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T AT&T

Filed: 5 Aug 20, 4:36pm
0000732717 us-gaap:FundedPlanMember us-gaap:OtherPostretirementBenefitPlansDefinedBenefitMember us-gaap:QualifiedPlanMember 2019-01-01 2019-06-30

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

 

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2020

 

or

 

 

 

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

 

 

 

For the transition period from to

 

Commission File Number 001-8610

 

AT&T INC.

 

Incorporated under the laws of the State of Delaware

I.R.S. Employer Identification Number 43-1301883

 

208 S. Akard St., Dallas, Texas 75202

Telephone Number: (210) 821-4105

 

 

Securities registered pursuant to Section 12(b) of the Act

 

 

 

Name of each exchange

Title of each class

Trading Symbol(s)

on which registered

Common Shares (Par Value $1.00 Per Share)

T

New York Stock Exchange

Depositary Shares, each representing a 1/1000th interest in a share of 5.000% Perpetual Preferred Stock, Series A

T PRA

New York Stock Exchange

Depositary Shares, each representing a 1/1000th interest in a share of 4.750% Perpetual Preferred Stock, Series C

T PRC

New York Stock Exchange

AT&T Inc. Floating Rate Global Notes due August 3, 2020

T 20C

New York Stock Exchange

AT&T Inc. 1.875% Global Notes due December 4, 2020

T 20

New York Stock Exchange

AT&T Inc. 2.650% Global Notes due December 17, 2021

T 21B

New York Stock Exchange

AT&T Inc. 1.450% Global Notes due June 1, 2022

T 22B

New York Stock Exchange

AT&T Inc. 2.500% Global Notes due March 15, 2023

T 23

New York Stock Exchange

AT&T Inc. 2.750% Global Notes due May 19, 2023

T 23C

New York Stock Exchange

AT&T Inc. Floating Rate Global Notes due September 5, 2023

T 23D

New York Stock Exchange

AT&T Inc. 1.050% Global Notes due September 5, 2023

T 23E

New York Stock Exchange

AT&T Inc. 1.300% Global Notes due September 5, 2023

T 23A

New York Stock Exchange

AT&T Inc. 1.950% Global Notes due September 15, 2023

T 23F

New York Stock Exchange

AT&T Inc. 2.400% Global Notes due March 15, 2024

T 24A

New York Stock Exchange

AT&T Inc. 3.500% Global Notes due December 17, 2025

T 25

New York Stock Exchange

 

 


 

 

 

Name of each exchange

Title of each class

Trading Symbol(s)

on which registered

AT&T Inc. 0.250% Global Notes due March 4, 2026

T 26E

New York Stock Exchange

AT&T Inc. 1.800% Global Notes due September 5, 2026

T 26D

New York Stock Exchange

AT&T Inc. 2.900% Global Notes due December 4, 2026

T 26A

New York Stock Exchange

AT&T Inc. 1.600% Global Notes due May 19, 2028

T 28C

New York Stock Exchange

AT&T Inc. 2.350% Global Notes due September 5, 2029

T 29D

New York Stock Exchange

AT&T Inc. 4.375% Global Notes due September 14, 2029

T 29B

New York Stock Exchange

AT&T Inc. 2.600% Global Notes due December 17, 2029

T 29A

New York Stock Exchange

AT&T Inc. 0.800% Global Notes due March 4, 2030

T 30B

New York Stock Exchange

AT&T Inc. 2.050% Global Notes due May 19, 2032

T 32A

New York Stock Exchange

AT&T Inc. 3.550% Global Notes due December 17, 2032

T 32

New York Stock Exchange

AT&T Inc. 5.200% Global Notes due November 18, 2033

T 33

New York Stock Exchange

AT&T Inc. 3.375% Global Notes due March 15, 2034

T 34

New York Stock Exchange

AT&T Inc. 2.450% Global Notes due March 15, 2035

T 35

New York Stock Exchange

AT&T Inc. 3.150% Global Notes due September 4, 2036

T 36A

New York Stock Exchange

AT&T Inc. 2.600% Global Notes due May 19, 2038

T 38C

New York Stock Exchange

AT&T Inc. 1.800% Global Notes due September 14, 2039

T 39B

New York Stock Exchange

AT&T Inc. 7.000% Global Notes due April 30, 2040

T 40

New York Stock Exchange

AT&T Inc. 4.250% Global Notes due June 1, 2043

T 43

New York Stock Exchange

AT&T Inc. 4.875% Global Notes due June 1, 2044

T 44

New York Stock Exchange

AT&T Inc. 4.000% Global Notes due June 1, 2049

T 49A

New York Stock Exchange

AT&T Inc. 4.250% Global Notes due March 1, 2050

T 50

New York Stock Exchange

AT&T Inc. 3.750% Global Notes due September 1, 2050

T 50A

New York Stock Exchange

AT&T Inc. 5.350% Global Notes due November 1, 2066

TBB

New York Stock Exchange

AT&T Inc. 5.625% Global Notes due August 1, 2067

TBC

New York Stock Exchange

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X] No [ ]

 

Indicate by check mark whether the registrant has submitted electronically 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 July 31, 2020, there were 7,125 million common shares outstanding.

 


 

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

 

AT&T INC.

CONSOLIDATED STATEMENTS OF INCOME

Dollars in millions except per share amounts

(Unaudited)

 

 

Three months ended

 

 

Six months ended

 

 

June 30,

 

 

June 30,

 

 

2020

 

 

2019

 

 

2020

 

 

2019

Operating Revenues

 

 

 

 

 

 

 

 

 

 

 

Service

$

37,051

 

$

41,023

 

$

75,934

 

$

81,707

Equipment

 

3,899

 

 

3,934

 

 

7,795

 

 

8,077

Total operating revenues

 

40,950

 

 

44,957

 

 

83,729

 

 

89,784

 

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses

 

 

 

 

 

 

 

 

 

 

 

Cost of revenues

 

 

 

 

 

 

 

 

 

 

 

Equipment

 

3,978

 

 

4,061

 

 

8,070

 

 

8,563

Broadcast, programming and operations

 

5,889

 

 

7,730

 

 

12,643

 

 

15,382

Other cost of revenues (exclusive of depreciation and

 

 

 

 

 

 

 

 

 

 

 

amortization shown separately below)

 

8,116

 

 

8,721

 

 

16,458

 

 

17,306

Selling, general and administrative

 

9,831

 

 

9,844

 

 

18,591

 

 

19,493

Asset impairments and abandonments

 

2,319

 

 

-

 

 

2,442

 

 

-

Depreciation and amortization

 

7,285

 

 

7,101

 

 

14,507

 

 

14,307

Total operating expenses

 

37,418

 

 

37,457

 

 

72,711

 

 

75,051

Operating Income

 

3,532

 

 

7,500

 

 

11,018

 

 

14,733

Other Income (Expense)

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

(2,041)

 

 

(2,149)

 

 

(4,059)

 

 

(4,290)

Equity in net income (loss) of affiliates

 

(10)

 

 

40

 

 

(16)

 

 

33

Other income (expense) – net

 

1,017

 

 

(318)

 

 

1,820

 

 

(32)

Total other income (expense)

 

(1,034)

 

 

(2,427)

 

 

(2,255)

 

 

(4,289)

Income Before Income Taxes

 

2,498

 

 

5,073

 

 

8,763

 

 

10,444

Income tax expense

 

935

 

 

1,099

 

 

2,237

 

 

2,122

Net Income

 

1,563

 

 

3,974

 

