (6,099) |
|
| (4,421) |
Net (decrease) increase in cash and cash equivalents and restricted cash |
| (2,255) |
|
| 1,230 |
Cash and cash equivalents and restricted cash beginning of year |
| 12,295 |
|
| 5,400 |
Cash and Cash Equivalents and Restricted Cash End of Period | $ | 10,040 |
| $ | 6,630 |
See Notes to Consolidated Financial Statements. | |||||
6
AT&T INC. | |||||||||
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY | |||||||||
Dollars and shares in millions except per share amounts | |||||||||
(Unaudited) |
|
|
|
|
|
|
|
|
|
| March 31, 2020 |
| March 31, 2019 | ||||||
| Shares |
| Amount |
| Shares |
| Amount | ||
Preferred Stock - Series A |
|
|
|
|
|
|
|
|
|
Balance at beginning of year | - |
| $ | - |
| - |
| $ | - |
Issuance of stock | - |
|
| - |
| - |
|
| - |
Balance at end of period | - |
| $ | - |
| - |
| $ | - |
Preferred Stock - Series B |
|
|
|
|
|
|
|
|
|
Balance at beginning of year | - |
| $ | - |
| - |
| $ | - |
Issuance of stock | - |
|
| - |
| - |
|
| - |
Balance at end of period | - |
| $ | - |
| - |
| $ | - |
Preferred Stock - Series C |
|
|
|
|
|
|
|
|
|
Balance at beginning of year | - |
| $ | - |
| - |
| $ | - |
Issuance of stock | - |
|
| - |
| - |
|
| - |
Balance at end of period | - |
| $ | - |
| - |
| $ | - |
Common Stock |
|
|
|
|
|
|
|
|
|
Balance at beginning of year | 7,621 |
| $ | 7,621 |
| 7,621 |
| $ | 7,621 |
Issuance of stock | - |
|
| - |
| - |
|
| - |
Balance at end of period | 7,621 |
| $ | 7,621 |
| 7,621 |
| $ | 7,621 |
Additional Paid-In Capital |
|
|
|
|
|
|
|
|
|
Balance at beginning of year |
|
| $ | 126,279 |
|
|
| $ | 125,525 |
Repurchase and acquisition of common stock |
|
|
| 67 |
|
|
|
| - |
Issuance of preferred stock |
|
|
| 3,869 |
|
|
|
| - |
Issuance of treasury stock |
|
|
| (47) |
|
|
|
| (77) |
Share-based payments |
|
|
| (202) |
|
|
|
| (274) |
Balance at end of period |
|
| $ | 129,966 |
|
|
| $ | 125,174 |
Retained Earnings |
|
|
|
|
|
|
|
|
|
Balance at beginning of year |
|
| $ | 57,936 |
|
|
| $ | 58,753 |
Net income attributable to AT&T ($0.63 and $0.56 |
|
|
|
|
|
|
|
|
|
per diluted share) |
|
|
| 4,610 |
|
|
|
| 4,096 |
Preferred stock dividends |
|
|
| (32) |
|
|
|
| - |
Common stock dividends ($0.52 and $0.51 per share) |
|
|
| (3,687) |
|
|
|
| (3,741) |
Cumulative effect of accounting changes |
|
|
|
|
|
|
|
|
|
and other adjustments |
|
|
| (293) |
|
|
|
| 316 |
Balance at end of period |
|
| $ | 58,534 |
|
|
| $ | 59,424 |
See Notes to Consolidated Financial Statements. |
|
|
| ||||||
7
| AT&T INC. | |||||
| CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||
| Dollars in millions | |||||
| (Unaudited) | |||||
| Three months ended | |||||
| March 31, | |||||
| 2019 | 2018 | ||||
| Operating Activities | |||||
| Net income | $ | 4,348 | $ | 4,759 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||
| Depreciation and amortization | 7,206 | 5,994 | |||
| Amortization of television and film costs | 2,497 | - | |||
| Undistributed earnings from investments in equity affiliates | 112 | (2) | |||
| Provision for uncollectible accounts | 592 | 438 | |||
| Deferred income tax expense | 1,069 | 1,222 | |||
| Net (gain) loss from investments, net of impairments | (175) | 2 | |||
| Actuarial (gain) loss on pension and postretirement benefits | 432 | (930) | |||
| Changes in operating assets and liabilities: | |||||
| Accounts receivable | 1,894 | (439) | |||
| Other current assets, inventories and theatrical film and television production costs | (2,510) | 614 | |||
| Accounts payable and other accrued liabilities | (3,686) | (1,962) | |||
| Equipment installment receivables and related sales | 652 | 505 | |||
| Deferred customer contract acquisition and fulfillment costs | (375) | (826) | |||
| Retirement benefit funding | - | (140) | |||
Other - net | (1,004) | (288) | |||
| Total adjustments | 6,704 | 4,188 | |||
| Net Cash Provided by Operating Activities | 11,052 | 8,947 | |||
| Investing Activities | |||||
| Capital expenditures: | |||||
| Purchase of property and equipment | (5,121) | (5,957) | |||
| Interest during construction | (61) | (161) | |||
| Acquisitions, net of cash acquired | (117) | (234) | |||
| Dispositions | 10 | 56 | |||
| (Purchases) sales of securities, net | (1) | (116) | |||
| Advances to and investments in equity affiliates, net | (111) | (1,007) | |||
| Cash collections of deferred purchase price | - | 267 | |||
| Net Cash Used in Investing Activities | (5,401) | (7,152) | |||
| Financing Activities | |||||
| Net change in short-term borrowings with original maturities of three months or less | (256) | - | |||
| Issuance of other short-term borrowings | 296 | - | |||
| Repayment of other short-term borrowings | (176) | - | |||
| Issuance of long-term debt | 9,182 | 2,565 | |||
| Repayment of long-term debt | (9,840) | (4,911) | |||
| Purchase of treasury stock | (189) | (145) | |||
| Issuance of treasury stock | 167 | 11 | |||
| Dividends paid | (3,714) | (3,070) | |||
| Other | 109 | 2,048 | |||
| Net Cash Used in Financing Activities | (4,421) | (3,502) | |||
| Net increase (decrease) in cash and cash equivalents and restricted cash | 1,230 | (1,707) | |||
| Cash and cash equivalents and restricted cash beginning of year | 5,400 | 50,932 | |||
| Cash and Cash Equivalents and Restricted Cash End of Period | $ | 6,630 | $ | 49,225 | |
| See Notes to Consolidated Financial Statements. | |||||
AT&T INC. | |||||||||
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY - continued | |||||||||
Dollars and shares in millions except per share amounts | |||||||||
(Unaudited) |
|
|
|
|
|
|
|
|
|
| March 31, 2020 |
| March 31, 2019 | ||||||
| Shares |
| Amount |
| Shares |
| Amount | ||
Treasury Stock |
|
|
|
|
|
|
|
|
|
Balance at beginning of year | (366) |
| $ | (13,085) |
| (339) |
| $ | (12,059) |
Repurchase and acquisition of common stock | (148) |
|
| (5,547) |
| (7) |
|
| (208) |
Issuance of treasury stock | 18 |
|
| 675 |
| 22 |
|
| 815 |
Balance at end of period | (496) |
| $ | (17,957) |
| (324) |
| $ | (11,452) |
Accumulated Other Comprehensive Income (Loss) |
|
|
|
|
|
|
|
|
|
Attributable to AT&T, net of tax |
|
|
|
|
|
|
|
|
|
Balance at beginning of year |
|
| $ | 5,470 |
|
|
| $ | 4,249 |
Other comprehensive income (loss) attributable to AT&T |
|
|
| (5,855) |
|
|
|
| 96 |
Balance at end of period |
|
| $ | (385) |
|
|
| $ | 4,345 |
Noncontrolling Interest |
|
|
|
|
|
|
|
|
|
Balance at beginning of year |
|
| $ | 17,713 |
|
|
| $ | 9,795 |
Net income attributable to noncontrolling interest |
|
|
| 353 |
|
|
|
| 252 |
Issuance and acquisition of noncontrolling interests |
|
|
| 1 |
|
|
|
| 9 |
Distributions |
|
|
| (339) |
|
|
|
| (246) |
Translation adjustments attributable to noncontrolling |
|
|
|
|
|
|
|
|
|
interest, net of taxes |
|
|
| (51) |
|
|
|
| - |
Cumulative effect of accounting changes |
|
|
|
|
|
|
|
|
|
and other adjustments |
|
|
| (7) |
|
|
|
| 29 |
Balance at end of period |
|
| $ | 17,670 |
|
|
| $ | 9,839 |
Total Stockholders’ Equity at beginning of year |
|
| $ | 201,934 |
|
|
| $ | 193,884 |
Total Stockholders’ Equity at end of period |
|
| $ | 195,449 |
|
|
| $ | 194,951 |
See Notes to Consolidated Financial Statements. |
|
|
| ||||||
8
| AT&T INC. | |||||||||
| CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY | |||||||||
| Dollars and shares in millions except per share amounts | |||||||||
| (Unaudited) | |||||||||
| March 31, 2019 | March 31, 2018 | ||||||||
| Shares | Amount | Shares | Amount | ||||||
| Common Stock | |||||||||
| Balance at beginning of year | 7,621 | $ | 7,621 | 6,495 | $ | 6,495 | |||
| Issuance of stock | - | - | - | - | |||||
| Balance at end of period | 7,621 | $ | 7,621 | 6,495 | $ | 6,495 | |||
| Additional Paid-In Capital | |||||||||
| Balance at beginning of year | $ | 125,525 | $ | 89,563 | |||||
| Issuance of treasury stock | (77) | (4) | |||||||
| Share-based payments | (274) | (155) | |||||||
| Balance at end of period | $ | 125,174 | $ | 89,404 | |||||
| Retained Earnings | |||||||||
| Balance at beginning of year | $ | 58,753 | $ | 50,500 | |||||
Net income attributable to AT&T ($0.56 and $0.75 per diluted share) | 4,096 | 4,662 | |||||||
| Dividends to stockholders ($0.51 and $0.50 per share) | (3,741) | (3,092) | |||||||
| Cumulative effect of accounting changes | 316 | 2,997 | |||||||
| Balance at end of period | $ | 59,424 | $ | 55,067 | |||||
| Treasury Stock | |||||||||
| Balance at beginning of year | (339) | $ | (12,059) | (356) | $ | (12,714) | |||
| Repurchase and acquisition of common stock | (7) | (208) | (4) | (164) | |||||
| Issuance of treasury stock | 22 | 815 | 12 | 446 | |||||
| Balance at end of period | (324) | $ | (11,452) | (348) | $ | (12,432) | |||
Accumulated Other Comprehensive Income Attributable to AT&T, net of tax | |||||||||
| Balance at beginning of year | $ | 4,249 | $ | 7,017 | |||||
| Other comprehensive income attributable to AT&T | 96 | 1,024 | |||||||
| Amounts reclassified to retained earnings | - | (655) | |||||||
| Balance at end of period | $ | 4,345 | $ | 7,386 | |||||
| Noncontrolling Interest | |||||||||
| Balance at beginning of year | $ | 9,795 | $ | 1,146 | |||||
| Net income attributable to noncontrolling interest | 252 | 97 | |||||||
| Interest acquired by noncontrolling owners | 9 | - | |||||||
| Distributions | (246) | (124) | |||||||
Translation adjustments attributable to noncontrolling interest, net of taxes | - | 2 | |||||||
| Cumulative effect of accounting changes | 29 | 35 | |||||||
| Balance at end of period | $ | 9,839 | $ | 1,156 | |||||
| Total Stockholders’ Equity at beginning of year | $ | 193,884 | $ | 142,007 | |||||
| Total Stockholders’ Equity at end of period | $ | 194,951 | $ | 147,076 | |||||
| See Notes to Consolidated Financial Statements. | |||||||||
AT&T INC.
MARCH 31, 2019
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 weAll significant intercompany transactions are eliminated in the consolidation process. Investments in subsidiaries and partnerships which we do not control but have significant influence are accounted for under the equity method. Earnings from certain investments accounted for using the equity method are included for periods ended within up to one quarter of our period end. We also record our proportionate share of our equity method investees’ other comprehensive income (OCI) items.
The preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions, including potential impacts arising from the COVID-19 pandemic, that affect the amounts reported in the financial statements and accompanying notes, including estimates of probable losses and expenses.notes. Actual results could differ from those estimates. Certain prior period amounts have been conformed to the current period’s presentation.
In the tables throughout this document, percentage increases and decreases that are not considered meaningful are denoted with a dash.
Adopted and Pending Accounting Standards and Other Changes
Credit Losses As of January 1, 2019,2020, we adopted, with through modified retrospective application, the Financial Accounting Standards Board’s (FASB) Accounting Standards Update (ASU) No. 2016-02, “Leases2016-13, “Financial Instruments—Credit Losses (Topic 842),”326): Measurement of Credit Losses on Financial Instruments” (ASU 2016-13, as modified (ASC 842)amended), which replaces existing leasing rulesthe incurred loss impairment methodology under prior GAAP with a comprehensive lease measurement and recognition standard and expanded disclosure requirements (see Note 10). ASC 842 requires lessees to recognize most leases on their balance sheets as liabilities, with corresponding “right-of-use” assets. For income statement recognition purposes, leases are classified as either a finance or an operating lease without relying upon bright-line tests.
Reference Rate ReformIn March 2019,2020, the FASB issued ASU No. 2019-02, “Entertainment—Films—Other Assets—Film Costs (Subtopic 926-20) and Entertainment—Broadcasters—Intangibles—Goodwill and Other (Subtopic 920-350)2020-04, “Reference Rate Reform (Topic 848): Improvements to Accounting for CostsFacilitation of Films and License Agreements for Program Materials”the Effects of Reference Rate Reform on Financial Reporting” (ASU 2019-02)2020-04), which we early adopted asprovides optional expedients, and allows for certain exceptions to existing GAAP, for contract modifications triggered by the expected market transition of January 1, 2019, with prospective application. The standard eliminates certain revenue-related constraints on capitalization of inventory costs for episodic televisionbenchmark interest rates to alternative reference rates. ASU 2020-04 applies to contracts, hedging relationships and other arrangements that existed under prior guidance. In addition,reference the balance sheet classification requirements that existed in prior guidance for film production costs and programming inventory were eliminated. As of January 1, 2019, we reclassified $2,274London Interbank Offering Rate (LIBOR) or any other rates ending after December 31, 2022. We are evaluating the impact of our programming inventory costs from “Other current assets”adoption of ASU 2020-04, including optional expedients, for impact to “Other Assets” in accordance with the guidance. This change in accounting does not materially impact our income statement.
Intangible Assets During the first quarter of 2019,2020, in conjunction with the renewal processnationwide launch of certain spectrum licenses in Mexico,AT&T TV and our customers’ continued shift from linear to streaming video services, we reassessed the estimated economic lives and renewal assumptions for theseour orbital slot licenses. As a result, we have changed the lifeestimated lives of these licenses from indefinite to finite-lived. Onfinite-lived, effective January 1, 2019, we2020, and began amortizing our spectrumorbital slot licenses in Mexicousing the sum-of-months-digits method over their average remaining economic life of 2515 years. This change in accounting does not materiallyincreased amortization expense $386, or $0.04 per diluted share available to common stock during the first quarter of 2020.
9
AT&T INC.
MARCH 31, 2020
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
We also reassessed and changed the estimated economic lives of certain trade names in our Latin America business from indefinite to finite-lived and began amortizing them using the straight-line method over their average remaining economic life of 15 years. This change had an insignificant impact on our income statement.
NOTE 2. EARNINGS PER SHARE
A reconciliation of the numerators and denominators of basic and diluted earnings per share for the three months ended March 31, 20192020 and 2018,2019, is shown in the table 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 |
In the first quarter of 2020, we completed an accelerated share repurchase agreement with a third-party financial institution to repurchase AT&T common stock. Under the terms of the agreement, we paid the financial institution $4,000 and received 104.8 million shares.
10
| Three months ended | |||||
| March 31, | |||||
| 2019 | 2018 | ||||
| Numerators | |||||
| Numerator for basic earnings per share: | |||||
| Net Income | $ | 4,348 | $ | 4,759 | |
| Less: Net income attributable to noncontrolling interest | (252) | (97) | |||
| Net Income attributable to AT&T | 4,096 | 4,662 | |||
| Dilutive potential common shares: | |||||
| Share-based payment | 6 | 5 | |||
| Numerator for diluted earnings per share | $ | 4,102 | $ | 4,667 | |
| Denominators (000,000) | |||||
| Denominator for basic earnings per share: | |||||
| Weighted average number of common shares outstanding | 7,313 | 6,161 | |||
| Dilutive potential common shares: | |||||
| Share-based payment (in shares) | 29 | 19 | |||
| Denominator for diluted earnings per share | 7,342 | 6,180 | |||
| Basic earnings per share attributable to AT&T | $ | 0.56 | $ | 0.75 | |
| Diluted earnings per share attributable to AT&T | $ | 0.56 | $ | 0.75 | |
AT&T INC.