 

6,526

 

 

8,322

Less: Net Income Attributable to Noncontrolling Interest

 

(282)

 

 

(261)

 

 

(635)

 

 

(513)

Net Income Attributable to AT&T

$

1,281

 

$

3,713

 

$

5,891

 

$

7,809

Less: Preferred Stock Dividends

 

(52)

 

 

-

 

 

(84)

 

 

-

Net Income Attributable to Common Stock

$

1,229

 

$

3,713

 

$

5,807

 

$

7,809

Basic Earnings Per Share Attributable to

 

 

 

 

 

 

 

 

 

 

 

Common Stock

$

0.17

 

$

0.51

 

$

0.81

 

$

1.06

Diluted Earnings Per Share Attributable to

 

 

 

 

 

 

 

 

 

 

 

Common Stock

$

0.17

 

$

0.51

 

$

0.81

 

$

1.06

Weighted Average Number of Common Shares

 

 

 

 

 

 

 

 

 

 

 

Outstanding – Basic (in millions)

 

7,145

 

 

7,323

 

 

7,166

 

 

7,318

Weighted Average Number of Common Shares

 

 

 

 

 

 

 

 

 

 

 

Outstanding with Dilution (in millions)

 

7,170

 

 

7,353

 

 

7,192

 

 

7,347

See Notes to Consolidated Financial Statements.

 

 

 

 

 

 

 

 

 

 

 

3


 

AT&T INC.

 

 

 

 

 

 

 

 

 

 

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 

 

 

 

 

 

 

 

 

Dollars in millions

 

 

 

 

 

 

 

 

 

 

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

Six months ended

 

June 30,

 

June 30,

 

2020

 

2019

 

2020

 

2019

Net income

$

1,563

 

$

3,974

 

$

6,526

 

$

8,322

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

Foreign currency:

 

 

 

 

 

 

 

 

 

 

 

Translation adjustment (includes $(8), $2, $(59) and $2

 

 

 

 

 

 

 

 

 

 

 

attributable to noncontrolling interest), net of taxes of

 

 

 

 

 

 

 

 

 

 

 

$(135), $(1), $(197) and $48

 

305

 

 

(127)

 

 

(1,549)

 

 

161

Securities:

 

 

 

 

 

 

 

 

 

 

 

Net unrealized gains (losses), net of taxes of $5, $10, $27

 

 

 

 

 

 

 

 

 

 

 

and $15

 

14

 

 

26

 

 

80

 

 

42

Derivative instruments:

 

 

 

 

 

 

 

 

 

 

 

Net unrealized gains (losses), net of taxes of $168, $(165),

 

 

 

 

 

 

 

 

 

 

 

$(803) and $(131)

 

631

 

 

(617)

 

 

(3,026)

 

 

(490)

Reclassification adjustment included in net income,

 

 

 

 

 

 

 

 

 

 

 

net of taxes of $4, $3, $4 and $5

 

17

 

 

6

 

 

17

 

 

17

Defined benefit postretirement plans:

 

 

 

 

 

 

 

 

 

 

 

Amortization of net prior service credit included in net

 

 

 

 

 

 

 

 

 

 

 

income, net of taxes of $(150), $(107), $(301)

 

 

 

 

 

 

 

 

 

 

 

and $(220)

 

(461)

 

 

(342)

 

 

(922)

 

 

(688)

Other comprehensive income (loss)

 

506

 

 

(1,054)

 

 

(5,400)

 

 

(958)

Total comprehensive income

 

2,069

 

 

2,920

 

 

1,126

 

 

7,364

Less: Total comprehensive income attributable to

 

 

 

 

 

 

 

 

 

 

 

noncontrolling interest

 

(274)

 

 

(263)

 

 

(576)

 

 

(515)

Total Comprehensive Income Attributable to AT&T

$

1,795

 

$

2,657

 

$

550

 

$

6,849

See Notes to Consolidated Financial Statements.

 

 

 

 

 

 

 

 

 

 

 

4


 

AT&T INC.

CONSOLIDATED BALANCE SHEETS

Dollars in millions except per share amounts

 

June 30,

 

December 31,

 

2020

 

2019

Assets

(Unaudited)

 

 

Current Assets

 

 

 

 

 

Cash and cash equivalents

$

16,941

 

$

12,130

Accounts receivable - net of related allowances for credit loss of $1,606 and $1,235

 

19,127

 

 

22,636

Prepaid expenses

 

1,439

 

 

1,631

Other current assets

 

19,048

 

 

18,364

Total current assets

 

56,555

 

 

54,761

Noncurrent Inventories and Theatrical Film and Television Production Costs

 

14,514

 

 

12,434

Property, plant and equipment

 

332,883

 

 

333,538

Less: accumulated depreciation and amortization

 

(203,938)

 

 

(203,410)

Property, Plant and Equipment – Net

 

128,945

 

 

130,128

Goodwill

 

143,651

 

 

146,241

Licenses – Net

 

98,763

 

 

97,907

Trademarks and Trade Names – Net

 

23,757

 

 

23,567

Distribution Networks – Net

 

14,704

 

 

15,345

Other Intangible Assets – Net

 

18,452

 

 

20,798

Investments in and Advances to Equity Affiliates

 

2,302

 

 

3,695

Operating Lease Right-Of-Use Assets

 

24,692

 

 

24,039

Other Assets

 

21,563

 

 

22,754

Total Assets

$

547,898

 

$

551,669

Liabilities and Stockholders’ Equity

 

 

 

 

 

Current Liabilities

 

 

 

 

 

Debt maturing within one year

$

15,576

 

$

11,838

Accounts payable and accrued liabilities

 

41,881

 

 

45,956

Advanced billings and customer deposits

 

5,723

 

 

6,124

Accrued taxes

 

2,548

 

 

1,212

Dividends payable

 

3,741

 

 

3,781

Total current liabilities

 

69,469

 

 

68,911

Long-Term Debt

 

153,388

 

 

151,309

Deferred Credits and Other Noncurrent Liabilities

 

 

 

 

 

Deferred income taxes

 

58,387

 

 

59,502

Postemployment benefit obligation

 

18,167

 

 

18,788

Operating lease liabilities

 

22,230

 

 

21,804

Other noncurrent liabilities

 

32,804

 

 

29,421

Total deferred credits and other noncurrent liabilities

 

131,588

 

 

129,515

Stockholders’ Equity

 

 

 

 

 

Preferred stock ($1 par value, 10,000,000 authorized ):

 

 

 

 

 

Series A (48,000 issued and outstanding at June 30, 2020 and December 31, 2019)

 

-

 

 

-

Series B (20,000 issued and outstanding at June 30, 2020

 

 

 

 

 

and 0 issued and outstanding at December 31, 2019)

 

-

 

 

-

Series C (70,000 issued and outstanding at June 30, 2020

 

 

 

 

 

and 0 issued and outstanding at December 31, 2019)

 

-

 

 

-

Common stock ($1 par value, 14,000,000,000 authorized at June 30, 2020 and

 

 

 

 

 

December 31, 2019: issued 7,620,748,598 at June 30, 2020 and December 31, 2019)

 

7,621

 

 

7,621

Additional paid-in capital

 

130,046

 

 

126,279

Retained earnings

 

56,045

 

 

57,936

Treasury stock (495,425,902 at June 30, 2020 and 366,193,458 December 31, 2019,

 

 

 

 

 

at cost)

 

(17,945)

 

 

(13,085)

Accumulated other comprehensive income

 

129

 

 

5,470

Noncontrolling interest

 

17,557

 

 

17,713

Total stockholders’ equity

 

193,453

 

 

201,934

Total Liabilities and Stockholders’ Equity

$

547,898

 

$

551,669

See Notes to Consolidated Financial Statements.

 

 

 

 

 

5


 

AT&T INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Dollars in millions

(Unaudited)

 

 

 

 

Six months ended

 

June 30,

 

2020

 

2019

Operating Activities

 

 

 

 

 

Net income

$

6,526

 

$

8,322

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Depreciation and amortization

 

14,507

 

 

14,307

Amortization of television and film costs

 

3,985

 

 

5,199

Undistributed earnings from investments in equity affiliates

 

64

 

 

76

Provision for uncollectible accounts

 

1,199

 

 

1,216

Deferred income tax expense

 

653

 

 

1,080

Net (gain) loss on investments, net of impairments

 

(705)

 

 

(905)

Pension and postretirement benefit expense (credit)

 

(1,495)

 

 

(808)

Actuarial (gain) loss on pension and postretirement benefits

 

-

 

 

2,131

Asset impairments and abandonments

 

2,442

 

 

-

Changes in operating assets and liabilities:

 

 

 

 

 

Receivables

 

2,522

 

 

3,584

Other current assets, inventories and theatrical film and television production costs

 

(5,592)

 

 

(5,422)

Accounts payable and other accrued liabilities

 

(3,847)

 

 

(3,056)

Equipment installment receivables and related sales

 

226

 

 

1,144

Deferred customer contract acquisition and fulfillment costs

 

322

 

 

(614)

Postretirement claims and contributions

 

(228)

 

 

(424)

Other - net

 

346

 

 

(494)

Total adjustments

 

14,399

 

 

17,014

Net Cash Provided by Operating Activities

 

20,925

 

 

25,336

Investing Activities

 

 

 

 

 

Capital expenditures:

 

 

 

 

 

Purchase of property and equipment

 

(9,372)

 

 

(10,542)

Interest during construction

 

(60)

 

 

(112)

Acquisitions, net of cash acquired

 

(1,174)

 

 

(320)

Dispositions

 

347

 

 

3,593

(Purchases), sales and settlements of securities and investments, net

 

47

 

 

396

Advances to and investments in equity affiliates, net

 

(66)

 

 

(314)

Net Cash Used in Investing Activities

 

(10,278)

 

 

(7,299)

Financing Activities

 

 

 

 

 

Net change in short-term borrowings with original maturities of three months or less

 

498

 

 

119

Issuance of other short-term borrowings

 

8,440

 

 

3,067

Repayment of other short-term borrowings

 

(5,975)

 

 

(3,148)

Issuance of long-term debt

 

21,060

 

 

10,030

Repayment of long-term debt

 

(17,284)

 

 

(16,124)

Payment of vendor financing

 

(1,354)

 

 

(1,836)

Issuance of preferred stock

 

3,869

 

 

-

Purchase of treasury stock

 

(5,480)

 

 

(240)

Issuance of treasury stock

 

84

 

 

455

Dividends paid

 

(7,474)

 

 

(7,436)

Other

 

(2,295)

 

 

330

Net Cash Used in Financing Activities

 

(5,911)

 

 

(14,783)

Net increase in cash and cash equivalents and restricted cash

 

4,736

 

 

3,254

Cash and cash equivalents and restricted cash beginning of year

 

12,295

 

 

5,400

Cash and Cash Equivalents and Restricted Cash End of Period

$

17,031

 

$

8,654

See Notes to Consolidated Financial Statements.

 

6


 

AT&T INC.

 

 

 

 

 

 

 

 

 

 

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

Dollars and shares in millions except per share amounts

 

 

 

 

 

 

 

 

 

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

Six months ended

 

June 30, 2020

 

June 30, 2019

 

June 30, 2020

 

June 30, 2019

 

Shares

 

Amount

 

Shares

 

Amount

 

Shares

 

Amount

 

Shares

 

Amount

Preferred Stock - Series A

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of year

-

 

$

-

 

-

 

$

-

 

-

 

$

-

 

-

 

$

-

Issuance of stock

-

 

 

-

 

-

 

 

-

 

-

 

 

-

 

-

 

 

-

Balance at end of period

-

 

$

-

 

-

 

$

-

 

-

 

$

-

 

-

 

$

-

Preferred Stock - Series B

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of year

-

 

$

-

 

-

 

$

-

 

-

 

$

-

 

-

 

$

-

Issuance of stock

-

 

 

-

 

-

 

 

-

 

-

 

 

-

 

-

 

 

-

Balance at end of period

-

 

$

-

 

-

 

$

-

 

-

 

$

-

 

-

 

$

-

Preferred Stock - Series C

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of year

-

 

$

-

 

-

 

$

-

 

-

 

$

-

 

-

 

$

-

Issuance of stock

-

 

 

-

 

-

 

 

-

 

-

 

 

-

 

-

 

 

-

Balance at end of period

-

 

$

-

 

-

 

$

-

 

-

 

$

-

 

-

 

$

-

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

7,621

 

$

7,621

 

7,621

 

$

7,621

 

7,621

 

$

7,621

 

7,621

 

$

7,621

Issuance of stock

-

 

 

-

 

-

 

 

-

 

-

 

 

-

 

-

 

 

-

Balance at end of period

7,621

 

$

7,621

 

7,621

 

$

7,621

 

7,621

 

$

7,621

 

7,621

 

$

7,621

Additional Paid-In Capital

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

 

$

129,966

 

 

 

$

125,174

 

 

 

$

126,279

 

 

 

$

125,525

Repurchase and acquisition of common stock

 

 

 

-

 

 

 

 

-

 

 

 

 

67

 

 

 

 

-

Issuance of preferred stock

 

 

 

-

 

 

 

 

-

 

 

 

 

3,869

 

 

 

 

-

Issuance of treasury stock

 

 

 

(7)

 

 

 

 

(50)

 

 

 

 

(54)

 

 

 

 

(127)

Share-based payments

 

 

 

87

 

 

 

 

(15)

 

 

 

 

(115)

 

 

 

 

(289)

Balance at end of period

 

 

$

130,046

 

 

 

$

125,109

 

 

 

$

130,046

 

 

 

$

125,109

Retained Earnings

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

 

$

58,534

 

 

 

$

59,424

 

 

 

$

57,936

 

 

 

$

58,753

Net income attributable to AT&T

 

 

 

1,281

 

 

 

 

3,713

 

 

 

 

5,891

 

 

 

 

7,809

Preferred stock dividends

 

 

 

(36)

 

 

 

 

-

 

 

 

 

(68)

 

 

 

 

-

Common stock dividends ( $0.52, $0.51,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$1.04, and $1.02 per share)

 

 

 

(3,734)

 

 

 

 

(3,748)

 

 

 

 

(7,421)

 

 

 

 

(7,489)

Cumulative effect of accounting change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

and other adjustments

 

 

 

-

 

 

 

 

-

 

 

 

 

(293)

 

 

 

 

316

Balance at end of period

 

 

$

56,045

 

 

 

$

59,389

 

 

 

$

56,045

 

 

 

$

59,389

See Notes to Consolidated Financial Statements.

7


 

AT&T INC.