MARCH 31, 2019
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
NOTE 3. OTHER COMPREHENSIVE INCOME
Changes in the balances of each component included in accumulated OCI are presented below. All amounts are net of tax and exclude noncontrolling interest.
| Foreign Currency Translation Adjustment | Net Unrealized Gains (Losses) on Securities | Net Unrealized Gains (Losses) on Derivative Instruments | Defined Benefit Postretirement Plans | Accumulated Other Comprehensive Income | |||||||||||
| Balance as of December 31, 2018 | $ | (3,084) | $ | (2) | $ | 818 | $ | 6,517 | $ | 4,249 | |||||
Other comprehensive income (loss) before reclassifications | 288 | 16 | 127 | - | 431 | ||||||||||
Amounts reclassified from accumulated OCI | - | - | 11 | 1 | (346) | 2 | (335) | ||||||||
Net other comprehensive income (loss) | 288 | 16 | 138 | (346) | 96 | ||||||||||
| Balance as of March 31, 2019 | $ | (2,796) | $ | 14 | $ | 956 | $ | 6,171 | $ | 4,345 | |||||
| Foreign Currency Translation Adjustment | Net Unrealized Gains (Losses) on Securities | Net Unrealized Gains (Losses) on Derivative Instruments | Defined Benefit Postretirement Plans | Accumulated Other Comprehensive Income | |||||||||||
| Balance as of December 31, 2017 | $ | (2,054) | $ | 660 | $ | 1,402 | $ | 7,009 | $ | 7,017 | |||||
Other comprehensive income (loss) before reclassifications | 106 | (12) | 674 | 567 | 1,335 | ||||||||||
Amounts reclassified from accumulated OCI | - | - | 12 | 1 | (323) | 2 | (311) | ||||||||
Net other comprehensive income (loss) | 106 | (12) | 686 | 244 | 1,024 | ||||||||||
Amounts reclassified to retained earnings | - | (655) | 3 | - | - | (655) | |||||||||
| Balance as of March 31, 2018 | $ | (1,948) | $ | (7) | $ | 2,088 | $ | 7,253 | $ | 7,386 | |||||
1 | (Gains) losses are included in Interest expense in the consolidated statements of income (see Note 7). | ||||||||||||||
2 | The amortization of prior service credits associated with postretirement benefits are included in Other income (expense) in the | ||||||||||||||
| consolidated statements of income (see Note 6). | |||||||||||||||
3 | With the adoption of ASU 2016-01, the unrealized (gains) losses on our equity investments are reclassified to retained earnings. | ||||||||||||||
|
| Foreign Currency Translation Adjustment |
| Net Unrealized Gains (Losses) on Securities |
| Net Unrealized Gains (Losses) on Derivative Instruments |
| Defined Benefit Postretirement Plans |
| Accumulated Other Comprehensive Income | |||||
Balance as of December 31, 2019 | $ | (3,056) |
| $ | 48 |
| $ | (37) |
| $ | 8,515 |
| $ | 5,470 | |
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
(loss) before reclassifications |
| (1,803) |
|
| 66 |
|
| (3,657) |
|
| - |
|
| (5,394) | |
Amounts reclassified from accumulated OCI |
| - | 1 |
| - | 1 |
| - | 2 |
| (461) | 3 |
| (461) | |
Net other comprehensive |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
income (loss) |
| (1,803) |
|
| 66 |
|
| (3,657) |
|
| (461) |
|
| (5,855) | |
Balance as of March 31, 2020 | $ | (4,859) |
| $ | 114 |
| $ | (3,694) |
| $ | 8,054 |
| $ | (385) | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Foreign Currency Translation Adjustment |
| Net Unrealized Gains (Losses) on Securities |
| Net Unrealized Gains (Losses) on Derivative Instruments |
| Defined Benefit Postretirement Plans |
| Accumulated Other Comprehensive Income | |||||
Balance as of December 31, 2018 | $ | (3,084) |
| $ | (2) |
| $ | 818 |
| $ | 6,517 |
| $ | 4,249 | |
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
(loss) before reclassifications |
| 288 |
|
| 16 |
|
| 127 |
|
| - |
|
| 431 | |
Amounts reclassified from accumulated OCI |
| - | 1 |
| - | 1 |
| 11 | 2 |
| (346) | 3 |
| (335) | |
Net other comprehensive |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
income (loss) |
| 288 |
|
| 16 |
|
| 138 |
|
| (346) |
|
| 96 | |
Balance as of March 31, 2019 | $ | (2,796) |
| $ | 14 |
| $ | 956 |
| $ | 6,171 |
| $ | 4,345 | |
1 | (Gains) losses are included in "Other income (expense) - net" in the consolidated statements of income. | ||||||||||||||
2 | (Gains) losses are included in "Interest expense" in the consolidated statements of income (see Note 7). | ||||||||||||||
3 | The amortization of prior service credits associated with postretirement benefits are included in "Other income (expense) - net" in | ||||||||||||||
| the consolidated statements of income (see Note 6). | ||||||||||||||
NOTE 4. SEGMENT INFORMATION
Our segments are strategic business units that offer products and services to different customer segments over various technology platforms and/or in different geographies that are managed accordingly. We analyze our segments based on segment operating contribution, which consists of operating income, excluding acquisition-related costs and other significant items (as discussed below), and equity in net income (loss) of affiliates for investments managed within each segment. We have four4 reportable segments: (1) Communications, (2) WarnerMedia, (3) Latin America, and (4) Xandr.
We also evaluate segment and business unit performance based on EBITDA and/or EBITDA margin, which is defined as operating contribution excluding equity in net income (loss) of affiliates and depreciation and amortization. We believe 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.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.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 advertisingCorporate and Other
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 |
Acquisition-related items which consists of items associated with the merger and integration of acquired businesses, including amortization of intangible assets.
Certain significant items includes (1) employee separation charges associated with voluntary and/or strategic offers, (2) losses resulting from abandonment or impairment of assets and (3) other items for which the segments are not being evaluated.
Eliminations and consolidations, which (1) removes transactions involving dealings between our segments, including content licensing between WarnerMedia and Communications, and (2) includes adjustments for our reporting of the advertising business.
“Interest expense” and “Other income (expense) – net,” are managed only on a total company basis and are, accordingly, reflected only in consolidated results.
12
| For the three months ended March 31, 2019 | ||||||||||||||||||||
| Revenues | Operations and Support Expenses | EBITDA | Depreciation and Amortization | Operating Income (Loss) | Equity in Net Income (Loss) of Affiliates | Segment Contribution | ||||||||||||||
| Communications | ||||||||||||||||||||
| Mobility | $ | 17,567 | $ | 10,181 | $ | 7,386 | $ | 2,035 | $ | 5,351 | $ | - | $ | 5,351 | ||||||
| Entertainment Group | 11,328 | 8,527 | 2,801 | 1,323 | 1,478 | - | 1,478 | |||||||||||||
| Business Wireline | 6,498 | 4,040 | 2,458 | 1,235 | 1,223 | - | 1,223 | |||||||||||||
| Total Communications | 35,393 | 22,748 | 12,645 | 4,593 | 8,052 | - | 8,052 | |||||||||||||
| 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 | 45,916 | 30,492 | 15,424 | 5,049 | 10,375 | $ | 67 | $ | 10,442 | |||||||||||
| Corporate and Other | ||||||||||||||||||||
| Corporate | 209 | 513 | (304) | 169 | (473) | |||||||||||||||
| 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 | ||||||||||
AT&T INC. MARCH 31, 2019 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued Dollars in millions except per share amounts For the three months ended March 31, 2018 | ||||||||||||||||||||
| Revenues | Operations and Support Expenses | EBITDA | Depreciation and Amortization | Operating Income (Loss) | Equity in Net Income (Loss) of Affiliates | Segment Contribution | ||||||||||||||
| Communications | ||||||||||||||||||||
| Mobility | $ | 17,355 | $ | 10,102 | $ | 7,253 | $ | 2,095 | $ | 5,158 | $ | - | $ | 5,158 | ||||||
| Entertainment Group | 11,431 | 8,811 | 2,620 | 1,310 | 1,310 | (1) | 1,309 | |||||||||||||
| Business Wireline | 6,747 | 4,016 | 2,731 | 1,170 | 1,561 | (1) | 1,560 | |||||||||||||
| Total Communications | 35,533 | 22,929 | 12,604 | 4,575 | 8,029 | (2) | 8,027 | |||||||||||||
| WarnerMedia | ||||||||||||||||||||
| Turner | 112 | 74 | 38 | 1 | 37 | 27 | 64 | |||||||||||||
| Home Box Office | - | - | - | - | - | - | - | |||||||||||||
| Warner Bros. | - | - | - | - | - | - | - | |||||||||||||
| Other | - | 8 | (8) | - | (8) | (17) | (25) | |||||||||||||
| Total WarnerMedia | 112 | 82 | 30 | 1 | 29 | 10 | 39 | |||||||||||||
| Latin America | ||||||||||||||||||||
| Vrio | 1,354 | 1,001 | 353 | 205 | 148 | - | 148 | |||||||||||||
| Mexico | 671 | 803 | (132) | 127 | (259) | - | (259) | |||||||||||||
| Total Latin America | 2,025 | 1,804 | 221 | 332 | (111) | - | (111) | |||||||||||||
| Xandr | 337 | 50 | 287 | 1 | 286 | - | 286 | |||||||||||||
| Segment Total | 38,007 | 24,865 | 13,142 | 4,909 | 8,233 | $ | 8 | $ | 8,241 | |||||||||||
| Corporate and Other | ||||||||||||||||||||
| Corporate | 333 | 735 | (402) | 23 | (425) | |||||||||||||||
| Acquisition-related items | - | 67 | (67) | 1,062 | (1,129) | |||||||||||||||
| Certain significant items | - | 180 | (180) | - | (180) | |||||||||||||||
| Eliminations and consolidations | (302) | (4) | (298) | - | (298) | |||||||||||||||
| AT&T Inc. | $ | 38,038 | $ | 25,843 | $ | 12,195 | $ | 5,994 | $ | 6,201 | ||||||||||
AT&T INC.
MARCH 31, 2019
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
For the three months ended March 31, 2020 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Equity in Net |
|
|
|
|
|
|
|
| Operations |
|
|
|
|
| Depreciation |
|
| Operating |
|
| Income |
|
|
|
|
|
|
|
| and Support |
|
|
|
|
| and |
|
| Income |
|
| (Loss) |
|
| Segment |
|
| Revenues |
|
| Expenses |
|
| EBITDA |
|
| Amortization |
|
| (Loss) |
|
| Affiliates |
|
| Contribution |
Communications |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobility | $ | 17,402 |
| $ | 9,569 |
| $ | 7,833 |
| $ | 2,045 |
| $ | 5,788 |
| $ | - |
| $ | 5,788 |
Entertainment Group |
| 10,515 |
|
| 7,891 |
|
| 2,624 |
|
| 1,289 |
|
| 1,335 |
|
| - |
|
| 1,335 |
Business Wireline |
| 6,332 |
|
| 3,951 |
|
| 2,381 |
|
| 1,301 |
|
| 1,080 |
|
| - |
|
| 1,080 |
Total Communications |
| 34,249 |
|
| 21,411 |
|
| 12,838 |
|
| 4,635 |
|
| 8,203 |
|
| - |
|
| 8,203 |
WarnerMedia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Turner |
| 3,162 |
|
| 1,710 |
|
| 1,452 |
|
| 69 |
|
| 1,383 |
|
| 6 |
|
| 1,389 |
Home Box Office |
| 1,497 |
|
| 1,053 |
|
| 444 |
|
| 21 |
|
| 423 |
|
| 20 |
|
| 443 |
Warner Bros. |
| 3,240 |
|
| 2,950 |
|
| 290 |
|
| 41 |
|
| 249 |
|
| (8) |
|
| 241 |
Other |
| (540) |
|
| (196) |
|
| (344) |
|
| 12 |
|
| (356) |
|
| (3) |
|
| (359) |
Total WarnerMedia |
| 7,359 |
|
| 5,517 |
|
| 1,842 |
|
| 143 |
|
| 1,699 |
|
| 15 |
|
| 1,714 |
Latin America |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vrio |
| 887 |
|
| 783 |
|
| 104 |
|
| 147 |
|
| (43) |
|
| 4 |
|
| (39) |
Mexico |
| 703 |
|
| 714 |
|
| (11) |
|
| 134 |
|
| (145) |
|
| - |
|
| (145) |
Total Latin America |
| 1,590 |
|
| 1,497 |
|
| 93 |
|
| 281 |
|
| (188) |
|
| 4 |
|
| (184) |
Xandr |
| 489 |
|
| 170 |
|
| 319 |
|
| 20 |
|
| 299 |
|
| - |
|
| 299 |
Segment Total |
| 43,687 |
|
| 28,595 |
|
| 15,092 |
|
| 5,079 |
|
| 10,013 |
| $ | 19 |
| $ | 10,032 |
Corporate and Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate |
| 388 |
|
| 874 |
|
| (486) |
|
| 87 |
|
| (573) |
|
|
|
|
|
|
Acquisition-related items |
| - |
|
| 182 |
|
| (182) |
|
| 2,056 |
|
| (2,238) |
|
|
|
|
|
|
Certain significant items |
| - |
|
| (658) |
|
| 658 |
|
| - |
|
| 658 |
|
|
|
|
|
|
Eliminations and consolidations |
| (1,296) |
|
| (922) |
|
| (374) |
|
| - |
|
| (374) |
|
|
|
|
|
|
AT&T Inc. | $ | 42,779 |
| $ | 28,071 |
| $ | 14,708 |
| $ | 7,222 |
| $ | 7,486 |
|
|
|
|
|
|
13
AT&T INC.
MARCH 31, 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 |
|
|
|
|
|
|
14
AT&T INC.
MARCH 31, 2020
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
The following table is a reconciliation of Segment Contributions to “Income Before Income Taxes” reported on our consolidated statements of income.
Three months ended March 31, | |||||
| 2019 | 2018 | ||||
| Communications | $ | 8,052 | $ | 8,027 | |
| WarnerMedia | 2,310 | 39 | |||
| Latin America | (173) | (111) | |||
| Xandr | 253 | 286 | |||
| Segment Contribution | 10,442 | 8,241 | |||
| Reconciling Items: | |||||
| Corporate and Other | (473) | (425) | |||
| Merger and integration items | (115) | (67) | |||
| Amortization of intangibles acquired | (1,988) | (1,062) | |||
| Employee separation charges | (248) | (51) | |||
| Natural disaster items | - | (104) | |||
| Foreign currency devaluation | - | (25) | |||
| Segment equity in net income of affiliates | (67) | (8) | |||
| Eliminations and consolidations | (318) | (298) | |||
| AT&T Operating Income | 7,233 | 6,201 | |||
| Interest Expense | 2,141 | 1,771 | |||
| Equity in net income (loss) of affiliates | (7) | 9 | |||
| Other income (expense) - net | 286 | 1,702 | |||
| Income Before Income Taxes | $ | 5,371 | $ | 6,141 | |
| Three months ended | |||||
| March 31, | |||||
| 2020 |
| 2019 | |||
Communications | $ | 8,203 |
| $ | 8,011 | |
WarnerMedia |
| 1,714 |
|
| 2,310 | |
Latin America |
| (184) |
|
| (173) | |
Xandr |
| 299 |
|
| 253 | |
Segment Contribution |
| 10,032 |
|
| 10,401 | |
Reconciling Items: |
|
|
|
|
| |
Corporate and Other |
| (573) |
|
| (432) | |
Merger and integration items |
| (182) |
|
| (115) | |
Amortization of intangibles acquired |
| (2,056) |
|
| (1,988) | |
Impairments |
| (123) |
|
| - | |
Gain on spectrum transaction 1 |
| 900 |
|
| - | |
Employee separation costs and benefit-related losses |
| (119) |
|
| (248) | |
Segment equity in net income (loss) of affiliates |
| (19) |
|
| (67) | |
Eliminations and consolidations |
| (374) |
|
| (318) | |
AT&T Operating Income |
| 7,486 |
|
| 7,233 | |
Interest Expense |
| 2,018 |
|
| 2,141 | |
Equity in net income (loss) of affiliates |
| (6) |
|
| (7) | |
Other income (expense) - net |
| 803 |
|
| 286 | |
Income Before Income Taxes | $ | 6,265 |
| $ | 5,371 | |
1 | Included as a reduction of "Selling, general and administrative expenses" in the consolidated statement of income. | |||||
The following table presents intersegment revenues by segment.
Intersegment Reconciliation |
|
|
|
|
|
| Three months ended | ||||
| March 31, | ||||
| 2020 |
| 2019 | ||
Intersegment revenues |
|
|
|
|
|
Communications | $ | 2 |
| $ | - |
WarnerMedia |
| 816 |
|
| 858 |
Latin America |
| - |
|
| - |
Xandr |
| 1 |
|
| - |
Total Intersegment Revenues |
| 819 |
|
| 858 |
Consolidations |
| 477 |
|
| 398 |
Eliminations and consolidations | $ | 1,296 |
| $ | 1,256 |
15
| Intersegment Reconciliation | |||||
Three months ended March 31, | |||||
| 2019 | 2018 | ||||
| Intersegment revenues | |||||
| Communications | $ | - | $ | - | |
| WarnerMedia | 858 | 31 | |||
| Latin America | - | - | |||
| Xandr | - | - | |||
| Total Intersegment Revenues | 858 | 31 | |||
| Consolidations | 398 | 271 | |||
| Eliminations and consolidations | $ | 1,256 | $ | 302 | |
AT&T INC.
MARCH 31, 2019
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 | ||||||||||||||||||||||||||
| Service Revenues |
|
|
|
|
|
| |||||||||||||||||||
|
| Wireless |
|
| Advanced Data |
|
| Legacy Voice & Data |
|
| Subscription |
|
| Content |
|
| Advertising |
|
| Other |
|
| Equipment |
|
| Total |
Communications |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobility | $ | 13,892 |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | 76 |
| $ | - |
| $ | 3,434 |
| $ | 17,402 |
Entertainment Group |
| - |
|
| 2,109 |
|
| 581 |
|
| 6,982 |
|
| - |
|
| 413 |
|
| 419 |
|
| 11 |
|
| 10,515 |
Business Wireline |
| - |
|
| 3,275 |
|
| 2,129 |
|
| - |
|
| - |
|
| - |
|
| 753 |
|
| 175 |
|
| 6,332 |
WarnerMedia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Turner |
| - |
|
| - |
|
| - |
|
| 2,049 |
|
| 86 |
|
| 957 |
|
| 70 |
|
| - |
|
| 3,162 |
Home Box Office |
| - |
|
| - |
|
| - |
|
| 1,338 |
|
| 157 |
|
| - |
|
| 2 |
|
| - |
|
| 1,497 |
Warner Bros. |
| - |
|
| - |
|
| - |
|
| 10 |
|
| 3,060 |
|
| 2 |
|
| 168 |
|
| - |
|
| 3,240 |
Eliminations and Other |
| - |
|
| - |
|
| - |
|
| 63 |
|
| (646) |
|
| 20 |
|
| 23 |
|
| - |
|
| (540) |
Latin America |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vrio |
| - |
|
| - |
|
| - |
|
| 887 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 887 |
Mexico |
| 467 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 236 |
|
| 703 |
Xandr |
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 489 |
|
| - |
|
| - |
|
| 489 |
Corporate and Other |
| 117 |
|
| 14 |
|
| 134 |
|
| - |
|
| - |
|
| - |
|
| 83 |
|
| 40 |
|
| 388 |
Eliminations and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
consolidations |
| - |
|
| - |
|
| - |
|
| - |
|
| (794) |
|
| (413) |
|
| (89) |
|
| - |
|
| (1,296) |
Total Operating Revenues | $ | 14,476 |
| $ | 5,398 |
| $ | 2,844 |
| $ | 11,329 |
| $ | 1,863 |
| $ | 1,544 |
| $ | 1,429 |
| $ | 3,896 |
| $ | 42,779 |
16
| Revenue Categories | ||||||||||||||||||||||||||
| The following tables set forth reported revenue by category: | ||||||||||||||||||||||||||
| For the three months ended March 31, 2019 | ||||||||||||||||||||||||||
| Service Revenues | ||||||||||||||||||||||||||
| Wireless | Advanced Data | Legacy Voice & Data | Subscription | Content | Advertising | Other | Equipment | Total | ||||||||||||||||||
| Communications | ||||||||||||||||||||||||||
| Mobility | $ | 13,725 | $ | - | $ | - | $ | - | $ | - | $ | 67 | $ | - | $ | 3,775 | $ | 17,567 | ||||||||
| Entertainment Group | - | 2,070 | 683 | 7,724 | - | 350 | 501 | - | 11,328 | |||||||||||||||||
| Business Wireline | - | 3,186 | 2,404 | - | - | - | 749 | 159 | 6,498 | |||||||||||||||||
| WarnerMedia | ||||||||||||||||||||||||||
| Turner | - | - | - | 1,965 | 135 | 1,261 | 82 | - | 3,443 | |||||||||||||||||
| Home Box Office | - | - | - | 1,334 | 173 | - | 3 | - | 1,510 | |||||||||||||||||
| Warner Bros. | - | - | - | 21 | 3,332 | 10 | 155 | - | 3,518 | |||||||||||||||||
| Eliminations and Other | - | - | - | 49 | (152) | 8 | 3 | - | (92) | |||||||||||||||||
| Latin America | ||||||||||||||||||||||||||
| Vrio | - | - | - | 1,067 | - | - | - | - | 1,067 | |||||||||||||||||
| Mexico | 442 | - | - | - | - | - | - | 209 | 651 | |||||||||||||||||
| Xandr | - | - | - | - | - | 426 | - | - | 426 | |||||||||||||||||
| Corporate and Other | - | - | - | - | - | - | 167 | - | 167 | |||||||||||||||||
Eliminations and consolidations | - | - | - | - | (837) | (350) | (69) | - | (1,256) | |||||||||||||||||
| Total Operating Revenues | $ | 14,167 | $ | 5,256 | $ | 3,087 | $ | 12,160 | $ | 2,651 | $ | 1,772 | $ | 1,591 | $ | 4,143 | $ | 44,827 | ||||||||
| For the three months ended March 31, 2018 | ||||||||||||||||||||||||||
| Service Revenues | ||||||||||||||||||||||||||
| Wireless | Advanced Data | Legacy Voice & Data | Subscription | Content | Advertising | Other | Equipment | Total | ||||||||||||||||||
| Communications | ||||||||||||||||||||||||||
| Mobility | $ | 13,362 | $ | - | $ | - | $ | - | $ | - | $ | 41 | $ | - | $ | 3,952 | $ | 17,355 | ||||||||
| Entertainment Group | - | 1,878 | 806 | 7,891 | - | 334 | 519 | 3 | 11,431 | |||||||||||||||||
| Business Wireline | - | 3,043 | 2,865 | - | - | - | 669 | 170 | 6,747 | |||||||||||||||||
| WarnerMedia | ||||||||||||||||||||||||||
| Turner | - | - | - | 98 | - | 14 | - | - | 112 | |||||||||||||||||
| Home Box Office | - | - | - | - | - | - | - | - | - | |||||||||||||||||
| Warner Bros. | - | - | - | - | - | - | - | - | - | |||||||||||||||||
| Eliminations and Other | - | - | - | - | - | - | - | - | - | |||||||||||||||||
| Latin America | ||||||||||||||||||||||||||
| Vrio | - | - | - | 1,354 | - | - | - | - | 1,354 | |||||||||||||||||
| Mexico | 404 | - | - | - | - | - | - | 267 | 671 | |||||||||||||||||
| Xandr | - | - | - | - | - | 337 | - | - | 337 | |||||||||||||||||
| Corporate and Other | - | - | - | - | - | - | 333 | - | 333 | |||||||||||||||||
Eliminations and consolidations | - | - | - | - | - | (334) | 32 | - | (302) | |||||||||||||||||
| Total Operating Revenues | $ | 13,766 | $ | 4,921 | $ | 3,671 | $ | 9,343 | $ | - | $ | 392 | $ | 1,553 | $ | 4,392 | $ | 38,038 | ||||||||
AT&T INC.
MARCH 31, 2019
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
For the three months ended March 31, 2019 | ||||||||||||||||||||||||||
| Service Revenues |
|
|
|
|
|
| |||||||||||||||||||
|
| Wireless |
|
| Advanced Data |
|
| Legacy Voice & Data |
|
| Subscription |
|
| Content |
|
| Advertising |
|
| Other |
|
| Equipment |
|
| Total |
Communications |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobility | $ | 13,562 |
| $ | - |
| $ | - |
| $ | - |
| $ | - |
| $ | 67 |
| $ | - |
| $ | 3,734 |
| $ | 17,363 |
Entertainment Group |
| - |
|
| 2,070 |
|
| 683 |
|
| 7,724 |
|
| - |
|
| 350 |
|
| 501 |
|
| - |
|
| 11,328 |
Business Wireline |
| - |
|
| 3,172 |
|
| 2,397 |
|
| - |
|
| - |
|
| - |
|
| 750 |
|
| 159 |
|
| 6,478 |
WarnerMedia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Turner |
| - |
|
| - |
|
| - |
|
| 1,965 |
|
| 135 |
|
| 1,261 |
|
| 82 |
|
| - |
|
| 3,443 |
Home Box Office |
| - |
|
| - |
|
| - |
|
| 1,334 |
|
| 173 |
|
| - |
|
| 3 |
|
| - |
|
| 1,510 |
Warner Bros. |
| - |
|
| - |
|
| - |
|
| 21 |
|
| 3,332 |
|
| 10 |
|
| 155 |
|
| - |
|
| 3,518 |
Eliminations and Other |
| - |
|
| - |
|
| - |
|
| 49 |
|
| (152) |
|
| 8 |
|
| 3 |
|
| - |
|
| (92) |
Latin America |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vrio |
| - |
|
| - |
|
| - |
|
| 1,067 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 1,067 |
Mexico |
| 442 |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 209 |
|
| 651 |
Xandr |
| - |
|
| - |
|
| - |
|
| - |
|
| - |
|
| 426 |
|
| - |
|
| - |
|
| 426 |
Corporate and Other |
| 163 |
|
| 13 |
|
| 7 |
|
| - |
|
| - |
|
| - |
|
| 167 |
|
| 41 |
|
| 391 |
Eliminations and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
consolidations |
| - |
|
| - |
|
| - |
|
| - |
|
| (837) |
|
| (350) |
|
| (69) |
|
| - |
|
| (1,256) |
Total Operating Revenues | $ | 14,167 |
| $ | 5,255 |
| $ | 3,087 |
| $ | 12,160 |
| $ | 2,651 |
| $ | 1,772 |
| $ | 1,592 |
| $ | 4,143 |
| $ | 44,827 |
17
AT&T INC.
MARCH 31, 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 twothree years to five years. Costs to fulfill customer contracts are deferred and amortized over periods ranging generally from four to five years, reflecting the estimated economic lives of the respective customer relationships, subject to an assessment of the recoverability of such costs. 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 balances were $4,297 and $11,592 as of March 31, 2019, respectively, of which $2,143 and $4,214 were included in Other current assets on our consolidated balance sheets. For the three months ended March 31, 2019, we amortized $547 and $1,098 of these costs, respectively.
|
| March 31, |
|
| December 31, |
Consolidated Balance Sheets |
| 2020 |
|
| 2019 |
Deferred Acquisition Costs |
|
|
|
|
|
Other current assets | $ | 2,592 |
| $ | 2,462 |
Other Assets |
| 2,997 |
|
| 2,991 |
Total deferred customer contract acquisition costs |
| 5,589 |
|
| 5,453 |
|
|
|
|
|
|
Deferred Fulfillment Costs |
|
|
|
|
|
Other current assets |
| 4,438 |
|
| 4,519 |
Other Assets |
| 6,279 |
|
| 6,439 |
Total deferred customer contract fulfillment costs | $ | 10,717 |
| $ | 10,958 |
The following table presents deferred customer contract acquisition costscost and deferred customer contract fulfillment costs balances were $3,974 and $11,540 as of December 31, 2018, respectively, of which $1,901 and $4,090 werecost amortization included in Other current assets on our consolidated balance sheets. For“Other cost of revenue” for the three months ended March 31, 2018, we amortized $263 and $1,047 of these costs, respectively.
|
| March 31, |
|
| March 31, |
Consolidated Statements of Income |
| 2020 |
|
| 2019 |
Deferred acquisition cost amortization | $ | 636 |
| $ | 547 |
Deferred fulfillment cost amortization |
| 1,305 |
|
| 1,098 |
Contract Assets and Liabilities
A contract asset is recorded when revenue is recognized in advance of our right to bill and receive consideration (i.e., we must perform additional services or satisfy another performance obligation in order to bill and receive consideration).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.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 at March 31, 2019 and December 31, 2018:
| March 31, | December 31, | |||||
| 2019 | 2018 | |||||
| Contract asset | $ | 2,198 | $ | 1,896 | ||
| Contract liability | 6,899 | 6,856 |
|
|
| March 31, |
|
| December 31, |
|
|
| 2020 |
|
| 2019 |
|
|
|
|
|
|
|
Contract asset |
| $ | 2,598 |
| $ | 2,472 |
Contract liability |
|
| 6,757 |
|
| 6,999 |
Our beginning of period contract liability recorded as customer contract revenue during 20192020 was $4,379.$4,519.
18
AT&T INC.
MARCH 31, 2020
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
Our consolidated balance sheets at March 31, 20192020 and December 31, 20182019 included approximately $1,462$1,700 and $1,244,$1,611, respectively, for the current portion of our contract asset in “Other current assets” and $5,715$5,769 and $5,752,$5,939, respectively, for the current portion of our contract liability in “Advanced billings and customer deposits.”
Remaining Performance Obligations
Remaining performance obligations represent services we are required to provide to customers under bundled or discounted arrangements, which are satisfied as services are provided over the contract term. In determining the transaction price allocated, we do not include non-recurring charges and estimates for usage, nor do we consider arrangements with an original expected duration of less than one year, which are primarily prepaid wireless, video and residential internet agreements.
Remaining performance obligations associated with business contracts reflect recurring charges billed, adjusted to reflect estimates for sales incentives and revenue adjustments. Performance obligations associated with wireless contracts are estimated using a portfolio approach in which we review all relevant promotional activities, calculating the remaining performance obligation using the average service component for the portfolio and the average device price. As of March 31, 2019,2020, the aggregate amount of the transaction price allocated to remaining performance obligations was $39,627$36,486, of which we expect to recognize approximately 80%86% by the end of 2020,2021, with the balance recognized thereafter.
NOTE 6. PENSION AND POSTRETIREMENT BENEFITS
Many of our employees are covered by one of our noncontributory pension plans. We also provide certain medical, dental, life insurance and death benefits to certain retired employees under various plans and accrue actuarially determined postretirement benefit costs. Our objective in funding these plans, in combination with the standards of the Employee Retirement Income Security Act of 1974, as amended (ERISA), is to accumulate assets sufficient to provide benefits described in the plans to employees upon their retirement.
We recognize actuarial gains and losses on pension and postretirement plan assets in our consolidated results as a component of other“Other income (expense) – netnet” at our annual measurement date of December 31, unless earlier remeasurements are required. We anticipate total distributions from the pension plan will exceed the threshold of service and interest costs for 2019, requiring us to follow settlement accounting. We have remeasured our pension benefit obligations at March
19
AT&T INC.
MARCH 31, 2019, and will remeasure our pension benefit obligation at each quarter-end of 2019 as we expect settlements to occur during each quarter.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.”
| Three months ended | |||||
| March 31, | |||||
| 2019 | 2018 | ||||
| Pension cost: | |||||
| Service cost – benefits earned during the period | $ | 240 | $ | 291 | |
| Interest cost on projected benefit obligation | 549 | 487 | |||
| Expected return on assets | (851) | (760) | |||
| Amortization of prior service credit | (33) | (30) | |||
| Actuarial (gain) loss | 432 | - | |||
| Net pension (credit) cost | $ | 337 | $ | (12) | |
| Postretirement cost: | |||||
| Service cost – benefits earned during the period | $ | 18 | $ | 29 | |
| Interest cost on accumulated postretirement benefit obligation | 186 | 191 | |||
| Expected return on assets | (56) | (77) | |||
| Amortization of prior service credit | (426) | (397) | |||
| Actuarial (gain) loss | - | (930) | |||
| Net postretirement (credit) cost | $ | (278) | $ | (1,184) | |
| Combined net pension and postretirement (credit) cost | $ | 59 | $ | (1,196) | |
| 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 |
We also provide senior- and middle-management employees with nonqualified, unfunded supplemental retirement and savings plans. For the first quarter endedof 2020 and 2019, and 2018, net supplemental pension benefits costs not included in the table above were $25$19 and $21.
NOTE 7. FAIR VALUE MEASUREMENTS AND DISCLOSURE
The Fair Value Measurement and Disclosure framework in ASC 820, “Fair Value Measurement,” provides a three-tiered fair value hierarchy based on the reliability of the inputs used to determine fair value. Level 1 refers to fair values determined based on quoted prices in active markets for identical assets. Level 2 refers to fair values estimated using significant other observable inputs and Level 3 includes fair values estimated using significant unobservable inputs.
The fair value measurements level of an asset or liability within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Our valuation techniques maximize the use of observable inputs and minimize the use of unobservable inputs.
The valuation methodologies described above may produce a fair value calculation that may not be indicative of future net realizable value or reflective of future fair values. We believe our valuation methods are appropriate and consistent with other market participants. The use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date. There have been no changes in the methodologies used since December 31, 2018.2019.
20
AT&T INC.
MARCH 31, 2020
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
Long-Term Debt and Other Financial Instruments
The carrying amounts and estimated fair values of our long-term debt, including current maturities, and other financial instruments, are summarized as follows:
| March 31, 2019 | December 31, 2018 | |||||||||||
| Carrying | Fair | Carrying | Fair | |||||||||
| Amount | Value | Amount | Value | |||||||||
Notes and debentures1 | $ | 170,532 | $ | 179,576 | $ | 171,529 | $ | 172,287 | ||||
| Commercial paper | 2,957 | 2,957 | 3,048 | 3,048 | ||||||||
| Bank borrowings | 4 | 4 | 4 | 4 | ||||||||
Investment securities2 | 3,606 | 3,606 | 3,409 | 3,409 | ||||||||
1 | Includes credit agreement borrowings. | |||||||||||
2 | Excludes investments accounted for under the equity method. | |||||||||||
|
| March 31, 2020 |
| December 31, 2019 | ||||||||
|
| Carrying |
| Fair |
| Carrying |
| Fair | ||||
|
| Amount |
| Value |
| Amount |
| Value | ||||
Notes and debentures1 | $ | 159,386 |
| $ | 175,902 |
| $ | 161,109 |
| $ | 182,124 | |
Commercial paper |
| 3,144 |
|
| 3,144 |
|
| - |
|
| - | |
Bank borrowings |
| - |
|
| - |
|
| 4 |
|
| 4 | |
Investment securities2 |
| 3,591 |
|
| 3,591 |
|
| 3,723 |
|
| 3,723 | |
1 | Includes credit agreement borrowings. | |||||||||||
2 | Excludes investments accounted for under the equity method. | |||||||||||
The carrying amount of debt with an original maturity of less than one year approximates marketfair value. The fair value measurements used for notes and debentures are considered Level 2 and are determined using various methods, including quoted prices for identical or similar securities in both active and inactive markets.