 

 

 

 

 

 

 

 

 

 

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY - continued

Dollars and shares in millions except per share amounts

 

 

 

 

 

 

 

 

 

 

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

Six months ended

 

June 30, 2020

 

June 30, 2019

 

June 30, 2020

 

June 30, 2019

 

Shares

 

Amount

 

Shares

 

Amount

 

Shares

 

Amount

 

Shares

 

Amount

Treasury Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

(496)

 

$

(17,957)

 

(324)

 

$

(11,452)

 

(366)

 

$

(13,085)

 

(339)

 

$

(12,059)

Repurchase and acquisition of common stock

-

 

 

(34)

 

(2)

 

 

(72)

 

(148)

 

 

(5,581)

 

(9)

 

 

(280)

Issuance of treasury stock

1

 

 

46

 

10

 

 

373

 

19

 

 

721

 

32

 

 

1,188

Balance at end of period

(495)

 

$

(17,945)

 

(316)

 

$

(11,151)

 

(495)

 

$

(17,945)

 

(316)

 

$

(11,151)

Accumulated Other Comprehensive

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income Attributable to AT&T, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

 

$

(385)

 

 

 

$

4,345

 

 

 

$

5,470

 

 

 

$

4,249

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

attributable to AT&T

 

 

 

514

 

 

 

 

(1,056)

 

 

 

 

(5,341)

 

 

 

 

(960)

Balance at end of period

 

 

$

129

 

 

 

$

3,289

 

 

 

$

129

 

 

 

$

3,289

Noncontrolling Interest

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

 

$

17,670

 

 

 

$

9,839

 

 

 

$

17,713

 

 

 

$

9,795

Net income attributable to

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

noncontrolling interest

 

 

 

282

 

 

 

 

261

 

 

 

 

635

 

 

 

 

513

Interest acquired by noncontrolling owners

 

 

 

-

 

 

 

 

1

 

 

 

 

1

 

 

 

 

10

Distributions

 

 

 

(387)

 

 

 

 

(279)

 

 

 

 

(726)

 

 

 

 

(525)

Translation adjustments attributable to

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

noncontrolling interest, net of taxes

 

 

 

(8)

 

 

 

 

2

 

 

 

 

(59)

 

 

 

 

2

Cumulative effect of accounting change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

and other adjustments

 

 

 

-

 

 

 

 

-

 

 

 

 

(7)

 

 

 

 

29

Balance at end of period

 

 

$

17,557

 

 

 

$

9,824

 

 

 

$

17,557

 

 

 

$

9,824

Total Stockholders’ Equity at beginning

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

of period

 

 

$

195,449

 

 

 

$

194,951

 

 

 

$

201,934

 

 

 

$

193,884

Total Stockholders’ Equity at end

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

of period

 

 

$

193,453

 

 

 

$

194,081

 

 

 

$

193,453

 

 

 

$

194,081

See Notes to Consolidated Financial Statements.

 

8


AT&T INC.

JUNE 30, 2020

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Dollars in millions except per share amounts

 

NOTE 1. PREPARATION OF INTERIM FINANCIAL STATEMENTS

 

Basis of Presentation Throughout this document, AT&T Inc. is referred to as “we,” “AT&T” or the “Company.” The consolidated financial statements include the accounts of the Company and subsidiaries and affiliates which we control. AT&T is a holding company whose subsidiaries and affiliates operate worldwide in the telecommunications, media and technology industries. You should read this document in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2019. The results for the interim periods are not necessarily indicative of those for the full year. These consolidated financial statements include all adjustments that are necessary to present fairly the results for the presented interim periods, consisting of normal recurring accruals and other items.

 

All significant intercompany transactions are eliminated in the consolidation process. Investments in subsidiaries and partnerships which we do not control but have significant influence are accounted for under the equity method. Earnings from certain investments accounted for using the equity method are included for periods ended within up to one quarter of our period end. We also record our proportionate share of our equity method investees’ other comprehensive income (OCI) items.

 

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions, including potential impacts arising from the COVID-19 pandemic, that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Certain prior period amounts have been conformed to the current period’s presentation, including the combination of our prior Xandr segment with the WarnerMedia segment.

 

In the tables throughout this document, percentage increases and decreases that are not considered meaningful are denoted with a dash.

 

 

Adopted and Pending Accounting Standards and Other Changes

 

Credit Losses As of January 1, 2020, we adopted, through modified retrospective application, the Financial Accounting Standards Board’s (FASB) Accounting Standards Update (ASU) No. 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (ASU 2016-13, as amended), which replaces the incurred loss impairment methodology under prior GAAP with an expected credit loss model. ASU 2016-13 affects trade receivables, loans, contract assets, certain beneficial interests, off-balance-sheet credit exposures not accounted for as insurance and other financial assets that are not subject to fair value through net income, as defined by the standard. Under the expected credit loss model, we are required to consider future economic trends to estimate expected credit losses over the lifetime of the asset. Upon adoption, we recorded a $293 reduction to “Retained earnings,” $395 increase to “allowances for doubtful accounts” applicable to our trade and loan receivables, $10 reduction of contract assets, $105 reduction of net deferred income tax liability and $7 reduction of “Noncontrolling interest” as an opening adjustment. Our adoption of ASU 2016-13 did not have a material impact on our financial statements.

 

Reference Rate Reform In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (ASU 2020-04), which provides optional expedients, and allows for certain exceptions to existing GAAP, for contract modifications triggered by the expected market transition of certain benchmark interest rates to alternative reference rates. ASU 2020-04 applies to contracts, hedging relationships and other arrangements that reference the London Interbank Offering Rate (LIBOR) or any other rates ending after December 31, 2022. We are evaluating the impact of our adoption of ASU 2020-04, including optional expedients, to our financial statements.

 

Intangible Assets Driven by significant and adverse economic and political environments in Latin America, including the impact of the COVID-19 pandemic, we have experienced accelerated subscriber losses and revenue decline in the region, as well as closure of our operations in Venezuela. When combining these business trends and higher weighted-average cost of capital resulting from the increase in country-risk premiums in the region, we concluded that it is more likely than not that the

9


AT&T INC.

JUNE 30, 2020

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

 

fair value of the Vrio reporting unit, estimated using discounted cash flow and market multiple approaches, is less than its carrying amount. We recorded a $2,212 goodwill impairment in the reporting unit, with $105 attributable to noncontrolling interest. The impairment is not deductible for tax purposes and resulted in an increase in our effective tax rate.

 

During the first quarter of 2020, we reassessed and changed the estimated economic lives of certain trade names in our Latin America business from indefinite to finite-lived and began amortizing them using the straight-line method over their average remaining economic life of 15 years. This change had an insignificant impact on our financial statements.

 

Also during the first quarter of 2020, in conjunction with the nationwide launch of AT&T TV and our customers’ continued shift from linear to streaming video services, we reassessed the estimated economic lives and renewal assumptions for our orbital slot licenses. As a result, we have changed the estimated lives of these licenses from indefinite to finite-lived, effective January 1, 2020, and began amortizing our orbital slot licenses using the sum-of-months-digits method over their average remaining economic life of 15 years. This change in accounting increased amortization expense $379, or $0.04 per diluted share available to common stock during the second quarter and $765, or $0.08, per diluted share available to common stock for the first six months of 2020.

 

NOTE 2. EARNINGS PER SHARE

 

A reconciliation of the numerators and denominators of basic and diluted earnings per share for the three months and six months ended June 30, 2020 and 2019, is shown in the table below.