Following is the fair value leveling for investment securities that are measured at fair value and derivatives as of March 31, 20192020 and December 31, 2018.2019. Derivatives designated as hedging instruments are reflected as “Other assets,” “Other noncurrent liabilities” and, for a portion of interest rate swaps, “Other current assets” on our consolidated balance sheets.
|
| March 31, 2020 | ||||||||||
|
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||
Equity Securities |
|
|
|
|
|
|
|
|
|
|
| |
Domestic equities | $ | 674 |
| $ | - |
| $ | - |
| $ | 674 | |
International equities |
| 143 |
|
| - |
|
| - |
|
| 143 | |
Fixed income equities |
| 233 |
|
| - |
|
| - |
|
| 233 | |
Available-for-Sale Debt Securities |
| - |
|
| 1,514 |
|
| - |
|
| 1,514 | |
Asset Derivatives |
|
|
|
|
|
|
|
|
|
|
| |
Interest rate swaps |
| - |
|
| 14 |
|
| - |
|
| 14 | |
Foreign exchange contracts |
| - |
|
| 77 |
|
| - |
|
| 77 | |
Liability Derivatives |
|
|
|
|
|
|
|
|
|
|
| |
Cross-currency swaps |
| - |
|
| (8,283) |
|
| - |
|
| (8,283) | |
Interest rate locks |
| - |
|
| (720) |
|
| - |
|
| (720) | |
Foreign exchange contracts |
| - |
|
| (11) |
|
| - |
|
| (11) | |
21
| March 31, 2019 | ||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||
| Equity Securities | ||||||||||||
| Domestic equities | $ | 1,092 | $ | - | $ | - | $ | 1,092 | ||||
| International equities | 263 | - | - | 263 | ||||||||
| Fixed income equities | 208 | - | - | 208 | ||||||||
| Available-for-Sale Debt Securities | - | 989 | - | 989 | ||||||||
| Asset Derivatives | ||||||||||||
| Interest rate swaps | - | 2 | - | 2 | ||||||||
| Cross-currency swaps | - | 427 | - | 427 | ||||||||
| Foreign exchange contracts | - | 87 | - | 87 | ||||||||
| Liability Derivatives | ||||||||||||
| Interest rate swaps | - | (13) | - | (13) | ||||||||
| Cross-currency swaps | - | (2,697) | - | (2,697) | ||||||||
| Foreign exchange contracts | - | (6) | - | (6) | ||||||||
| December 31, 2018 | ||||||||||||
| Level 1 | Level 2 | Level 3 | Total | |||||||||
| Equity Securities | ||||||||||||
| Domestic equities | $ | 1,061 | $ | - | $ | - | $ | 1,061 | ||||
| International equities | 256 | - | - | 256 | ||||||||
| Fixed income equities | 172 | - | - | 172 | ||||||||
| Available-for-Sale Debt Securities | - | 870 | - | 870 | ||||||||
| Asset Derivatives | ||||||||||||
| Cross-currency swaps | - | 472 | - | 472 | ||||||||
| Foreign exchange contracts | - | 87 | - | 87 | ||||||||
| Liability Derivatives | ||||||||||||
| Interest rate swaps | - | (39) | - | (39) | ||||||||
| Cross-currency swaps | - | (2,563) | - | (2,563) | ||||||||
| Foreign exchange contracts | - | (2) | - | (2) | ||||||||
AT&T INC.
MARCH 31, 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 areis 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, | |||||
| 2019 | 2018 | ||||
| Total gains (losses) recognized on equity securities | $ | 160 | $ | (13) | |
| Gains (Losses) recognized on equity securities sold | 86 | 52 | |||
| Unrealized gains (losses) recognized on equity securities held at end of period | 74 | (65) | |||
| Three months ended | ||||
| March 31, | ||||
| 2020 |
| 2019 | ||
Total gains (losses) recognized on equity securities | $ | (203) |
| $ | 160 |
Gains (losses) recognized on equity securities sold |
| (33) |
|
| 18 |
Unrealized gains (losses) recognized on equity securities held at end of period |
| (170) |
|
| 142 |
At March 31, 2019,2020, available-for-sale debt securities totaling $989$1,514 have maturities as follows - less than one year: $46;$78; one to three years: $178;$149; three to five years: $98;$160; for five or more years: $667.
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.
22
AT&T INC.
MARCH 31, 2020
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
Fair Value Hedging
We designate our fixed-to-floating interest rate swaps as fair value hedges. The purpose of these swaps is to manage interest rate risk by managing our mix of fixed-rate and floating-rate debt. These swaps involve the receipt of fixed-rate amounts for floating interest rate payments over the life of the swaps without exchange of the underlying principal amount.We also designate some of our foreign exchange contracts as fair value hedges. The purpose of these contracts is to hedge currency risk associated with foreign-currency-denominated operating assets and liabilities.
Accrued and realized gains or losses from fair value hedges impact the same category on the consolidated statements of income as the item being hedged. Unrealized gains on fair value hedges are recorded at fair market value as assets, and unrealized losses are recorded at fair market value as liabilities. Changes in the fair value of derivative instruments designated as fair value hedges are offset against the change in fair value of the hedged assets or liabilities through earnings. In the three months ended March 31, 20192020 and 2018,2019, no ineffectiveness was measured on fair value hedges
Cash Flow Hedging
We designate our cross-currency swaps as cash flow hedges. We have entered into multiple cross-currency swaps to hedge our exposure to variability in expected future cash flows that are attributable to foreign currency risk generated from the issuance of our foreign-denominated debt. These agreements include initial and final exchanges of principal from fixed foreign currency denominated amounts to fixed U.S. dollar denominated amounts, to be exchanged at a specified rate that is usually determined by the market spot rate upon issuance. They also include an interest rate swap of a fixed or floating foreign currency-denominated interest rate to a fixed U.S. dollar denominated interest rate.We also designate some of our foreign exchange contracts as cash flow hedges. The purpose of these contracts is to hedge currency risk associated with variability in anticipated foreign-currency-denominated cash flows, such as unremitted or forecasted royalty and license fees owed to WarnerMedia’s domestic companies for the sale or anticipated sale of U.S. copyrighted products abroad or cash flows for certain film production costs denominated in a foreign currency.
Unrealized gains on derivatives designated as cash flow hedges are recorded at fair value as assets, and unrealized losses are recorded at fair value as liabilities. For derivative instruments designated as cash flow hedges, the effective portion ischanges in fair value are reported as a component of accumulated OCI untiland are reclassified into the consolidated statements of income in the same period the hedged transaction affects earnings. The gain or loss on the ineffective portion is recognized as “Other income (expense) – net” in the consolidated statements of income in each period. We evaluate the effectiveness of our cash flow hedges each quarter. In the three months ended March 31, 2019 and 2018, no ineffectiveness was measured on cash flow hedges.
Periodically, we enter into and designate interest rate locks to partially hedge the risk of changes in interest payments attributable to increases in the benchmark interest rate during the period leading up to the probable issuance of fixed-rate debt. We designate our interest rate locks as cash flow hedges. Gains and losses when we settle our interest rate locks are amortized into income over the life of the related debt, except where a material amount is deemed to be ineffective, which would be immediately reclassified to “Other income (expense) – net” in the consolidated statements of income.debt. Over the next 12 months, we expect to reclassify $63$60 from accumulated OCI to interest expense“Interest expense” due to the amortization of net losses on historical interest rate locks.
Net Investment Hedging
We have designatedCollateral 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 31,23
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, | ||||
| 2019 | 2018 | ||||
| Interest rate swaps | $ | 1,633 | $ | 3,483 | |
| Cross-currency swaps | 42,192 | 42,192 | |||
| Foreign exchange contracts | 1,238 | 2,094 | |||
| Total | $ | 45,063 | $ | 47,769 | |
| March 31, |
| December 31, | ||
2020 |
| 2019 | |||
Interest rate swaps | $ | 853 |
| $ | 853 |
Cross-currency swaps |
| 42,325 |
|
| 42,325 |
Interest rate locks |
| 3,500 |
|
| 3,500 |
Foreign exchange contracts |
| 106 |
|
| 269 |
Total | $ | 46,784 |
| $ | 46,947 |
Following are the related hedged items affecting our financial position and performance:
| Effect of Derivatives on the Consolidated Statements of Income | |||||
| Three months ended | |||||
| March 31, | |||||
| Fair Value Hedging Relationships | 2019 | 2018 | |||
| Interest rate swaps (Interest expense): | |||||
| Gain (Loss) on interest rate swaps | $ | 24 | $ | (53) | |
| Gain (Loss) on long-term debt | (24) | 53 | |||
Effect of Derivatives on the Consolidated Statements of Income |
|
|
|
|
|
| Three months ended | ||||
| March 31, | ||||
Fair Value Hedging Relationships | 2020 |
| 2019 | ||
Interest rate swaps (Interest expense): |
|
|
|
|
|
Gain (loss) on interest rate swaps | $ | 10 |
| $ | 24 |
Gain (loss) on long-term debt |
| (10) |
|
| (24) |
In addition, the net swap settlements that accrued and settled in the quarterquarters ended March 31, 2020 and 2019 were offset against interest expense.
| Three months ended | |||||
| March 31, | |||||
| Cash Flow Hedging Relationships | 2019 | 2018 | |||
| Cross-currency swaps: | |||||
| Gain (Loss) recognized in accumulated OCI | $ | 168 | $ | 854 | |
| Foreign exchange contracts: | |||||
| Gain (Loss) recognized in accumulated OCI | (7) | - | |||
Other income (expense) - net reclassified from accumulated OCI into income | 3 | - | |||
| Interest rate locks: | |||||
Interest income (expense) reclassified from accumulated OCI into income | (16) | (15) | |||
| Three months ended | ||||
| March 31, | ||||
Cash Flow Hedging Relationships | 2020 |
| 2019 | ||
Cross-currency swaps: |
|
|
|
|
|
Gain (loss) recognized in accumulated OCI | $ | (3,979) |
| $ | 168 |
Foreign exchange contracts: |
|
|
|
|
|
Gain (loss) recognized in accumulated OCI |
| (13) |
|
| (7) |
Other income (expense) - net reclassified from accumulated OCI into income |
| 16 |
|
| 3 |
Interest rate locks: |
|
|
|
|
|
Gain (loss) recognized in accumulated OCI |
| (636) |
|
| - |
Interest income (expense) reclassified from accumulated OCI into income |
| (16) |
|
| (16) |
NOTE 8. ACQUISITIONS, DISPOSITIONS AND OTHER ADJUSTMENTS
| Assets acquired | |||
| Cash | $ | 1,889 | |
| Accounts receivable | 9,052 | ||
| All other current assets | 2,913 | ||
| Noncurrent inventory and theatrical film and television production costs | 5,591 | ||
| Property, plant and equipment | 4,785 | ||
| Intangible assets subject to amortization | |||
| Distribution network | 18,040 | ||
| Released television and film content | 10,806 | ||
| Trademarks and trade names | 18,081 | ||
| Other | 10,300 | ||
| Investments and other assets | 9,449 | ||
| Goodwill | 38,569 | ||
| Total assets acquired | 129,475 | ||
| Liabilities assumed | |||
| Current liabilities, excluding current portion of long-term debt | 8,303 | ||
| Debt maturing within one year | 4,471 | ||
| Long-term debt | 18,394 | ||
| Other noncurrent liabilities | 18,948 | ||
| Total liabilities assumed | 50,116 | ||
| Net assets acquired | 79,359 | ||
| Noncontrolling interest | (1) | ||
| Aggregate value of consideration paid | $ | 79,358 |
We have agreements with various third-party financial institutions pertaining to the salesales of certain types of our accounts receivable. The most significant of these programs are discussed in detail below and generally consist of (1) receivables arising from equipment installment plans, which are sold for cash and a deferred purchase price, and (2) receivables related to licensed programmingrevolving service and advertising.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.
| Three months ended | ||||||
| March 31, | ||||||
| 2019 | 2018 | |||||
| Gross receivables sold | $ | 4,101 | $ | 3,010 | ||
Net receivables sold1 | 3,909 | 2,795 | ||||
| Cash proceeds received | 3,675 | 2,395 | ||||
| Deferred purchase price recorded | 309 | 519 | ||||
| Guarantee obligation recorded | 138 | 123 | ||||
1 | Receivables net of allowance, imputed interest and trade-in right guarantees. | |||||
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 | ||||||
|
| Equipment |
|
|
|
| Equipment |
|
|
| ||
|
| Installment |
| Revolving |
| Installment |
| Revolving | ||||
Gross receivables: | $ | 3,640 |
| $ | 4,057 |
| $ | 4,576 |
| $ | 3,324 | |
Balance sheet classification |
|
|
|
|
|
|
|
|
|
|
| |
Accounts receivable |
|
|
|
|
|
|
|
|
|
|
| |
Notes receivable |
| 1,979 |
|
| - |
|
| 2,467 |
|
| - | |
Trade receivables |
| 466 |
|
| 3,733 |
|
| 477 |
|
| 2,809 | |
Other Assets |
|
|
|
|
|
|
|
|
|
|
| |
Noncurrent notes and trade receivables |
| 1,195 |
|
| 324 |
|
| 1,632 |
|
| 515 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding portfolio of receivables derecognized from |
|
|
|
|
|
|
|
|
|
|
| |
our consolidated balance sheets |
| 9,690 |
|
| 5,300 |
|
| 9,713 |
|
| 4,300 | |
Cash proceeds received, net of remittances1 |
| 7,156 |
|
| 5,300 |
|
| 7,211 |
|
| 4,300 | |
1 | Represents amounts to which financial institutions remain entitled, excluding the deferred purchase price. | |||||||||||
Equipment Installment Receivables
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 months ended March 31, 2020 and 2019:
|
| Three months ended March 31, | ||||
|
|
| 2020 |
|
| 2019 |
Gross receivables sold | $ | 2,367 |
| $ | 2,701 | |
Net receivables sold1 |
| 2,273 |
|
| 2,546 | |
Cash proceeds received |
| 1,950 |
|
| 2,275 | |
Deferred purchase price recorded |
| 353 |
|
| 309 | |
Guarantee obligation recorded |
| 44 |
|
| 101 | |
1 | Receivables net of allowance, imputed interest and equipment trade-in right guarantees. | |||||
The deferred purchase price and guarantee obligation are initially recorded at estimated fair value and subsequently carried at the loweradjusted for changes in present value of cost or net realizable value.expected cash flows. The estimation of their fair values is based on remaining installment payments expected to be collected and the expected timing and value of device trade-ins. The estimated value of the device trade-ins considers prices offered to us by independent third parties that contemplate changes in value after the launch of a
25
AT&T INC.
MARCH 31, 2020
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
device model. The fair value measurements used for the deferred purchase price and the guarantee obligation are considered Level 3 under the Fair Value Measurement and Disclosure framework (see Note 7).
The following table showspresents the previously transferred equipment installment receivables, which we repurchased in exchange for the associated deferred purchase price and cash during the three months ended March 31, 20192020 and 2018:
| Three months ended | ||||||
| March 31, | ||||||
| 2019 | 2018 | |||||
| Fair value of repurchased receivables | $ | 423 | $ | - | ||
| Carrying value of deferred purchase price | 407 | - | ||||
Gain (loss) on repurchases1 | $ | 16 | $ | - | ||
1 | These gains (losses) are included in “Selling, general and administrative” in the consolidated statements of income. | |||||
|
| Three months ended March 31, | ||||
|
|
| 2020 |
|
| 2019 |
Fair value of repurchased receivables | $ | 288 |
| $ | 423 | |
Carrying value of deferred purchase price |
| 277 |
|
| 407 | |
Gain on repurchases1 | $ | 11 |
| $ | 16 | |
1 | These gains are included in “Selling, general and administrative” in the consolidated statements of income. | |||||
At March 31, 20192020 and December 31, 2018,2019, our deferred purchase price receivable was $2,240$2,378 and $2,370,$2,336, respectively, of which $1,418$1,583 and $1,448$1,569 are included in “Other current assets” on our consolidated balance sheets, with the remainder in “Other Assets.” The guarantee obligation at March 31, 20192020 and December 31, 20182019 was $430$351 and $439,$384, respectively, of which $160$189 and $196$148 are included in “Accounts payable and accrued liabilities” on our consolidated balance sheets, with the remainder in “Other noncurrent liabilities.” Our maximum exposure to loss as a result of selling these equipment installment receivables is limited to the total amount of our deferred purchase price and guarantee obligation.
Revolving Receivables
In March 2019, we entered into a revolving agreement to transfer up to $4,300 of certain receivables fromthrough our WarnerMedia businessbankruptcy-remote subsidiaries to various financial institutions on a recurring basis in exchange for cash. Thesecash equal to the gross receivables originate fromtransferred. In the salefirst quarter of licensed programming2020, we expanded the program limit to $5,300. As customers pay their balances, we transfer additional receivables into the program, resulting in our gross receivables sold exceeding net cash flow impacts (e.g., collect and advertising. Upon sale, we reclassify the allowance against thesereinvest). The transferred receivables to a guarantee liability. We haveare fully guaranteed the repayment of the transferred receivables and have also pledged, as collateral under this agreement,by our bankruptcy-remote subsidiaries, which hold additional receivables in the amount of $1,402.$4,057 that are pledged as collateral under this agreement. The transfers are recorded at fair value of the proceeds received and obligations assumed less derecognized receivables. The obligation is subsequently adjusted for changes in estimated expected credit losses. Our maximum exposure to loss related to selling these receivables transferred is limited to the outstanding $1,400amount 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 sold receivables.
|
|
| Three months ended March 31, | |||
|
|
| 2020 |
|
| 2019 |
Gross receivables sold/cash proceeds received1 | $ | 4,222 |
| $ | 1,400 | |
Collections reinvested under revolving agreement |
| 3,222 |
|
| - | |
Net cash proceeds received (remitted) | $ | 1,000 |
| $ | 1,400 | |
|
|
|
|
|
|
|
Net receivables sold2 | $ | 4,138 |
| $ | 1,363 | |
Obligations recorded |
| 126 |
|
| 52 | |
1 | Includes initial sale of receivables of $1,000 and $1,400 for the three months ended March 31, 2020 and 2019, respectively. | |||||
2 | Receivables net of allowance, return and incentive reserves and imputed interest. | |||||
NOTE 10.9. LEASES
We have operating and finance leases for certain facilities and equipment used in operations. Our leases generally have remaining lease terms of 1 yearup to 1315 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.
The components of lease expense were as follows:
| Three months ended March 31, | ||||
| 2020 |
| 2019 | ||
Operating lease cost | $ | 1,377 |
| $ | 1,242 |
|
|
|
|
|
|
Finance lease cost: |
|
|
|
|
|
Amortization of right-of-use assets | $ | 67 |
| $ | 66 |
Interest on lease obligation |
| 41 |
|
| 42 |
Total finance lease cost | $ | 108 |
| $ | 108 |
The following tables set forth supplemental balance sheet information related to leases:
| Three months ended | ||
| March 31, 2019 | ||
| Operating lease cost | $ | 1,242 |
| Finance lease cost: | ||
| Amortization of right-of-use assets | $ | 66 |
| Interest on lease obligation | 42 | |
| Total finance lease cost | $ | 108 |
|
| 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 | % |
27
AT&T INC.
MARCH 31, 2019
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
| At March 31, 2019 | |||
| Operating Leases | |||
| Operating lease right-of-use assets | $ | 20,235 | |
| Accounts payable and accrued liabilities | $ | 3,072 | |
| Operating lease obligation | 18,253 | ||
| Total operating lease obligation | $ | 21,325 | |
| Finance Leases | |||
| Property, plant and equipment, at cost | $ | 3,377 | |
| Accumulated depreciation and amortization | (1,173) | ||
| Property, plant and equipment, net | $ | 2,204 | |
| Current portion of long-term debt | $ | 135 | |
| Long-term debt | 1,852 | ||
| Total finance lease obligation | $ | 1,987 | |
| Weighted-Average Remaining Lease Term | |||
| Operating leases | 7.9 | yrs | |
| Finance leases | 10.9 | yrs | |
| Weighted-Average Discount Rate | |||
| Operating leases | 4.7 | % | |
| Finance leases | 8.6 | % | |
Future minimum maturities of lease liabilities are as follows:
| At March 31, 2019 | Operating | Finance | |||
| Leases | Leases | ||||
| Remainder of 2019 | $ | 3,201 | $ | 246 | |
| 2020 | 3,981 | 290 | |||
| 2021 | 3,533 | 279 | |||
| 2022 | 3,231 | 263 | |||
| 2023 | 2,893 | 254 | |||
| Thereafter | 9,633 | 1,828 | |||
| Total lease payments | 26,472 | 3,160 | |||
| Less imputed interest | (5,147) | (1,173) | |||
| Total | $ | 21,325 | $ | 1,987 | |
At March 31, 2020 | Operating |
| Finance | ||
| Leases |
| Leases | ||
Remainder of 2020 | $ | 3,519 |
| $ | 275 |
2021 |
| 4,391 |
|
| 275 |
2022 |
| 4,068 |
|
| 258 |
2023 |
| 3,663 |
|
| 232 |
2024 |
| 3,140 |
|
| 214 |
Thereafter |
| 11,788 |
|
| 1,509 |
Total lease payments |
| 30,569 |
|
| 2,763 |
Less imputed interest |
| (5,542) |
|
| (1,024) |
Total | $ | 25,027 |
| $ | 1,739 |
NOTE 10. PREFERRED SHARES
We have authorized 10 million preferred shares of AT&T INC.
Series A: 48 thousand shares outstanding at March 31, 2020 and December 31, 2019,
Series B: 20 thousand shares outstanding at March 31, 2020 and 0 issued and outstanding at December 31, 2019, with a €100,000 per share liquidation preference, and an initial dividend rate of 2.875%, subject to reset beginning on May 1, 2025.
Series C: 70 thousand shares outstanding at March 31, 2020 and 0 issued and outstanding at December 31, 2019, with a $25,000 per share liquidation preference and a dividend rate of 4.75%.
So long as the preferred dividends are declared and paid on a timely basis on each series of preferred shares, there are no limitations on our ability to declare a dividend on or repurchase AT&T common shares. The preferred shares are optionally redeemable by AT&T at the liquidation price generally on or after five years from the issuance date, or upon certain other contingent events.
NOTE 11. ADDITIONAL FINANCIAL INFORMATION
Cash and Cash Flows
We typically maintain our restricted cash balances for purchases and sales of certain investment securities and funding of certain deferred compensation benefit payments.
| 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 |
28
| March 31, | December 31, | |||||||||||
| Cash and Cash Equivalents and Restricted Cash | 2019 | 2018 | 2018 | 2017 | ||||||||
| Cash and cash equivalents | $ | 6,516 | $ | 48,872 | $ | 5,204 | $ | 50,498 | ||||
| Restricted cash in Other current assets | 20 | 8 | 61 | 6 | ||||||||
| Restricted cash in Other Assets | 94 | 345 | 135 | 428 | ||||||||
| Cash and cash equivalents and restricted cash | $ | 6,630 | $ | 49,225 | $ | 5,400 | $ | 50,932 | ||||
| Three months ended | |||||
| March 31, | |||||
| Cash Paid for Amounts Included in the Measurement of Lease Liabilities: | 2019 | 2018 | |||
| Operating cash flows from operating leases | $ | 1,332 | $ | 1,207 | |
| Three months ended | ||||||
| March 31, | ||||||
| Cash Paid (Received) During the Period for: | 2019 | 2018 | ||||
| Interest | $ | 2,507 | $ | 2,408 | ||
| Income taxes, net of refunds | (379) | (1,089) | ||||
AT&T INC.
MARCH 31, 2019
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
| Three months ended | ||||
| March 31, | ||||
Cash Paid (Received) During the Period for: |
| 2020 |
|
| 2019 |
Interest | $ | 2,376 |
| $ | 2,507 |
Income taxes, net of refunds |
| (354) |
|
| (379) |
| Three months ended | ||||
| March 31, | ||||
Cash Paid for Amounts Included in Lease Obligations: | 2020 |
| 2019 | ||
Operating cash flows from operating leases | $ | 1,217 |
| $ | 1,332 |
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Lease Cash Flow Disclosures: |
|
|
|
|
|
Operating lease right-of-use assets obtained in exchange for new operating lease obligations |
| 1,013 |
|
| 201 |
Financing Activities
Term Loan On April 6, 2020, we entered into and drew 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 be due and payable on December 31, 2020.
29
AT&T INC.
MARCH 31, 2020
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
OVERVIEW
AT&T Inc. is referred to as “we,” “AT&T” or the “Company” throughout this document, and the names of the particular subsidiaries and affiliates providing the services generally have been omitted. AT&T is a holding company whose subsidiaries and affiliates operate worldwide in the telecommunications, media and technology industries. You should read this discussion in conjunction with the consolidated financial statements and accompanying notes (Notes). We completed the acquisition of Time Warner Inc. (Time Warner) on June 14, 2018, and have included its results after that date. In accordance with U.S. generally accepted accounting principles (GAAP), operating results from Time Warner prior to the acquisition are excluded.
We have four reportable segments: (1) Communications, (2) WarnerMedia, (3) Latin America and (4) Xandr. Our segment results presented in Note 4 and discussed below follow our internal management reporting. We analyze our segments based on segment operating contribution, which consists of operating income, excluding acquisition-related costs and other significant items and equity in net income (loss) of affiliates for investments managed within each segment. Percentage increases and decreases that are not considered meaningful are denoted with a dash.
| First Quarter | |||||||
| Percent | |||||||
| 2019 | 2018 | Change | |||||
| Operating Revenues | |||||||
| Communications | $ | 35,393 | $ | 35,533 | (0.4) | % | |
| WarnerMedia | 8,379 | 112 | - | ||||
| Latin America | 1,718 | 2,025 | (15.2) | ||||
| Xandr | 426 | 337 | 26.4 | ||||
| Corporate and other | 167 | 333 | (49.8) | ||||
| Eliminations and consolidation | (1,256) | (302) | - | ||||
| AT&T Operating Revenues | 44,827 | 38,038 | 17.8 | ||||
| Operating Contribution | |||||||
| Communications | 8,052 | 8,027 | 0.3 | ||||
| WarnerMedia | 2,310 | 39 | - | ||||
| Latin America | (173) | (111) | (55.9) | ||||
| Xandr | 253 | 286 | (11.5) | ||||
| Segment Operating Contribution | $ | 10,442 | $ | 8,241 | 26.7 | % | |
| 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) | % |
The Communications segment
provides services to businesses and consumers located in the U.S.Mobility provides nationwide wireless service and equipment.
Entertainment Group provides video, including over-the-top (OTT) services, broadband and voice communications services 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.
30
AT&T INC.
MARCH 31, 2019
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
The WarnerMedia segment
develops, produces and distributes feature films, television, gaming and other content over various physical and digital formats. This segment contains the following business units:Turner 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 advertisingCOVID-19 UPDATE
In March 2020, the World Health Organization designated the coronavirus (COVID-19) a pandemic and the President of the United States declared a national emergency. To date, COVID-19 has surfaced in nearly all regions around the world and resulted in travel restrictions and business slowdowns or shutdowns.
Disruptions caused by COVID-19 and measures taken to prevent its spread or mitigate its effects both domestically and internationally have impacted our results of operations. In the first quarter of 2020, we recognized approximately $430, or $0.05 per share, of incremental costs associated with bad debt reserves, voluntary corporate actions taken primarily to protect and compensate front-line employees and contractors, and WarnerMedia production shutdown costs. We expect more than half of these incremental charges will be short-term in nature.
In addition to these incremental costs, our operations and comparability were impacted by (1) the cancellation of the NCAA Division I Men’s Basketball Tournament (NCAA tournament), resulting in lower advertising revenues and associated expenses, (2) closures of retail stores, contributing to a decline in wireless equipment sales, with a corresponding reduction in equipment expense and (3) the imposition of travel restrictions, driving significantly lower wireless roaming services that do not have a directly correlated expense reduction. The net impact of these items on profitability was not significant.
All subscriber counts at and for the period ended March 31, 2020, exclude customers who we have agreed not to terminate service under the Federal Communications Commission (FCC) “Keep Americans Connected Pledge.” For reporting purposes, we count these subscribers as if they had disconnected service.
The economic effects of the pandemic and resulting societal changes are currently not predictable. We expect that COVID-19 could affect additional areas of our business in future quarters and that the financial impacts could vary from those seen in the first quarter. There are a number of uncertainties that could impact our future results of operations, including the effectiveness of COVID-19 mitigation measures; the duration of the pandemic; global economic conditions; changes to our operations; changes in consumer confidence, behaviors and spending; work from home trends; and the sustainability of supply chains.
Due to the uncertainty of the COVID-19 pandemic and recovery, we have withdrawn our prior financial guidance.
31
AT&T INC.
MARCH 31, 2020
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
RESULTS OF OPERATIONS
Consolidated Results
Our financial results are summarized in the following discussions. Additional analysis is discussed in our “Segment Results” section.| First Quarter | |||||||
| Percent | |||||||
| 2019 | 2018 | Change | |||||
| Operating Revenues | |||||||
| Service | $ | 40,684 | $ | 33,646 | 20.9 | % | |
| Equipment | 4,143 | 4,392 | (5.7) | ||||
| Total Operating Revenues | 44,827 | 38,038 | 17.8 | ||||
| Operating expenses | |||||||
| Operations and support | 30,388 | 25,843 | 17.6 | ||||
| Depreciation and amortization | 7,206 | 5,994 | 20.2 | ||||
| Total Operating Expenses | 37,594 | 31,837 | 18.1 | ||||
| Operating Income | 7,233 | 6,201 | 16.6 | ||||
| Interest expense | 2,141 | 1,771 | 20.9 | ||||
Equity in net income (loss) of affiliates | (7) | 9 | - | ||||
| Other income (expense) – net | 286 | 1,702 | (83.2) | ||||
| Income Before Income Taxes | 5,371 | 6,141 | (12.5) | ||||
| Net Income | 4,348 | 4,759 | (8.6) | ||||
| Net Income Attributable to AT&T | $ | 4,096 | $ | 4,662 | (12.1) | % | |
| First Quarter |
| |||||
|
|
|
|
|
| Percent |
|
| 2020 |
| 2019 | Change |
| ||
Operating Revenues |
|
|
|
|
|
|
|
Service | $ | 38,883 |
| $ | 40,684 | (4.4) | % |
Equipment |
| 3,896 |
|
| 4,143 | (6.0) |
|
Total Operating Revenues |
| 42,779 |
|
| 44,827 | (4.6) |
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
Operations and support |
| 28,071 |
|
| 30,388 | (7.6) |
|
Depreciation and amortization |
| 7,222 |
|
| 7,206 | 0.2 |
|
Total Operating Expenses |
| 35,293 |
|
| 37,594 | (6.1) |
|
Operating Income |
| 7,486 |
|
| 7,233 | 3.5 |
|
Interest expense |
| 2,018 |
|
| 2,141 | (5.7) |
|
Equity in net income (loss) of affiliates |
| (6) |
|
| (7) | 14.3 |
|
Other income (expense) – net |
| 803 |
|
| 286 | - |
|
Income Before Income Taxes |
| 6,265 |
|
| 5,371 | 16.6 |
|
Net Income |
| 4,963 |
|
| 4,348 | 14.1 |
|
Net Income Attributable to AT&T |
| 4,610 |
|
| 4,096 | 12.5 |
|
Net Income Attributable to Common Stock | $ | 4,578 |
| $ | 4,096 | 11.8 | % |
Operating revenues
decreased in the first quarter of 2020. The decrease was driven by declines in our WarnerMedia, Communications and Latin America segments. Lower WarnerMedia segment revenues reflect unfavorable programming comparisons, including strong carryover theatrical revenues in the first quarter of 2019, and lower advertising revenues from the cancellation of the NCAA tournament. Communications segment revenue declines were driven by continued declines in video and legacy services and lower wireless equipment sales resulting from store closures. Latin America segment revenue declines were primarily due to foreign exchange pressure. Partially offsetting these decreases were revenue increases in wireless service and strategic and managed business service in our Communications segment.Operations and supportexpenses decreased in the first quarter of 2020. The decrease was driven by a noncash gain of $900 on a spectrum transaction, lower broadcast and programming costs in our Communications and WarnerMedia segments, reduced wireless equipment costs resulting from lower device sales and lower sports licenses from the cancellation of televised sporting events. Expense declines also reflect our continued focus on cost management. Partially offsetting the decreases were incremental costs, including bad debt, associated with COVID-19. As part of our cost and efficiency initiatives, we expect operations and support expense improvements to continue as we size our operations to reflect the new economic activity level.
Depreciation and amortization expense increased in the first quarter of 2019. The increase was2020.
Depreciation expense increased $29, or 0.6%, primarily due to our 2018 acquisition of Time Warner. Partially offsetting these increases in revenues were declinesongoing capital spend for network upgrades and expansion in our Latin America segment and Communications segment, drivensegment.
Amortization expense decreased $13, or 0.6%, primarily due to the decreased amortization of intangibles associated with WarnerMedia, largely offset by lower legacy services, video and wireless equipment revenues. Revenues were also negatively impacted by foreign exchange pressure.
32
AT&T INC.
MARCH 31, 2019
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
Operatingincome increased in the first quarter of 2019. The increase was primarily due to our 2018 acquisition of Time Warner, partially offset by lower equipment costs in our Communications and Latin America segments and lower expenses due to our continued focus on cost management.
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, including the second-quarter 2019 sale of Hulu.
Other income (expense) – net increased in the first quarter of 2019. The increase was2020 primarily due to higher debt balances related to our acquisition of Time Warner, including interest expense on Time Warner notes.
Income taxes increased in the first quarter of 2019. The decrease was primarily due to actuarial losses of $432 in 2019 compared to an actuarial gain of $930 in the comparable prior year. First-quarter 2019 also includes $45 of debt redemption expenses.
| COMMUNICATIONS SEGMENT | First Quarter | ||||||
| Percent | |||||||
| 2019 | 2018 | Change | |||||
| Segment Operating Revenues | |||||||
| Mobility | $ | 17,567 | $ | 17,355 | 1.2 | % | |
| Entertainment Group | 11,328 | 11,431 | (0.9) | ||||
| Business Wireline | 6,498 | 6,747 | (3.7) | ||||
| Total Segment Operating Revenues | 35,393 | 35,533 | (0.4) | ||||
| Segment Operating Contribution | |||||||
| Mobility | 5,351 | 5,158 | 3.7 | ||||
| Entertainment Group | 1,478 | 1,309 | 12.9 | ||||
| Business Wireline | 1,223 | 1,560 | (21.6) | ||||
| Total Segment Operating Contribution | $ | 8,052 | $ | 8,027 | 0.3 | % | |
| Selected Subscribers and Connections | |||
| First Quarter | |||
| (000s) | 2019 | 2018 | |
| Total domestic broadband connections | 15,737 | 15,775 | |
| Network access lines in service | 9,576 | 11,288 | |
| U-verse VoIP connections | 4,935 | 5,585 | |
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 of33
| Communications Business Unit Discussion | |||||||
| Mobility Results | |||||||
| First Quarter | |||||||
| Percent | |||||||
| 2019 | 2018 | Change | |||||
| Operating revenues | |||||||
| Service | $ | 13,792 | $ | 13,403 | 2.9 | % | |
| Equipment | 3,775 | 3,952 | (4.5) | ||||
| Total Operating Revenues | 17,567 | 17,355 | 1.2 | ||||
| Operating expenses | |||||||
| Operations and support | 10,181 | 10,102 | 0.8 | ||||
| Depreciation and amortization | 2,035 | 2,095 | (2.9) | ||||
| Total Operating Expenses | 12,216 | 12,197 | 0.2 | ||||
| Operating Income | 5,351 | 5,158 | 3.7 | ||||
| Equity in Net Income (Loss) of Affiliates | - | - | - | ||||
| Operating Contribution | $ | 5,351 | $ | 5,158 | 3.7 | % | |
AT&T INC.