 

 

 

Three months ended

 

Six months ended

 

June 30,

 

June 30,

 

2020

 

2019

 

2020

 

2019

Numerators

 

 

 

 

 

 

 

 

 

 

 

Numerator for basic earnings per share:

 

 

 

 

 

 

 

 

 

 

 

Net Income

$

1,563

 

$

3,974

 

$

6,526

 

$

8,322

Less: Net income attributable to noncontrolling interest

 

(282)

 

 

(261)

 

 

(635)

 

 

(513)

Net Income attributable to AT&T

 

1,281

 

 

3,713

 

 

5,891

 

 

7,809

Less: Preferred stock dividends

 

(52)

 

 

-

 

 

(84)

 

 

-

Net income attributable to common stock

 

1,229

 

 

3,713

 

 

5,807

 

 

7,809

Dilutive potential common shares:

 

 

 

 

 

 

 

 

 

 

 

Share-based payment

 

5

 

 

4

 

 

11

 

 

10

Numerator for diluted earnings per share

$

1,234

 

$

3,717

 

$

5,818

 

$

7,819

Denominators (000,000)

 

 

 

 

 

 

 

 

 

 

 

Denominator for basic earnings per share:

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding

 

7,145

 

 

7,323

 

 

7,166

 

 

7,318

Dilutive potential common shares:

 

 

 

 

 

 

 

 

 

 

 

Share-based payment (in shares)

 

25

 

 

30

 

 

26

 

 

29

Denominator for diluted earnings per share

 

7,170

 

 

7,353

 

 

7,192

 

 

7,347

Basic earnings per share attributable to Common Stock

$

0.17

 

$

0.51

 

$

0.81

 

$

1.06

Diluted earnings per share attributable to Common Stock

$

0.17

 

$

0.51

 

$

0.81

 

$

1.06

 

In the first quarter of 2020, we completed an accelerated share repurchase agreement with a third-party financial institution to repurchase AT&T common stock. Under the terms of the agreement, we paid the financial institution $4,000 and received 104.8 million shares.

10


AT&T INC.

JUNE 30, 2020

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

 

NOTE 3. OTHER COMPREHENSIVE INCOME

 

Changes in the balances of each component included in accumulated OCI are presented below. All amounts are net of tax and exclude noncontrolling interest.

 

 

 

Foreign Currency Translation Adjustment

 

Net Unrealized Gains (Losses) on Securities

 

Net Unrealized Gains (Losses) on Derivative Instruments

 

Defined Benefit Postretirement Plans

 

Accumulated Other Comprehensive Income

Balance as of December 31, 2019

$

(3,056)

 

$

48

 

$

(37)

 

$

8,515

 

$

5,470

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(loss) before reclassifications

 

(1,490)

 

 

80

 

 

(3,026)

 

 

-

 

 

(4,436)

Amounts reclassified

 

 

 

 

 

 

 

 

 

 

 

 

 

 

from accumulated OCI

 

-

1

 

-

1

 

17

2

 

(922)

3

 

(905)

Net other comprehensive

 

 

 

 

 

 

 

 

 

 

 

 

 

 

income (loss)

 

(1,490)

 

 

80

 

 

(3,009)

 

 

(922)

 

 

(5,341)

Balance as of June 30, 2020

$

(4,546)

 

$

128

 

$

(3,046)

 

$

7,593

 

$

129

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign Currency Translation Adjustment

 

Net Unrealized Gains (Losses) on Securities

 

Net Unrealized Gains (Losses) on Derivative Instruments

 

Defined Benefit Postretirement Plans

 

Accumulated Other Comprehensive Income

Balance as of December 31, 2018

$

(3,084)

 

$

(2)

 

$

818

 

$

6,517

 

$

4,249

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(loss) before reclassifications

 

159

 

 

42

 

 

(490)

 

 

-

 

 

(289)

Amounts reclassified

 

 

 

 

 

 

 

 

 

 

 

 

 

 

from accumulated OCI

 

-

1

 

-

1

 

17

2

 

(688)

3

 

(671)

Net other comprehensive

 

 

 

 

 

 

 

 

 

 

 

 

 

 

income (loss)

 

159

 

 

42

 

 

(473)

 

 

(688)

 

 

(960)

Balance as of June 30, 2019

$

(2,925)

 

$

40

 

$

345

 

$

5,829

 

$

3,289

1

(Gains) losses are included in "Other income (expense) - net" in the consolidated statements of income.

2

(Gains) losses are included in "Interest expense" in the consolidated statements of income (see Note 7).

3

The amortization of prior service credits associated with postretirement benefits are included in "Other income (expense) - net" in the

 

consolidated statements of income (see Note 6).

11


AT&T INC.

JUNE 30, 2020

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

 

NOTE 4. SEGMENT INFORMATION

 

Our segments are strategic business units that offer products and services to different customer segments over various technology platforms and/or in different geographies that are managed accordingly. We analyze our segments based on segment operating contribution, which consists of operating income, excluding acquisition-related costs and other significant items (as discussed below), and equity in net income (loss) of affiliates for investments managed within each segment. We have 3 reportable segments: (1) Communications, (2) WarnerMedia and (3) Latin America.

 

We have recast our segment results for all prior periods to include our prior Xandr segment within our WarnerMedia segment.

 

We also evaluate segment and business unit performance based on EBITDA and/or EBITDA margin, which is defined as operating contribution excluding equity in net income (loss) of affiliates and depreciation and amortization. We believe EBITDA to be a relevant and useful measurement to our investors as it is part of our internal management reporting and planning processes and it is an important metric that management uses to evaluate operating performance. EBITDA does not give effect to cash used for debt service requirements and thus does not reflect available funds for distributions, reinvestment or other discretionary uses. EBITDA margin is EBITDA divided by total revenues.

 

The Communications segment provides wireless and wireline telecom, video and broadband services to consumers located in the U.S. and businesses globally. This segment contains the following business units:

Mobility provides nationwide wireless service and equipment.

Entertainment Group provides video, including over-the-top (OTT) services, broadband and voice communications services primarily to residential customers. This segment also sells advertising on distribution platforms.

Business Wireline provides advanced IP-based services, as well as traditional voice and data services to business customers.

 

The WarnerMedia segment develops, produces and distributes feature films, television, gaming and other content in various physical and digital formats globally. Historical financial results from Xandr, previously a separate reportable segment, have been combined with the WarnerMedia segment within Eliminations and other. This segment contains the following business units:

Turner primarily operates multichannel basic television networks and digital properties. Turner also sells advertising on its networks and digital properties.

Home Box Office consists of premium pay television and OTT and streaming services domestically and premium pay, basic tier television and OTT services internationally, as well as content licensing and home entertainment.

Warner Bros. primarily consists of the production, distribution and licensing of television programming and feature films, the distribution of home entertainment products and the production and distribution of games.

 

The Latin America segment provides entertainment and wireless services outside of the U.S. This segment contains the following business units:

Vrio provides video services primarily to residential customers using satellite technology in Latin America and the Caribbean.

Mexico provides wireless service and equipment to customers in Mexico.

 

Corporate and Other reconciles our segment results to consolidated operating income and income before income taxes, and includes:

Corporate, which consists of: (1) businesses no longer integral to our operations or which we no longer actively market, (2) corporate support functions, (3) impacts of corporate-wide decisions for which the individual operating segments are not being evaluated, and (4) the reclassification of the amortization of prior service credits, which we continue to report with segment operating expenses, to consolidated “Other income (expense) – net.”

Acquisition-related items which consists of items associated with the merger and integration of acquired businesses, including amortization of intangible assets.

12


AT&T INC.

JUNE 30, 2020

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

 

Certain significant items includes (1) employee separation charges associated with voluntary and/or strategic offers, (2) losses resulting from abandonment of network assets and impairments and (3) other items for which the segments are not being evaluated.

Eliminations and consolidations, which (1) removes transactions involving dealings between our segments, including content licensing between WarnerMedia and Communications, and (2) includes adjustments for our reporting of the advertising business.

 

“Interest expense” and “Other income (expense) – net,” are managed only on a total company basis and are, accordingly, reflected only in consolidated results.

13


AT&T INC.

JUNE 30, 2020

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

 

For the three months ended June 30, 2020

 

 

Revenues

 

 

Operations

and Support

Expenses

 

 

EBITDA

 

 

Depreciation

and

Amortization

 

 

Operating

Income (Loss)

 

 

Equity in Net

Income (Loss) of

Affiliates

 

 

Segment

Contribution

Communications

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mobility

$

17,149

 

$

9,332

 

$

7,817

 

$

2,012

 

$

5,805

 

$

-

 

$

5,805

Entertainment Group

 

10,069

 

 

7,730

 

 

2,339

 

 

1,309

 

 

1,030

 

 

-

 

 

1,030

Business Wireline

 

6,374

 

 

3,779

 

 

2,595

 

 

1,318

 

 

1,277

 

 

-

 

 

1,277

Total Communications

 

33,592

 

 

20,841

 

 

12,751

 

 

4,639

 

 

8,112

 

 

-

 

 

8,112

WarnerMedia

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Turner

 

2,988

 

 

1,347

 

 

1,641

 

 

69

 

 

1,572

 

 

-

 

 

1,572

Home Box Office

 

1,627

 

 

1,489

 

 

138

 

 

25

 

 

113

 

 

(5)

 

 

108

Warner Bros.

 

3,256

 

 

2,583

 

 

673

 

 

40

 

 

633

 

 

(19)

 

 

614

Eliminations and other

 

(1,057)

 

 

(685)

 

 

(372)

 

 

33

 

 

(405)

 

 

28

 

 

(377)

Total WarnerMedia

 

6,814

 

 

4,734

 

 

2,080

 

 

167

 

 

1,913

 

 

4

 

 

1,917

Latin America

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vrio

 

752

 

 

661

 

 

91

 

 

127

 

 

(36)

 

 

8

 

 

(28)

Mexico

 

480

 

 

538

 

 

(58)

 

 

115

 

 

(173)

 

 

-

 

 

(173)

Total Latin America

 

1,232

 

 

1,199

 

 

33

 

 

242

 

 

(209)

 

 

8

 

 

(201)

Segment Total

 

41,638

 

 

26,774

 

 

14,864

 

 

5,048

 

 

9,816

 

$

12

 

$

9,828

Corporate and Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate

 

437

 

 

933

 

 

(496)

 

 

93

 

 

(589)

 

 

 

 

 

 

Acquisition-related items

 

-

 

 

211

 

 

(211)

 

 

2,145

 

 

(2,356)

 

 

 

 

 

 

Certain significant items

 

-

 

 

3,084

 

 

(3,084)

 

 

-

 

 

(3,084)

 

 

 

 

 

 

Eliminations and consolidations

 

(1,125)

 

 

(869)

 

 

(256)

 

 

(1)

 

 

(255)

 

 

 

 

 

 

AT&T Inc.

$

40,950

 

$

30,133

 

$

10,817

 

$

7,285

 

$

3,532

 

 

 

 

 

 

14


AT&T INC.

JUNE 30, 2020

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

 

For the three months ended June 30, 2019

 

 

Revenues

 

 

Operations and Support Expenses

 

 

EBITDA

 

 

Depreciation and Amortization

 

 

Operating Income (Loss)

 

 

Equity in Net

Income (Loss) of

Affiliates

 

 

Segment Contribution

Communications

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mobility

$

17,292

 

$

9,522

 

$

7,770

 

$

2,003

 

$

5,767

 

$

-

 

$

5,767

Entertainment Group

 

11,368

 

 

8,515

 

 

2,853

 

 

1,339

 

 

1,514

 

 

-

 

 

1,514

Business Wireline

 

6,607

 

 

3,975

 

 

2,632

 

 

1,242

 

 

1,390

 

 

-

 

 

1,390

Total Communications

 

35,267

 

 

22,012

 

 

13,255

 

 

4,584

 

 

8,671

 

 

-

 

 

8,671

WarnerMedia

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Turner

 

3,410

 

 

2,217

 

 

1,193

 

 

39

 

 

1,154

 

 

11

 

 

1,165

Home Box Office

 

1,716

 

 

1,131

 

 

585

 

 

12

 

 

573

 

 

15

 

 

588

Warner Bros.

 

3,389

 

 

2,918

 

 

471

 

 

31

 

 

440

 

 

-

 

 

440

Eliminations and other

 

320

 

 

170

 

 

150

 

 

22

 

 

128

 

 

29

 

 

157

Total WarnerMedia

 

8,835

 

 

6,436

 

 

2,399

 

 

104

 

 

2,295

 

 

55

 

 

2,350

Latin America

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vrio

 

1,032

 

 

881

 

 

151

 

 

165

 

 

(14)

 

 

12

 

 

(2)

Mexico

 

725

 

 

813

 

 

(88)

 

 

119

 

 

(207)

 

 

-

 

 

(207)

Total Latin America

 

1,757

 

 

1,694

 

 

63

 

 

284

 

 

(221)

 

 

12

 

 

(209)

Segment Total

 

45,859

 

 

30,142

 

 

15,717

 

 

4,972

 

 

10,745

 

$

67

 

$

10,812

Corporate and Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate

 

450

 

 

765

 

 

(315)

 

 

170

 

 

(485)

 

 

 

 

 

 

Acquisition-related items

 

(30)

 

 

316

 

 

(346)

 

 

1,960

 

 

(2,306)

 

 

 

 

 

 

Certain significant items

 

-

 

 

94

 

 

(94)

 

 

-

 

 

(94)

 

 

 

 

 

 

Eliminations and consolidations

 

(1,322)

 

 

(961)

 

 

(361)

 

 

(1)

 

 

(360)

 

 

 

 

 

 

AT&T Inc.

$

44,957

 

$

30,356

 

$

14,601

 

$

7,101

 

$

7,500

 

 

 

 

 

 

15


AT&T INC.

JUNE 30, 2020

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

 

For the six months ended June 30, 2020

 

 

Revenues

 

 

Operations

and Support

Expenses

 

 

EBITDA

 

 

Depreciation

and

Amortization

 

 

Operating

Income (Loss)

 

 

Equity in Net

Income (Loss) of

Affiliates

 

 

Segment

Contribution

Communications

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mobility

$

34,551

 

$

18,901

 

$

15,650

 

$

4,057

 

$

11,593

 

$

-

 

$

11,593

Entertainment Group

 

20,584

 

 

15,621

 

 

4,963

 

 

2,598

 

 

2,365

 

 

-

 

 

2,365

Business Wireline

 

12,706

 

 

7,730

 

 

4,976

 

 

2,619

 

 

2,357

 

 

-

 

 

2,357

Total Communications

 

67,841

 

 

42,252

 

 

25,589

 

 

9,274

 

 

16,315

 

 

-

 

 

16,315

WarnerMedia

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Turner

 

6,150

 

 

3,057

 

 

3,093

 

 

138

 

 

2,955

 

 

6

 

 

2,961

Home Box Office

 

3,124

 

 

2,542

 

 

582

 

 

46

 

 

536

 

 

15

 

 

551

Warner Bros.