MARCH 31, 2019
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
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
| First Quarter | Percent | |||||||
| (in 000s) | 2019 | 2018 | Change | |||||
| Wireless Subscribers | ||||||||
| Postpaid smartphones | 60,597 | 60,002 | 1.0 | % | ||||
| Postpaid feature phones and data-centric devices | 15,953 | 17,429 | (8.5) | |||||
| Postpaid | 76,550 | 77,431 | (1.1) | |||||
| Prepaid | 17,180 | 15,671 | 9.6 | |||||
| Reseller | 7,574 | 9,002 | (15.9) | |||||
Connected devices1 | 54,428 | 41,728 | 30.4 | |||||
| Total Wireless Subscribers | 155,732 | 143,832 | 8.3 | |||||
Wireless Net Additions2 | ||||||||
| Postpaid | (204) | 49 | - | |||||
| Prepaid | 96 | 241 | (60.2) | |||||
| Reseller | (253) | (388) | 34.8 | |||||
Connected devices1 | 3,088 | 2,728 | 13.2 | |||||
| Wireless Net Subscriber Additions | 2,727 | 2,630 | 3.7 | |||||
| Postpaid Phone Subscribers | 63,438 | 63,657 | (0.3) | |||||
| Postpaid Phone Net Additions | 80 | (60) | - | % | ||||
Postpaid Churn3 | 1.17 | 1.06 | 11 | BP | ||||
Postpaid Phone-Only Churn 3 | 0.93 | 0.84 | 9 | BP | ||||
1 | Includes data-centric devices such as session-based tablets, monitoring devices and primarily wholesale automobile systems. Excludes | |||||||
| postpaid tablets. | ||||||||
2 | Excludes acquisition-related additions during the period. | |||||||
3 | Calculated by dividing the aggregate number of wireless subscribers who canceled service during a month divided by the total number | |||||||
| of wireless subscribers at the beginning of that month. The churn rate for the period is equal to the average of the churn rate for | ||||||||
| each month of that period. | ||||||||
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 CricketARPU
ARPU increased in the first quarter primarily due to price actions that were not in effect in the comparative prior year.
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 was higherwere lower in the first quarter due to continuedpricing changes, competitive pricing in the industry.
Equipment
revenue decreased in the first quarter of 2020 driven by lower postpaid smartphone salesOperations and support expenses decreased in the continuing trendfirst quarter of customers choosing2020 primarily due to upgrade devices less frequently or bring their own
Depreciation expense increased in the first quarter of 2020 primarily due to ongoing capital spending for network upgrades and expansion partially offset by fully depreciated assets.
Operating income increased in the first quarter of 2020. Our Mobility operating income margin in the first quarter increased from 30.6% in 2019 to 33.3% in 2020. Our Mobility EBITDA margin in the first quarter increased from 42.2% in 2019 to
35
AT&T INC.
MARCH 31, 2019
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
45.0% in the first quarter primarily due to higher commission deferral amortization, partially offset by lower postpaid smartphone volumes and increased operational efficiencies.
Subscriber Relationships
As the wireless industry has matured, we believe future wireless growth will increasingly depend on our ability to offer innovative services, plans and devices that take advantage of our premier 5G wireless network, and to provide these services in bundled product offerings with our video and broadband services.offerings. Subscribers that purchase two or more services from us have significantly lower churn than subscribers that purchase only one service. To support higher mobile video and data usage, our priority is to best utilize a wireless network that has sufficient spectrum and capacity to support these innovations on as broad a geographic basis as possible.
To attract and retain subscribers in a mature and highly competitive market, we have launched a wide variety of plans,
including our FirstNet and prepaid products, and arrangements that bundle our video services. Virtually all of our postpaid smartphone subscribers are on plans that provide for service on multiple devices at reduced rates, and such subscribers tend to have higher retention and lower churn rates.Connected Devices
Connected devices include data-centric devices such as session-based tablets,wholesale automobile systems, monitoring devices, fleet management and primarily wholesale automobile systems.
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) | % |
36
| Entertainment Group Results | |||||||
| First Quarter | |||||||
| Percent | |||||||
| 2019 | 2018 | Change | |||||
| Operating revenues | |||||||
| Video entertainment | $ | 8,074 | $ | 8,225 | (1.8) | % | |
| High-speed internet | 2,070 | 1,878 | 10.2 | ||||
| Legacy voice and data services | 683 | 806 | (15.3) | ||||
| Other service and equipment | 501 | 522 | (4.0) | ||||
| Total Operating Revenues | 11,328 | 11,431 | (0.9) | ||||
| Operating expenses | |||||||
| Operations and support | 8,527 | 8,811 | (3.2) | ||||
| Depreciation and amortization | 1,323 | 1,310 | 1.0 | ||||
| Total Operating Expenses | 9,850 | 10,121 | (2.7) | ||||
| Operating Income | 1,478 | 1,310 | 12.8 | ||||
| Equity in Net Income (Loss) of Affiliates | - | (1) | - | ||||
| Operating Contribution | $ | 1,478 | $ | 1,309 | 12.9 | % | |
AT&T INC.
MARCH 31, 2019
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
The following tables highlight other key measures of performance for the Entertainment Group business unit:
| First Quarter | Percent Change | ||||||
| (in 000s) | 2019 | 2018 | |||||
| Video Connections | |||||||
Premium TV1 | 22,359 | 23,902 | (6.5) | % | |||
DIRECTV NOW2 | 1,508 | 1,467 | 2.8 | ||||
| Total Video Connections | 23,867 | 25,369 | (5.9) | ||||
| Broadband Connections | |||||||
IP1 | 13,822 | 13,616 | 1.5 | ||||
| DSL | 632 | 816 | (22.5) | ||||
| Total Broadband Connections | 14,454 | 14,432 | 0.2 | ||||
| Retail Consumer Switched Access Lines | 3,787 | 4,535 | (16.5) | ||||
| U-verse Consumer VoIP Connections | 4,393 | 5,105 | (13.9) | ||||
| Total Retail Consumer Voice Connections | 8,180 | 9,640 | (15.1) | ||||
| Video Net Additions | |||||||
Premium TV1, 3 | (544) | (187) | - | ||||
DIRECTV NOW2 | (83) | 312 | - | ||||
| Net Video Additions | (627) | 125 | - | ||||
| Broadband Net Additions | |||||||
IP1 | 93 | 154 | (39.6) | ||||
| DSL | (48) | (72) | 33.3 | ||||
| Net Broadband Additions | 45 | 82 | (45.1) | ||||
| Fiber Broadband Connections (included in IP) | 3,060 | 1,955 | 56.5 | ||||
| Fiber Broadband Net Additions (included in IP) | 297 | 226 | 31.4 | % | |||
1 | 2019 includes the impact of aligning our subscriber billing practice with the industry and AT&T Mobility to extend customer business | ||||||
| disconnection period to the end of the billing cycle, resulting in an increase of 117 net video and 38 net broadband subscribers at March | |||||||
| 31, 2019. | |||||||
2 | Consistent with industry practice, DIRECTV NOW includes connections that are on a free-trial. | ||||||
3 | Includes disconnections for customers that migrated to DIRECTV NOW. | ||||||
Connections |
|
|
|
|
|
| |
|
| March 31, | Percent | ||||
(in 000s) | 2020 |
|
| 2019 | Change | ||
Video Connections | |||||||
Premium TV1 | 18,576 |
|
| 22,359 | (16.9) | % | |
AT&T TV Now | 788 |
|
| 1,508 | (47.7) |
| |
Total Video Connections1 | 19,364 |
|
| 23,867 | (18.9) |
| |
|
|
|
|
|
|
|
|
Total Broadband Connections1 | 14,046 |
|
| 14,454 | (2.8) |
| |
Fiber Broadband Connections | 4,096 |
|
| 3,060 | 33.9 | % | |
|
|
|
|
|
|
|
|
Retail Consumer Switched Access Lines | 3,196 |
|
| 3,787 | (15.6) |
| |
U-verse Consumer VoIP Connections | 3,630 |
|
| 4,393 | (17.4) |
| |
Total Retail Consumer Voice Connections | 6,826 |
|
| 8,180 | (16.6) |
| |
|
|
|
|
|
|
| |
Net Additions |
|
|
|
|
|
| |
|
| First Quarter |
| ||||
|
|
|
|
|
| Percent | |
(in 000s) | 2020 |
|
| 2019 | Change | ||
Video Net Additions |
|
|
|
|
|
| |
Premium TV1 | (897) |
|
| (544) | (64.9) | % | |
AT&T TV Now | (138) |
|
| (83) | (66.3) |
| |
Net Video Additions1 | (1,035) |
|
| (627) | (65.1) |
| |
|
|
|
|
|
|
|
|
Net Broadband Additions1 | (73) |
|
| 45 | - |
| |
Fiber Broadband Net Additions | 209 |
|
| 297 | (29.6) | % | |
1 | Excludes 66 premium TV and 35 broadband connections who we have agreed not to terminate service under the FCC's "Keep Americans | ||||||
| Connected Pledge." | ||||||
Video entertainment
revenues are comprised of subscription and advertising revenues. Revenues decreased in the first quarter ofHigh-speed internet
revenues increased in the first quarter ofLegacy voice and data service having about halfrevenues decreased in the churnfirst quarter of broadband-only subscribers.
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.
37
AT&T INC.
MARCH 31, 2019
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
Depreciation expense decreased in the first quarter of 2019, reflecting the continued migration of customers2020, due to our more advanced IP-based offerings or to competitors.
Operating income
| Business Wireline Results | |||||||
| First Quarter | |||||||
| Percent | |||||||
| 2019 | 2018 | Change | |||||
| Operating revenues | |||||||
| Strategic and managed services | $ | 3,792 | $ | 3,595 | 5.5 | % | |
| Legacy voice and data services | 2,404 | 2,865 | (16.1) | ||||
| Other service and equipment | 302 | 287 | 5.2 | ||||
| Total Operating Revenues | 6,498 | 6,747 | (3.7) | ||||
| Operating expenses | |||||||
| Operations and support | 4,040 | 4,016 | 0.6 | ||||
| Depreciation and amortization | 1,235 | 1,170 | 5.6 | ||||
| Total Operating Expenses | 5,275 | 5,186 | 1.7 | ||||
| Operating Income | 1,223 | 1,561 | (21.7) | ||||
| Equity in Net Income (Loss) of Affiliates | - | (1) | - | ||||
| Operating Contribution | $ | 1,223 | $ | 1,560 | (21.6) | % | |
Business Wireline Results |
|
|
|
|
|
|
|
| First Quarter |
| |||||
|
|
|
|
|
| Percent | |
| 2020 |
| 2019 | Change | |||
Operating revenues |
|
|
|
|
|
|
|
Strategic and managed services | $ | 3,879 |
| $ | 3,779 | 2.6 | % |
Legacy voice and data services |
| 2,129 |
|
| 2,397 | (11.2) |
|
Other service and equipment |
| 324 |
|
| 302 | 7.3 |
|
Total Operating Revenues |
| 6,332 |
|
| 6,478 | (2.3) |
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
Operations and support |
| 3,951 |
|
| 4,032 | (2.0) |
|
Depreciation and amortization |
| 1,301 |
|
| 1,222 | 6.5 |
|
Total Operating Expenses |
| 5,252 |
|
| 5,254 | - |
|
Operating Income |
| 1,080 |
|
| 1,224 | (11.8) |
|
Equity in Net Income (Loss) of Affiliates |
| - |
|
| - | - |
|
Operating Contribution | $ | 1,080 |
| $ | 1,224 | (11.8) | % |
Strategic and managed services
revenues increased in the first quarter ofLegacy voice and data
servicerevenues decreased in the first quarter ofOther service and equipment
revenues increased in the first quarter ofOperations and support
expensesDepreciation
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.
38
AT&T INC.
MARCH 31, 2019
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
| WARNERMEDIA SEGMENT | First Quarter | ||||||
| Percent | |||||||
| 2019 | 2018 | Change | |||||
| Segment Operating Revenues | |||||||
| Turner | $ | 3,443 | $ | 112 | - | % | |
| Home Box Office | 1,510 | - | - | ||||
| Warner Bros. | 3,518 | - | - | ||||
| Eliminations & Other | (92) | - | - | ||||
| Total Segment Operating Revenues | 8,379 | 112 | - | ||||
| Segment Operating Contribution | |||||||
| Turner | 1,272 | 64 | - | ||||
| Home Box Office | 582 | - | - | ||||
| Warner Bros. | 553 | - | - | ||||
| Eliminations & Other | (97) | (25) | - | ||||
| Total Segment Operating Contribution | $ | 2,310 | $ | 39 | - | % | |
WARNERMEDIA SEGMENT | First Quarter | ||||||
|
|
|
|
|
| Percent | |
| 2020 |
| 2019 | Change | |||
Segment Operating Revenues |
|
|
|
|
|
|
|
Turner | $ | 3,162 |
| $ | 3,443 | (8.2) | % |
Home Box Office |
| 1,497 |
|
| 1,510 | (0.9) |
|
Warner Bros. |
| 3,240 |
|
| 3,518 | (7.9) |
|
Eliminations & Other |
| (540) |
|
| (92) | - |
|
Total Segment Operating Revenues |
| 7,359 |
|
| 8,379 | (12.2) |
|
|
|
|
|
|
|
|
|
Cost of revenues |
|
|
|
|
|
|
|
Turner |
| 1,320 |
|
| 1,680 | (21.4) |
|
Home Box Office |
| 816 |
|
| 670 | 21.8 |
|
Warner Bros. |
| 2,346 |
|
| 2,430 | (3.5) |
|
Selling, general and administrative |
| 1,354 |
|
| 1,284 | 5.5 |
|
Eliminations & Other |
| (319) |
|
| (71) | - |
|
Depreciation and amortization |
| 143 |
|
| 143 | - |
|
Total Operating Expenses |
| 5,660 |
|
| 6,136 | (7.8) |
|
Operating Income |
| 1,699 |
|
| 2,243 | (24.3) |
|
Equity in Net Income (Loss) of Affiliates |
| 15 |
|
| 67 | (77.6) |
|
Total Segment Operating Contribution | $ | 1,714 |
| $ | 2,310 | (25.8) | % |
Our WarnerMedia segment consists of our Turner, Home Box Office (HBO) and Warner Bros. business units. The order of presentation reflects the consistency of revenue streams, rather than overall magnitude as that is subject to timing and frequency of studio releases. WarnerMedia also includes our financial results for RSNs, which comprise the prior period results reported in this segment.
Operating revenues
Operating contribution decreased in the first quarter of 2020. Our WarnerMedia segment operating income margin wasin the first quarter decreased from 26.8%.
39
AT&T INC.
MARCH 31, 2019
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
| WarnerMedia Business Unit Discussion | |||||||
| Turner Results | |||||||
| First Quarter | |||||||
| Percent | |||||||
| 2019 | 2018 | Change | |||||
| Operating revenues | |||||||
| Subscription | $ | 1,965 | $ | 98 | - | % | |
| Advertising | 1,261 | 14 | - | ||||
| Content and other | 217 | - | - | ||||
| Total Operating Revenues | 3,443 | 112 | - | ||||
| Operating expenses | |||||||
| Operations and support | 2,136 | 74 | - | ||||
| Depreciation and amortization | 60 | 1 | - | ||||
| Total Operating Expenses | 2,196 | 75 | - | ||||
| Operating Income | 1,247 | 37 | - | ||||
| Equity in Net Income of Affiliates | 25 | 27 | (7.4) | ||||
| Operating Contribution | $ | 1,272 | $ | 64 | - | % | |
WarnerMedia Business Unit Discussion | |||||||
Turner Results |
|
|
|
|
|
|
|
| First Quarter | ||||||
|
|
|
|
|
| Percent | |
| 2020 |
| 2019 | Change | |||
Operating revenues |
|
|
|
|
|
|
|
Subscription | $ | 2,049 |
| $ | 1,965 | 4.3 | % |
Advertising |
| 957 |
|
| 1,261 | (24.1) |
|
Content and other |
| 156 |
|
| 217 | (28.1) |
|
Total Operating Revenues |
| 3,162 |
|
| 3,443 | (8.2) |
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
Cost of revenues |
| 1,320 |
|
| 1,680 | (21.4) |
|
Selling, general and administrative |
| 390 |
|
| 456 | (14.5) |
|
Depreciation and amortization |
| 69 |
|
| 60 | 15.0 |
|
Total Operating Expenses |
| 1,779 |
|
| 2,196 | (19.0) |
|
Operating Income |
| 1,383 |
|
| 1,247 | 10.9 |
|
Equity in Net Income (Loss) of Affiliates |
| 6 |
|
| 25 | (76.0) |
|
Operating Contribution | $ | 1,389 |
| $ | 1,272 | 9.2 | % |
Operating revenues
Cost of revenues decreased in the first quarter of 2020, primarily due to lower programming costs, including NCAA sports licensing costs resulting from cancellation of the NCAA tournament.
Selling, general and administrative decreased in the first quarter of 2020, primarily due to lower marketing costs.
Operating income increased in the first quarter of 2020. Our Turner operating income margin was 36.2% in the first quarter of 2019. Our Turner EBITDA margin was 38.0%increased from 36.2% in the first quarter of 2019.
40
| Home Box Office Results | |||||||
| First Quarter | |||||||
| Percent | |||||||
| 2019 | 2018 | Change | |||||
| Operating revenues | |||||||
| Subscription | $ | 1,334 | $ | - | - | % | |
| Content and other | 176 | - | - | ||||
| Total Operating Revenues | 1,510 | - | - | ||||
| Operating expenses | |||||||
| Operations and support | 921 | - | - | ||||
| Depreciation and amortization | 22 | - | - | ||||
| Total Operating Expenses | 943 | - | - | ||||
| Operating Income | 567 | - | - | ||||
| Equity in Net Income of Affiliates | 15 | - | - | ||||
| Operating Contribution | $ | 582 | $ | - | - | % | |
AT&T INC.
MARCH 31, 2019
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
Home Box Office Results |
|
|
|
|
|
|
|
| First Quarter | ||||||
|
|
|
|
|
| Percent | |
| 2020 |
| 2019 | Change | |||
Operating revenues |
|
|
|
|
|
|
|
Subscription | $ | 1,338 |
| $ | 1,334 | 0.3 | % |
Content and other |
| 159 |
|
| 176 | (9.7) |
|
Total Operating Revenues |
| 1,497 |
|
| 1,510 | (0.9) |
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
Cost of revenues |
| 816 |
|
| 670 | 21.8 |
|
Selling, general and administrative |
| 237 |
|
| 251 | (5.6) |
|
Depreciation and amortization |
| 21 |
|
| 22 | (4.5) |
|
Total Operating Expenses |
| 1,074 |
|
| 943 | 13.9 |
|
Operating Income |
| 423 |
|
| 567 | (25.4) |
|
Equity in Net Income (Loss) of Affiliates |
| 20 |
|
| 15 | 33.3 |
|
Operating Contribution | $ | 443 |
| $ | 582 | (23.9) | % |
Operating income
Cost of revenues increased in the first quarter of 2019. Our Home Box Office EBITDA margin was 39.0%2020, primarily due to higher programming costs and expenses related to the launch of HBO Max, scheduled for second quarter.