 

6,496

 

 

5,533

 

 

963

 

 

81

 

 

882

 

 

(27)

 

 

855

Eliminations and other

 

(1,108)

 

 

(711)

 

 

(397)

 

 

65

 

 

(462)

 

 

25

 

 

(437)

Total WarnerMedia

 

14,662

 

 

10,421

 

 

4,241

 

 

330

 

 

3,911

 

 

19

 

 

3,930

Latin America

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vrio

 

1,639

 

 

1,444

 

 

195

 

 

274

 

 

(79)

 

 

12

 

 

(67)

Mexico

 

1,183

 

 

1,252

 

 

(69)

 

 

249

 

 

(318)

 

 

-

 

 

(318)

Total Latin America

 

2,822

 

 

2,696

 

 

126

 

 

523

 

 

(397)

 

 

12

 

 

(385)

Segment Total

 

85,325

 

 

55,369

 

 

29,956

 

 

10,127

 

 

19,829

 

$

31

 

$

19,860

Corporate and Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate

 

825

 

 

1,807

 

 

(982)

 

 

180

 

 

(1,162)

 

 

 

 

 

 

Acquisition-related items

 

-

 

 

393

 

 

(393)

 

 

4,201

 

 

(4,594)

 

 

 

 

 

 

Certain significant items

 

-

 

 

2,426

 

 

(2,426)

 

 

-

 

 

(2,426)

 

 

 

 

 

 

Eliminations and consolidations

 

(2,421)

 

 

(1,791)

 

 

(630)

 

 

(1)

 

 

(629)

 

 

 

 

 

 

AT&T Inc.

$

83,729

 

$

58,204

 

$

25,525

 

$

14,507

 

$

11,018

 

 

 

 

 

 

16


AT&T INC.

JUNE 30, 2020

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

 

For the six months ended June 30, 2019

 

 

Revenues

 

 

Operations and Support Expenses

 

 

EBITDA

 

 

Depreciation and Amortization

 

 

Operating Income (Loss)

 

 

Equity in Net

Income (Loss) of

Affiliates

 

 

Segment Contribution

Communications

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mobility

$

34,655

 

$

19,563

 

$

15,092

 

$

4,016

 

$

11,076

 

$

-

 

$

11,076

Entertainment Group

 

22,696

 

 

17,042

 

 

5,654

 

 

2,662

 

 

2,992

 

 

-

 

 

2,992

Business Wireline

 

13,085

 

 

8,007

 

 

5,078

 

 

2,464

 

 

2,614

 

 

-

 

 

2,614

Total Communications

 

70,436

 

 

44,612

 

 

25,824

 

 

9,142

 

 

16,682

 

 

-

 

 

16,682

WarnerMedia

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Turner

 

6,853

 

 

4,353

 

 

2,500

 

 

99

 

 

2,401

 

 

36

 

 

2,437

Home Box Office

 

3,226

 

 

2,052

 

 

1,174

 

 

34

 

 

1,140

 

 

30

 

 

1,170

Warner Bros.

 

6,907

 

 

5,837

 

 

1,070

 

 

83

 

 

987

 

 

6

 

 

993

Eliminations and other

 

654

 

 

347

 

 

307

 

 

44

 

 

263

 

 

50

 

 

313

Total WarnerMedia

 

17,640

 

 

12,589

 

 

5,051

 

 

260

 

 

4,791

 

 

122

 

 

4,913

Latin America

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vrio

 

2,099

 

 

1,747

 

 

352

 

 

334

 

 

18

 

 

12

 

 

30

Mexico

 

1,376

 

 

1,538

 

 

(162)

 

 

250

 

 

(412)

 

 

-

 

 

(412)

Total Latin America

 

3,475

 

 

3,285

 

 

190

 

 

584

 

 

(394)

 

 

12

 

 

(382)

Segment Total

 

91,551

 

 

60,486

 

 

31,065

 

 

9,986

 

 

21,079

 

$

134

 

$

21,213

Corporate and Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate

 

883

 

 

1,426

 

 

(543)

 

 

374

 

 

(917)

 

 

 

 

 

 

Acquisition-related items

 

(72)

 

 

389

 

 

(461)

 

 

3,948

 

 

(4,409)

 

 

 

 

 

 

Certain significant items

 

-

 

 

342

 

 

(342)

 

 

-

 

 

(342)

 

 

 

 

 

 

Eliminations and consolidations

 

(2,578)

 

 

(1,899)

 

 

(679)

 

 

(1)

 

 

(678)

 

 

 

 

 

 

AT&T Inc.

$

89,784

 

$

60,744

 

$

29,040

 

$

14,307

 

$

14,733

 

 

 

 

 

 

 

17


AT&T INC.

JUNE 30, 2020

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

 

The following table is a reconciliation of Segment Contributions to “Income Before Income Taxes” reported on our consolidated statements of income:

 

 

 

Three months ended

June 30,

 

 

Six months ended

June 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

Communications

$

8,112

 

$

8,671

 

$

16,315

 

$

16,682

WarnerMedia

 

1,917

 

 

2,350

 

 

3,930

 

 

4,913

Latin America

 

(201)

 

 

(209)

 

 

(385)

 

 

(382)

Segment Contribution

 

9,828

 

 

10,812

 

 

19,860

 

 

21,213

Reconciling Items:

 

 

 

 

 

 

 

 

 

 

 

Corporate and Other

 

(589)

 

 

(485)

 

 

(1,162)

 

 

(917)

Merger and integration items

 

(211)

 

 

(346)

 

 

(393)

 

 

(461)

Amortization of intangibles acquired

 

(2,145)

 

 

(1,960)

 

 

(4,201)

 

 

(3,948)

Impairments

 

(2,319)

 

 

-

 

 

(2,442)

 

 

-

Gain on spectrum transaction1

 

-

 

 

-

 

 

900

 

 

-

Employee separation costs and benefit-related losses

 

(765)

 

 

(94)

 

 

(884)

 

 

(342)

Segment equity in net income of affiliates

 

(12)

 

 

(67)

 

 

(31)

 

 

(134)

Eliminations and consolidations

 

(255)

 

 

(360)

 

 

(629)

 

 

(678)

AT&T Operating Income

 

3,532

 

 

7,500

 

 

11,018

 

 

14,733

Interest Expense

 

2,041

 

 

2,149

 

 

4,059

 

 

4,290

Equity in net income (loss) of affiliates

 

(10)

 

 

40

 

 

(16)

 

 

33

Other income (expense) - net

 

1,017

 

 

(318)

 

 

1,820

 

 

(32)

Income Before Income Taxes

$

2,498

 

$

5,073

 

$

8,763

 

$

10,444

1

Included as a reduction of "Selling, general and administrative expenses" in the consolidated statement of income.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The following table presents intersegment revenues by segment:

 

Intersegment Reconciliation

 

 

 

 

 

 

 

 

 

 

 

Three months ended

June 30,

Six months ended

June 30,

 

2020

 

2019

2020

 

 

2019

Intersegment Revenues

 

 

 

 

 

 

 

 

 

 

Communications

$

2

 

$

8

$

4

 

$

8

WarnerMedia

 

774

 

 

861

 

1,591

 

 

1,719

Latin America

 

-

 

 

-

 

-

 

 

-

Total Intersegment Revenues

 

776

 

 

869

 

1,595

 

 

1,727

Consolidations

 

349

 

 

453

 

826

 

 

851

Eliminations and consolidations

$

1,125

 

$

1,322

$

2,421

 

$

2,578

 

18


AT&T INC.