Selling, general and administrative decreased in the first quarter of 2019.
| Warner Bros. Results | |||||||
| First Quarter | |||||||
| Percent | |||||||
| 2019 | 2018 | Change | |||||
| Operating revenues | |||||||
| Theatrical product | $ | 1,506 | $ | - | - | % | |
| Television product | 1,613 | - | - | ||||
| Games and other | 399 | - | - | ||||
| Total Operating Revenues | 3,518 | - | - | ||||
| Operating expenses | |||||||
| Operations and support | 2,919 | - | - | ||||
| Depreciation and amortization | 52 | - | - | ||||
| Total Operating Expenses | 2,971 | - | - | ||||
| Operating Income | 547 | - | - | ||||
| Equity in Net Income of Affiliates | 6 | - | - | ||||
| Operating Contribution | $ | 553 | $ | - | - | % | |
Operating income
Warner Bros. Results |
|
|
|
|
|
|
|
| First Quarter | ||||||
|
|
|
|
|
| Percent |
|
| 2020 |
| 2019 | Change |
| ||
Operating revenues |
|
|
|
|
|
|
|
Theatrical product | $ | 1,106 |
| $ | 1,506 | (26.6) | % |
Television product |
| 1,769 |
|
| 1,613 | 9.7 |
|
Games and other |
| 365 |
|
| 399 | (8.5) |
|
Total Operating Revenues |
| 3,240 |
|
| 3,518 | (7.9) |
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
Cost of revenues |
| 2,346 |
|
| 2,430 | (3.5) |
|
Selling, general and administrative |
| 604 |
|
| 489 | 23.5 |
|
Depreciation and amortization |
| 41 |
|
| 52 | (21.2) |
|
Total Operating Expenses |
| 2,991 |
|
| 2,971 | 0.7 |
|
Operating Income |
| 249 |
|
| 547 | (54.5) |
|
Equity in Net Income (Loss) of Affiliates |
| (8) |
|
| 6 | - |
|
Operating Contribution | $ | 241 |
| $ | 553 | (56.4) | % |
41
| LATIN AMERICA SEGMENT | First Quarter | ||||||
| Percent | |||||||
| 2019 | 2018 | Change | |||||
| Segment Operating Revenues | |||||||
| Vrio | $ | 1,067 | $ | 1,354 | (21.2) | % | |
| Mexico | 651 | 671 | (3.0) | ||||
| Total Segment Operating Revenues | 1,718 | 2,025 | (15.2) | ||||
| Segment Operating Contribution | |||||||
| Vrio | 32 | 148 | (78.4) | ||||
| Mexico | (205) | (259) | 20.8 | ||||
| Total Segment Operating Contribution | $ | (173) | $ | (111) | (55.9) | % | |
AT&T INC.
MARCH 31, 2019
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
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 ofOperating contribution
decreased in the first quarter of42
AT&T INC.
MARCH 31, 2020
Item 2. Management’s Discussion and (5.5)%Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in 2018.
| Latin America Business Unit Discussion | |||||||
| Vrio Results | |||||||
| First Quarter | |||||||
| Percent | |||||||
| 2019 | 2018 | Change | |||||
| Operating revenues | $ | 1,067 | $ | 1,354 | (21.2) | % | |
| Operating expenses | |||||||
| Operations and support | 866 | 1,001 | (13.5) | ||||
| Depreciation and amortization | 169 | 205 | (17.6) | ||||
| Total Operating Expenses | 1,035 | 1,206 | (14.2) | ||||
| Operating Income | 32 | 148 | (78.4) | ||||
| Operating Contribution | $ | 32 | $ | 148 | (78.4) | % | |
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:
| First Quarter | ||||||||
| Percent | ||||||||
| (in 000s) | 2019 | 2018 | Change | |||||
Vrio Video Subscribers1,2 | 13,584 | 13,573 | 0.1 | % | ||||
Vrio Video Net Subscriber Additions3 | (32) | (15) | - | % | ||||
1 | Excludes subscribers of our equity investment in SKY Mexico, in which we own a 41.3% stake. SKY Mexico had 7.6 million | |||||||
| subscribers at December 31, 2018 and 7.9 million subscribers at March 31, 2018. | ||||||||
2 | 2019 excludes the impact of 222 subscriber disconnections resulting from conforming our video credit policy across the region, which is | |||||||
| reflected in beginning of period subscribers. | ||||||||
3 | Excludes SKY Mexico net subscriber losses of 199 and 92 for the quarter ended December 31, 2018 and March 31, 2018, respectively. | |||||||
|
| March 31, | Percent | |||||
(in 000s) | 2020 |
| 2019 | Change | ||||
Vrio Video Subscribers |
| 13,217 |
|
| 13,584 | (2.7) | % | |
|
|
|
|
|
|
|
|
|
|
| First Quarter | ||||||
|
|
|
|
|
|
| Percent | |
(in 000s) | 2020 |
| 2019 | Change | ||||
Vrio Video Net Subscriber Additions |
| (114) |
|
| (32) | - | % | |
Operating revenues
decreased in the first quarter ofOperations and support
expenses decreased in the first quarter ofDepreciation
expense decreased in the first quarter ofOperating income
decreased in the first quarter of43
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
AT&T INC. MARCH 31, 2019 Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued Dollars, subscribers and connections in millions, except per share and per subscriber amounts | |||||||
| First Quarter | |||||||
| 2019 | 2018 | Percent Change | |||||
| Operating revenues | |||||||
| Service | $ | 442 | $ | 404 | 9.4 | % | |
| Equipment | 209 | 267 | (21.7) | ||||
| Total Operating Revenues | 651 | 671 | (3.0) | ||||
| Operating expenses | |||||||
| Operations and support | 725 | 803 | (9.7) | ||||
| Depreciation and amortization | 131 | 127 | 3.1 | ||||
| Total Operating Expenses | 856 | 930 | (8.0) | ||||
| Operating Income (Loss) | (205) | (259) | 20.8 | ||||
| Operating Contribution | $ | (205) | $ | (259) | 20.8 | % | |
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:
| First Quarter | ||||||||
| Percent | ||||||||
| (in 000s) | 2019 | 2018 | Change | |||||
Mexico Wireless Subscribers1 | ||||||||
| Postpaid | 5,642 | 5,607 | 0.6 | % | ||||
| Prepaid | 11,779 | 9,857 | 19.5 | |||||
| Reseller | 301 | 178 | 69.1 | |||||
| Total Mexico Wireless Subscribers | 17,722 | 15,642 | 13.3 | % | ||||
| Mexico Wireless Net Additions | ||||||||
| Postpaid | (69) | 109 | - | % | ||||
| Prepaid | 114 | 459 | (75.2) | |||||
| Reseller | 48 | (25) | - | |||||
Mexico Wireless Net Subscriber Additions | 93 | 543 | (82.9) | % | ||||
1 | 2019 excludes the impact of 692 subscriber disconnections resulting from the churn of customers related to sales by certain third-party | |||||||
| distributors and the sunset of 2G services in Mexico, which are reflected in beginning of period subscribers. | ||||||||
|
| 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 ofEquipment
revenuesOperations and support
expenses decreased in the first quarter ofDepreciation and amortization
expense increased in the first quarter of44
AT&T INC.
MARCH 31, 2019
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
Operating income
increased in the first quarter of| XANDR SEGMENT | |||||||
| First Quarter | |||||||
| Percent | |||||||
| 2019 | 2018 | Change | |||||
| Operating revenues | $ | 426 | $ | 337 | 26.4 | % | |
| Operating expenses | |||||||
| Operations and support | 160 | 50 | - | ||||
| Depreciation and amortization | 13 | 1 | - | ||||
| Total Operating Expenses | 173 | 51 | - | ||||
| Operating Income | 253 | 286 | (11.5) | ||||
| Equity in Net Income of Affiliates | - | - | - | ||||
| Operating Contribution | $ | 253 | $ | 286 | (11.5) | % | |
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 | % |
Operating revenues
increased in the first quarter ofOperations and support
expenses increased in the first quarter ofOperating income
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) | % |
45
| Total Advertising Revenues | |||||||
| First Quarter | |||||||
| Percent | |||||||
| 2019 | 2018 | Change | |||||
| Operating Revenues | |||||||
| WarnerMedia | $ | 1,279 | $ | 14 | - | % | |
| Communications | 417 | 375 | 11.2 | ||||
| Xandr | 426 | 337 | 26.4 | ||||
| Eliminations | (350) | (334) | (4.8) | ||||
| Total Advertising Revenues | $ | 1,772 | $ | 392 | - | % | |
AT&T INC.
MARCH 31, 2019
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
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 Measures”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 | |||||||
| First Quarter | |||||||
| 2019 | 2018 | Percent Change | |||||
| Operating revenues | |||||||
| Wireless service | $ | 1,913 | $ | 1,791 | 6.8 | % | |
| Strategic and managed services | 3,792 | 3,595 | 5.5 | ||||
| Legacy voice and data services | 2,404 | 2,865 | (16.1) | ||||
| Other service and equipment | 302 | 287 | 5.2 | ||||
| Wireless equipment | 596 | 578 | 3.1 | ||||
| Total Operating Revenues | 9,007 | 9,116 | (1.2) | ||||
| Operating expenses | |||||||
| Operations and support | 5,640 | 5,594 | 0.8 | ||||
| Depreciation and amortization | 1,541 | 1,458 | 5.7 | ||||
| Total Operating Expenses | 7,181 | 7,052 | 1.8 | ||||
| Operating Income | 1,826 | 2,064 | (11.5) | ||||
| Equity in Net Income of Affiliates | - | (1) | - | ||||
| Operating Contribution | $ | 1,826 | $ | 2,063 | (11.5) | % | |
Business Solutions Results |
|
|
|
|
|
|
|
| First Quarter |
| |||||
| 2020 |
| 2019 | Percent Change | |||
|
| ||||||
Operating revenues |
|
|
|
|
|
|
|
Wireless service | $ | 1,949 |
| $ | 1,777 | 9.7 | % |
Strategic and managed services |
| 3,879 |
|
| 3,779 | 2.6 |
|
Legacy voice and data services |
| 2,129 |
|
| 2,397 | (11.2) |
|
Other service and equipment |
| 324 |
|
| 302 | 7.3 |
|
Wireless equipment |
| 710 |
|
| 590 | 20.3 |
|
Total Operating Revenues |
| 8,991 |
|
| 8,845 | 1.7 |
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
Operations and support |
| 5,710 |
|
| 5,614 | 1.7 |
|
Depreciation and amortization |
| 1,625 |
|
| 1,525 | 6.6 |
|
Total Operating Expenses |
| 7,335 |
|
| 7,139 | 2.7 |
|
Operating Income |
| 1,656 |
|
| 1,706 | (2.9) |
|
Equity in Net Income (Loss) of Affiliates |
| - |
|
| - | - |
|
Operating Contribution | $ | 1,656 |
| $ | 1,706 | (2.9) | % |
OTHER BUSINESS MATTERS
Spectrum Auction We were the winning bidder of Time Warner, a leaderhigh-frequency 37/39 GHz licenses in media and entertainment whose major businesses encompassFCC Auction 103 covering an arrayaverage of some of the most respected media brands. In July 2018, the U.S. Department of Justice (DOJ) appealed the U.S. District Court’s decision permitting the merger. On February 26, 2019, the D.C. Circuit unanimously affirmed our win.
Labor Contracts
As of March 31,A contract now covering approximately 8,000 traditional7,000 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 MidwestWest region expired in April 2018 and employees are working under the terms of the prior contract, including benefits, while negotiations continue.2020. In addition,March 2020, a contract now covering approximately 3,000 traditional wireline employees in our legacy AT&T Corp. business also expired in April 2018. Those employees are working under the terms of their prior contract, including benefits, while negotiations continue.
46
AT&T INC.
MARCH 31, 2019
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
COMPETITIVE AND REGULATORY ENVIRONMENT
Overview
AT&T subsidiaries operating within the United States are subject to federal and state regulatory authorities. AT&T subsidiaries operating outside the United States are subject to the jurisdiction of national and supranational regulatory authorities in the markets where service is provided.In the Telecommunications Act of 1996 (Telecom Act), Congress established a national policy framework intended to bring the benefits of competition and investment in advanced telecommunications facilities and services to all Americans by opening all telecommunications markets to competition and reducing or eliminating regulatory burdens that harm consumer welfare. SinceNonetheless, over the Telecom Act was passed,ensuing two decades, the Federal Communications Commission (FCC)FCC and some state regulatory commissions have maintained or expanded certain regulatory requirements that were imposed decades ago on our traditional wireline subsidiaries when they operated as legal monopolies. The new leadership atMore recently, the FCC is chartinghas pursued a more predictablederegulatory agenda, eliminating a variety of antiquated and balanced regulatory course that will encourage long-term investment and benefit consumers. Based on its public statements, we expect the FCC to continue to eliminate antiquated, unnecessary regulations and streamline processes.streamlining its processes in a number of areas. In addition, we are pursuing, at both the state and federal levels, additional legislative and regulatory measures to reduce regulatory burdens that are no longer appropriate in a competitive telecommunications market and that inhibit our ability to compete more effectively and offer services wanted and needed by our customers, including initiatives to transition services from traditional networks to all IP-based networks. At the same time, we also seek to ensure that legacy regulations are not further extended to broadband or wireless services, which are subject to vigorous competition.
Communications Segment
Internet
A number of states are considering or have adopted legislation or issued executive orders that would reimpose the verynet neutrality rules repealed by the FCC, repealed, and in some cases, establishestablished additional requirements that go beyond the FCC’s February 2015 order. Additionally, some state governors have issued executive orders that effectively reimpose the repealed requirements. Suits have recently been filed concerning laws in California and Vermont, and other lawsuits are possible. The California and Vermont suitscertain states, but have been stayed pursuant to agreements by those states not to enforce their laws pending final resolution of all appeals of the FCC’s December 2017 order.FCC order restoring broadband’s status as an information service. We will continue to support congressional action to codify a set of standard consumer rules for the internet.
In October 2016, a sharply dividedthe FCC adopted new rules governing the use of customer information by providers of broadband internet access service. Those rules were more restrictive in certain respects than those governing other participants in the internet economy, including so-called “edge” providers such as Google and Facebook. In April 2017, the president signed a resolution passed by Congress repealing the new rules under the Congressional Review Act.
Privacy-related legislation has been considered or adopted in a number of states. Legislative and regulatory action could result in increased costs of compliance, claims against broadband internet access service providers and others, and increased uncertainty in the value and availability of data. On June 28, 2018, the state of California enacted comprehensive privacy legislation that effectiveEffective as of January 1, 2020, a California state law gives California consumers the right to know what personal information is being collected about them, and whether and to whom it is sold or disclosed, and to access and request deletion of this information. Subject to certain exceptions, it also gives California consumers the right to opt-outopt out of the sale of personal information. The law applies the same rules to all companies that collect consumer information.
Wireless
The industry-wide deployment of 5G technology, which is needed to satisfy extensive demand for video and internet access, will involve significant deployment of “small cell” equipment and therefore increase the need for local permitting processes that allow for the placement of small cell equipment on reasonable timelines and terms. Federal regulations also can delay and impede the deployment of infrastructure used to provide telecommunications and broadband services, including small cell equipment. In March, August and September 2018, the FCC adopted orders to streamline47
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, 2128 states and Puerto Rico have adopted legislation to facilitate small cell deployment.
In December 2018, we introduced the nation’s first commercial mobile 5G service. We currently have mobilenow expect nationwide 5G coverage this summer; we anticipate the introduction of 5G handsets and devices will contribute to a renewed interest in parts of 19 U.S. cities and will have launched mobile 5G service in at least 22 major cities by the end of the year. We expect to have mobile 5G service nationwide to more than 200 million people by early 2020.
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 $6,516$9,955 in cash“Cash and cash equivalentsequivalents” available at March 31, 2019. Cash2020. “Cash and cash equivalentsequivalents” included cash of $2,786$3,287 and money market funds and other cash equivalents of $3,730.$6,668. Approximately $2,443$2,485 of our cash“Cash and cash equivalentsequivalents” were held by our foreign entities in accounts predominantly outside of the U.S. and may be subject to restrictions on repatriation.
“Cash and cash equivalents increased $1,312equivalents” decreased $2,175 since December 31, 2018.2019. In the first three months of 2019,2020, cash inflows were primarily provided by the cash receipts from operations, including cash from our sale and transfer of certain wireless equipment installment and other customerour receivables to third parties, issuance of long-term debt, issuance of commercial paper and long-term debt and collateral received from banks and other participants in our derivative arrangements.issuances of cumulative preferred stock. These inflows were offset by cash used to meet the needs of the business, including, but not limited to, payment of operating expenses, debt repayments, funding capital expenditures and vendor financing payments, collateral posted to banks and other participants in derivative arrangements, share repurchase, and dividends to stockholders.
Cash Provided by or Used in Operating Activities
During the first three months of 2019,2020, cash provided by operating activities was $11,052,$8,866, compared to $8,947$11,052 for the first three months of 2018. Higher2019. Lower operating cash flows in 20192020 were primarily due to contributions fromdriven by WarnerMedia profits, including our new securitization program (see Note 9),increased HBO Max investments and higher cash flows fromproduction spend; lower incremental receivable securitization; and working capital initiatives, partly offset bypressures, specifically lower net tax refunds.
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 have 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 reducedon cash from operating activities bywas to decrease working capital $1,075 and $904 and $344 for the three months ended March 31, 20192020 and 2018,2019, respectively. All supplier financing payments are due within one year.
Cash Used in or Provided by Investing Activities
For the first three months of 2019,2020, cash used in investing activities totaled $5,401,$5,022, and consisted primarily of $5,182$4,966 (including interest during construction) for capital expenditures including interest during construction ($936216 lower than the prior-year comparable period).
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 three months of 2019, these2020, vendor financing payments were $820, and when combined with $5,182 of capital expenditures, total capital investment was $6,002 ($288 lower than the prior-year comparable period). In$791, compared to $819 for the first quarterthree months of 2019, we placed $733 of equipment in service under vendor financing arrangements. Total vendor financing payables included in our March 31, 2019 consolidated balance sheets were $2,403, with $1,883 due within one year (in “Accounts payable and accrued liabilities”) and the remainder predominately due within two to three years (in “Other noncurrent liabilities”).2019.
48
AT&T INC.
MARCH 31, 2019
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
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 quarter, approximately $300three 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 were placed into service.
The amount of capital expenditures is influenced by demand for services and products, capacity needs and network enhancements. We are also focused on ensuring DIRECTV merger commitments are met. As of March 31, 2019, we market our fiber-to-the-premises network to more than 12 million customer locations and are on track to meet our FCC commitment of 12.5 million locations by mid-2019.
Cash Provided by or Used in Financing Activities
For the first three months of 2019,2020, cash used in financing activities totaled $4,421$6,099 and was comprised of debt issuances and repayments, issuances of preferred stock, share repurchase, payments of dividends and required collateral deposits.
During the first three months of 2020, debt issuances included proceeds of $3,132 in net short-term borrowings and $4,357 of net proceeds of $9,182,from long-term debt, which consisted primarily of the following issuances:
February issuance of $2,995 of 4.000% global notes due 2049.
March draw of $750 on a private financing agreement.
March borrowings of $665 from loan programs with export agencies of foreign governments to support network equipment purchases in those countries.
During the first three months of 2019,2020, repayment of long-term debt totaled $9,840, consisting$4,422. Repayments primarily consisted of the following:
$800 of AT&T floating-rate notes redeemed at maturity.
$2,619 of 4.600% AT&T global notes with original maturities in 2045.
$750 of borrowings under a private financing agreement.
Our weighted average interest rate of our entire long-term debt portfolio, including the impact of derivatives, was approximately 4.4%4.3% as of March 31, 20192020 and 4.4% as of December 31, 2018.2019. We had $170,532$159,386 of total notes and debentures outstanding at March 31, 2019,2020, which included Euro, British pound sterling, Canadian dollar, Swiss franc, Australian dollar, Brazilian real and Mexican peso Canadian dollar and Australian dollar denominated debt that totaled approximately $41,061.
At March 31, 2019,2020, we had $11,538$17,067 of debt maturing within one year, including $2,957$3,144 of commercial paper borrowings and $8,441$13,923 of long-term debt issuances. Debt maturing within one year includes the following notes that may be put back to us by the holders:
$1,000 of annual put reset securities issued by BellSouth that may be put back to us each April until maturity in 2021. These securities were redeemed on April 27, 2020.
An accreting zero-coupon note that may be redeemed each May until maturity in 2022. If the remainder of the zero-coupon note (issued for principal of $500 in 2007 and partially exchanged in the 2017 debt exchange offers) is held to maturity, the redemption amount will be $592.
For the first three months of 2020, we paid $791 of cash under our vendor financing program, compared to $819 in the first three months of 2019. Total vendor financing payables included in our March 31, 2020 consolidated balance sheet were approximately $1,361, with $997 due within one year (in “Accounts payable and accrued liabilities”) and the remainder predominantly due within two to three years (in “Other noncurrent liabilities”).
Financing activities in the first three months of 2020 also included $3,869 for the February issuance of Series B and Series C preferred stock. (See Note 10)
During the first three months of 2020, we repurchased approximately 142 million shares of common stock and completed the share repurchase authorization approved by the Board of Directors in 2013. At March 31, 2019,2020, we had approximately 376178 million shares remaining from share repurchase authorizations approved by the Board of Directors in 20132014. On March 19,
49
AT&T INC.
MARCH 31, 2020
Item 2. Management’s Discussion and 2014.Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
2020, we announced the cancellation of an accelerated share repurchase agreement that was planned for the second quarter and all other repurchases to maintain flexibility and focus on continued investment in serving our customers, taking care of our employees and enhancing our network, including 5G.
We paid dividends on common and preferred shares of $3,714$3,737 during the first three months of 2019,2020, compared with $3,070$3,714 for the first three months of 2018,2019. Dividends were higher in 2020, primarily reflectingdue to dividend payments to preferred stockholders and the increase in the number of shares outstanding related to our acquisition of Time Warner as well as an increase in our quarterly dividend on common stock approved by our Board of Directors in December 2018.2019, partially offset by fewer shares outstanding. Dividends on common stock declared by our Board of Directors totaled $0.51$0.52 per share in the first three months of 20192020 and $0.50$0.51 per share for the first three months of 2018.2019. Our dividend policy considers the expectations and requirements of stockholders, capital funding requirements of AT&T and long-term growth opportunities. It is our intent to provide the financial flexibility to allow our Board of Directors to consider dividend growth and to recommend an increase in dividends to be paid in future periods. All dividends remain subject to declaration by our Board of Directors.
Credit Facilities
The following summary of our various credit and loan agreements does not purport to be complete and is qualified in its entirety by reference to each agreement filed as exhibits to our Annual Report on Form 10-K.
We use credit facilities as a tool in managing our liquidity status. In December 2018, we amended our five-year revolving credit agreement (the “Amended and Restated Credit Agreement”) and concurrently entered into a new five-year agreement (the “Five Year Credit Agreement”) such that we now have two $7,500 revolving credit agreements totaling $15,000. The Amended and Restated Credit Agreement terminates on December 11, 2021 and the Five Year Credit Agreement terminates on December 11, 2023. No amounts were outstanding under either agreement as of March 31, 2019.
In September 2017,2019, we entered into and drew on a $2,250 syndicated$1,300 term loan credit agreement containing (i) a three-year $750 term loan1.25 year $400 facility due in 2020 (BAML Tranche A Facility), (ii) a four-year $750 term loan2.25 year $400 facility due in 2021 (BAML Tranche B Facility), and (iii) a five-year $750 term loan3.25 year $500 facility due in 2022 (BAML Tranche C Facility), with certain investment and commercial banks and The Bank of Nova Scotia,America, N.A., as administrative agent. We drew on all threeNo repayment had been made under these facilities during the first quarter of 2018, with $2,250 in advances outstanding as of March 31, 2019.
On November 20, 2018,April 6, 2020, we entered into and drew on a 4.5 year $3,550 term loan credit agreement (the “November 2018$5,500 Term Loan”)Loan Credit Agreement (Term Loan), with 11 commercial banks and Bank of America, N.A., as lead agent. We usedThe Term Loan is not subject to amortization and the proceeds to finance the repayment, in part, of loans outstanding under the Acquisition Term Loan. As of March 31, 2019, $3,550 was outstanding under this agreement.
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, 2019,2020, we were in compliance with the covenants for our credit facilities.
Collateral Arrangements
During the quarter,2019 and 2020, we amended collateral arrangements with certain counterparties to require cash collateral posting by AT&T only when deposit amountsderivative market values exceed certain thresholds. Under these arrangements, counterparties are still required to post collateral. During the first three months of 2019,2020, we received $1,404deposited approximately $2,650 of cash collateral, on a net basis primarily driven byas we exceeded the amended arrangements.market value thresholds with some of the counterparties. Cash postings under these arrangements vary with changes in credit ratings and netting agreements. (See Note 7)
Other
Our total capital consists of debt (long-term debt and debt maturing within one year) and stockholders’ equity. Our capital structure does not include debt issued by our equity method investments. At March 31, 2019,2020, our debt ratio was 47.4%45.7%, compared to 52.6%47.4% at March 31, 20182019 and 47.7%44.7% at December 31, 2018.2019. Our net debt ratio was 42.9% at March 31, 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% at March 31, 2019 compared to 36.8% at March 31, 2018 and 46.2%41.4% at December 31, 2018.2019. The debt ratio is affected by the same factors that affect total capital, and reflects our recent debt issuances, repayments and repayments.debt acquired in business combinations.
During the first three months of 2020, we received $118 from the disposition of assets, and when combined with working capital monetization initiatives, which include the sale of receivables, total cash received from monetization efforts, net of spectrum acquisitions, was approximately $1,000. We plan to continue to explore similar opportunities throughout 2020.
51
AT&T INC.
MARCH 31, 2019
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
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.
|
| First Quarter | |||||||||||||||
|
| March 31, 2020 |
|
| March 31, 2019 | ||||||||||||
|
| 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 |
Strategic and managed services |
| - |
| 3,879 |
| - |
| 3,879 |
|
| - |
| 3,779 |
| - |
| 3,779 |
Legacy voice and data services |
| - |
| 2,129 |
| - |
| 2,129 |
|
| - |
| 2,397 |
| - |
| 2,397 |
Other service and equipment |
| - |
| 324 |
| - |
| 324 |
|
| - |
| 302 |
| - |
| 302 |
Wireless equipment |
| 3,434 |
| - |
| (2,724) |
| 710 |
|
| 3,734 |
| - |
| (3,144) |
| 590 |
Total Operating Revenues |
| 17,402 |
| 6,332 |
| (14,743) |
| 8,991 |
|
| 17,363 |
| 6,478 |
| (14,996) |
| 8,845 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations and support |
| 9,569 |
| 3,951 |
| (7,810) |
| 5,710 |
|
| 10,041 |
| 4,032 |
| (8,459) |
| 5,614 |
EBITDA |
| 7,833 |
| 2,381 |
| (6,933) |
| 3,281 |
|
| 7,322 |
| 2,446 |
| (6,537) |
| 3,231 |
Depreciation and amortization |
| 2,045 |
| 1,301 |
| (1,721) |
| 1,625 |
|
| 2,013 |
| 1,222 |
| (1,710) |
| 1,525 |
Total Operating Expense |
| 11,614 |
| 5,252 |
| (9,531) |
| 7,335 |
|
| 12,054 |
| 5,254 |
| (10,169) |
| 7,139 |
Operating Income |
| 5,788 |
| 1,080 |
| (5,212) |
| 1,656 |
|
| 5,309 |
| 1,224 |
| (4,827) |
| 1,706 |
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 |
1Non-business wireless reported in the Communications segment under the Mobility business unit. | |||||||||||||||||
52
| First Quarter | |||||||||||||||||
| March 31, 2019 | March 31, 2018 | ||||||||||||||||
| Mobility | Business Wireline | Adjustments1 | Business Solutions | Mobility | Business Wireline | Adjustments1 | Business Solutions | ||||||||||
| Operating Revenues | |||||||||||||||||
| Wireless service | $ | 13,792 | $ | - | $ | (11,879) | $ | 1,913 | $ | 13,403 | $ | - | $ | (11,612) | $ | 1,791 | |
| Strategic and managed services | - | 3,792 | - | 3,792 | - | 3,595 | - | 3,595 | |||||||||
| Legacy voice and data services | - | 2,404 | - | 2,404 | - | 2,865 | - | 2,865 | |||||||||
| Other service and equipment | - | 302 | - | 302 | - | 287 | - | 287 | |||||||||
| Wireless equipment | 3,775 | - | (3,179) | 596 | 3,952 | - | (3,374) | 578 | |||||||||
| Total Operating Revenues | 17,567 | 6,498 | (15,058) | 9,007 | 17,355 | 6,747 | (14,986) | 9,116 | |||||||||
| Operating Expenses | |||||||||||||||||
| Operations and support | 10,181 | 4,040 | (8,581) | 5,640 | 10,102 | 4,016 | (8,524) | 5,594 | |||||||||
| EBITDA | 7,386 | 2,458 | (6,477) | 3,367 | 7,253 | 2,731 | (6,462) | 3,522 | |||||||||
| Depreciation and amortization | 2,035 | 1,235 | (1,729) | 1,541 | 2,095 | 1,170 | (1,807) | 1,458 | |||||||||
| Total Operating Expense | 12,216 | 5,275 | (10,310) | 7,181 | 12,197 | 5,186 | (10,331) | 7,052 | |||||||||
| Operating Income | 5,351 | 1,223 | (4,748) | 1,826 | 5,158 | 1,561 | (4,655) | 2,064 | |||||||||
Equity in net income (loss) of affiliates | - | - | - | - | - | (1) | - | (1) | |||||||||
| Operating Contribution | $ | 5,351 | $ | 1,223 | $ | (4,748) | $ | 1,826 | $ | 5,158 | $ | 1,560 | $ | (4,655) | $ | 2,063 | |
1Non-business wireless reported in the Communications segment under the Mobility business unit. | |||||||||||||||||
AT&T INC.
MARCH 31, 2019
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Dollars in millions except per share amounts
At March 31, 2019,2020, we had interest rate swaps with a notional value of $1,633$853 and a fair value of $(11).
We have fixed-to-fixed and floating-to-fixed cross-currency swaps on foreign currency-denominated debt instruments with a U.S. dollar notional value of $42,192$42,325 to hedge our exposure to changes in foreign currency exchange rates. These derivatives have been designated at inception and qualify as cash flow hedges with a net fair value of $(2,270)$(8,283) at March 31, 2019.
We have foreign exchange contracts with a U.S. dollar notional value of $1,238$106 to provide currency at a fixed rate to hedge a portion of the exchange risk involved in foreign currency-denominated transactions. These foreign exchange contracts include fair value hedges, cash flow hedges and economic (nonqualifying) hedges with a total net fair value of $81$66 at March 31, 2019.
We have designated €700€1,364 million aggregate principal amount of debt as a hedge of the variability of some of thecertain Euro-denominated net investments of WarnerMedia.our subsidiaries. The gain or loss on the debt that is designated as, and is effective as, an economic hedge of the net investment in a foreign operation is recorded as a currency translation adjustment within accumulated other comprehensive income, net on the consolidated balance sheet.
Item 4. Controls and Procedures
The registrant maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed by the registrant is recorded, processed, summarized, accumulated and communicated to its management, including its principal executive and principal financial officers, to allow timely decisions regarding required disclosure, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. The chief executive officer and chief financial officer have performed an evaluation of the effectiveness of the design and operation of the registrant’s disclosure controls and procedures as of March 31, 2019.2020. Based on that evaluation, the chief executive officer and chief financial officer concluded that the registrant’s disclosure controls and procedures were effective as of March 31, 2019.2020.
There have not been any changes in our internal control over financial reporting during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
53
AT&T INC.
MARCH 31, 2019
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.
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.
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.
55
AT&T INC.
MARCH 31, 2019
PART II – OTHER INFORMATION
Dollars in millions except per share amounts
Item 1A. Risk Factors
We discuss in our Annual Report on Form 10-K various risks that may materially affect our business. We use this section to update this discussion to reflect material developments since our Form 10-K was filed. For
We depend on various suppliers to provide equipment to operate our business and satisfy customer demand and interruption or delay in supply can adversely impact our operating results.
We depend on suppliers to provide us, directly or through other suppliers, with items such as network equipment, customer premises equipment, video equipment and wireless-related equipment such as mobile hotspots, handsets, wirelessly enabled computers, wireless data cards and other connected devices for our customers. These suppliers could fail to provide equipment on a timely basis, or fail to meet our performance expectations, for a number of reasons, including, difficulties in obtaining export licenses for certain technology, inability to secure component parts, general business disruption, natural disasters, safety issues, economic and political instability and public health emergencies such as the first quarter 2019, thereCOVID-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 norequired to, or chose to, replace the products of one or more key suppliers with products from another source, especially if the replacement became necessary on short notice. Any such material developments.
Our business is subject to risks arising from the recent outbreak of the COVID-19 virus.
The COVID-19 pandemic and resulting mitigation measures have caused, and may continue to cause, a negative effect on our operating results. To date, mitigation measures have caused sports leagues to suspend operations as well as the cancellation of many sporting events, including the NCAA tournament, which has adversely affected our advertising revenues, may result in contract disputes concerning carriage rights and will also cause us to incur expenses relating to these sporting events notwithstanding their cancellation. The closure, or the avoidance, of theaters, and the interruptions in movie production and other programming caused by COVID-19, are expected to impact the timing of revenues and may cause a loss of revenue to our Warner Media business over the long term. If the mitigating measures or the associated effects are prolonged, we expect business customers in industries most significantly impacted will reduce or terminate services, having a negative effect on the performance of our Business Wireline business unit. Further, concerns over the COVID-19 pandemic could result in the prolonged closure of many of our retail stores and deter customers from accessing our stores even as the mitigation measures subside. These pandemic concerns may also result in continued impact to our customers’ ability to pay for our products and services. We may also continue to see significant impact on roaming revenues due to a downturn in international travel. The COVID-19 pandemic has reduced staffing levels at our call centers and field operations resulting in delays in service. Further reductions in staffing levels could further limit our ability to provide services, adversely impacting our competitive position. We may also incur significantly higher expenses attributable to infrastructure investments required to meet higher network utilization from more customers consuming bandwidth from changes in work from home trends; extended cancellation periods; and increased labor costs if the COVID-19 pandemic continues for an extended period.
The COVID-19 pandemic and mitigation measures have caused, and may continue to cause, adverse impacts on global economic conditions and consumer confidence and spending, which affect demand for our products and services. The extent to which the COVID-19 pandemic impacts our business results of operations, cash flows and financial condition will depend on future developments that are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of the virus and the actions to contain its impact. Due to the speed with which the situation is developing, we are not able at this time to estimate the impact of COVID-19 on our financial or operational results, but the impact could be material.
56 AT&T INC. MARCH 31, 2020 PART II – OTHER INFORMATION - CONTINUED Dollars in millions except per share amounts
57 AT&T INC. MARCH 31, 2020
58 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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