JUNE 30, 2020

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

 

 

NOTE 5. REVENUE RECOGNITION

 

Revenue Categories

The following tables set forth reported revenue by category and by business unit:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended June 30, 2020

 

Service Revenues

 

 

 

 

 

 

 

 

Wireless

 

 

Advanced Data

 

 

Legacy Voice & Data

 

 

Subscription

 

 

Content

 

 

Advertising

 

 

Other

 

 

Equipment

 

 

Total

Communications

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mobility

$

13,611

 

$

-

 

$

-

 

$

-

 

$

-

 

$

58

 

$

-

 

$

3,480

 

$

17,149

Entertainment Group

 

-

 

 

2,092

 

 

560

 

 

6,682

 

 

-

 

 

294

 

 

397

 

 

44

 

 

10,069

Business Wireline

 

-

 

 

3,320

 

 

2,067

 

 

-

 

 

-

 

 

-

 

 

782

 

 

205

 

 

6,374

WarnerMedia

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Turner

 

-

 

 

-

 

 

-

 

 

1,804

 

 

334

 

 

796

 

 

54

 

 

-

 

 

2,988

Home Box Office

 

-

 

 

-

 

 

-

 

 

1,441

 

 

181

 

 

-

 

 

5

 

 

-

 

 

1,627

Warner Bros.

 

-

 

 

-

 

 

-

 

 

16

 

 

3,179

 

 

1

 

 

60

 

 

-

 

 

3,256

Eliminations and other

 

-

 

 

-

 

 

-

 

 

71

 

 

(1,516)

 

 

378

 

 

10

 

 

-

 

 

(1,057)

Latin America

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vrio

 

-

 

 

-

 

 

-

 

 

752

 

 

-

 

 

-

 

 

-

 

 

-

 

 

752

Mexico

 

345

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

135

 

 

480

Corporate and Other

 

178

 

 

10

 

 

152

 

 

-

 

 

-

 

 

-

 

 

62

 

 

35

 

 

437

Eliminations and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

consolidations

 

-

 

 

-

 

 

-

 

 

-

 

 

(765)

 

 

(294)

 

 

(66)

 

 

-

 

 

(1,125)

Total Operating Revenues

$

14,134

 

$

5,422

 

$

2,779

 

$

10,766

 

$

1,413

 

$

1,233

 

$

1,304

 

$

3,899

 

$

40,950

 

19


AT&T INC.

JUNE 30, 2020

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

 

For the three months ended June 30, 2019

 

Service Revenues

 

 

 

 

 

 

 

 

Wireless

 

 

Advanced Data

 

 

Legacy Voice & Data

 

 

Subscription

 

 

Content

 

 

Advertising

 

 

Other

 

 

Equipment

 

 

Total

Communications

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mobility

$

13,753

 

$

-

 

$

-

 

$

-

 

$

-

 

$

71

 

$

-

 

$

3,468

 

$

17,292

Entertainment Group

 

-

 

 

2,109

 

 

658

 

 

7,636

 

 

-

 

 

399

 

 

563

 

 

3

 

 

11,368

Business Wireline

 

-

 

 

3,208

 

 

2,324

 

 

-

 

 

-

 

 

-

 

 

897

 

 

178

 

 

6,607

WarnerMedia

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Turner

 

-

 

 

-

 

 

-

 

 

1,943

 

 

111

 

 

1,266

 

 

90

 

 

-

 

 

3,410

Home Box Office

 

-

 

 

-

 

 

-

 

 

1,516

 

 

198

 

 

-

 

 

2

 

 

-

 

 

1,716

Warner Bros.

 

-

 

 

-

 

 

-

 

 

23

 

 

3,175

 

 

10

 

 

181

 

 

-

 

 

3,389

Eliminations and other

 

-

 

 

-

 

 

-

 

 

54

 

 

(237)

 

 

494

 

 

9

 

 

-

 

 

320

Latin America

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vrio

 

-

 

 

-

 

 

-

 

 

1,032

 

 

-

 

 

-

 

 

-

 

 

-

 

 

1,032

Mexico

 

479

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

246

 

 

725

Corporate and Other

 

150

 

 

14

 

 

7

 

 

-

 

 

-

 

 

-

 

 

210

 

 

39

 

 

420

Eliminations and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

consolidations

 

-

 

 

-

 

 

-

 

 

-

 

 

(840)

 

 

(399)

 

 

(83)

 

 

-

 

 

(1,322)

Total Operating Revenues

$

14,382

 

$

5,331

 

$

2,989

 

$

12,204

 

$

2,407

 

$

1,841

 

$

1,869

 

$

3,934

 

$

44,957

 

20


AT&T INC.

JUNE 30, 2020

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

 

For the six months ended June 30, 2020

 

Service Revenues

 

 

 

 

 

 

 

 

Wireless

 

 

Advanced Data

 

 

Legacy Voice & Data

 

 

Subscription

 

 

Content

 

 

Advertising

 

 

Other

 

 

Equipment

 

 

Total

Communications

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mobility

$

27,503

 

$

-

 

$

-

 

$

-

 

$

-

 

$

134

 

$

-

 

$

6,914

 

$

34,551

Entertainment Group

 

-

 

 

4,201

 

 

1,141

 

 

13,664

 

 

-

 

 

707

 

 

816

 

 

55

 

 

20,584

Business Wireline

 

-

 

 

6,595

 

 

4,196

 

 

-

 

 

-

 

 

-

 

 

1,535

 

 

380

 

 

12,706

WarnerMedia

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Turner

 

-

 

 

-

 

 

-

 

 

3,853

 

 

420

 

 

1,753

 

 

124

 

 

-

 

 

6,150

Home Box Office

 

-

 

 

-

 

 

-

 

 

2,779

 

 

338

 

 

-

 

 

7

 

 

-

 

 

3,124

Warner Bros.

 

-

 

 

-

 

 

-

 

 

26

 

 

6,239

 

 

3

 

 

228

 

 

-

 

 

6,496

Eliminations and other

 

-

 

 

-

 

 

-

 

 

134

 

 

(2,162)

 

 

887

 

 

33

 

 

-

 

 

(1,108)

Latin America

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vrio

 

-

 

 

-

 

 

-

 

 

1,639

 

 

-

 

 

-

 

 

-

 

 

-

 

 

1,639

Mexico

 

812

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

371

 

 

1,183

Corporate and Other

 

295

 

 

24

 

 

286

 

 

-

 

 

-

 

 

-

 

 

145

 

 

75

 

 

825

Eliminations and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

consolidations

 

-

 

 

-

 

 

-

 

 

-

 

 

(1,559)

 

 

(707)

 

 

(155)

 

 

-

 

 

(2,421)

Total Operating Revenues

$

28,610

 

$

10,820

 

$

5,623

 

$

22,095

 

$

3,276

 

$

2,777

 

$

2,733

 

$

7,795

 

$

83,729

 

21


AT&T INC.

JUNE 30, 2020

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

 

For the six months ended June 30, 2019

 

Service Revenues

 

 

 

 

 

 

 

 

Wireless

 

 

Advanced Data

 

 

Legacy Voice & Data

 

 

Subscription

 

 

Content

 

 

Advertising

 

 

Other

 

 

Equipment

 

 

Total

Communications

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mobility

$

27,315

 

$

-

 

$

-

 

$

-

 

$

-

 

$

138

 

$

-

 

$

7,202

 

$

34,655

Entertainment Group

 

-

 

 

4,179

 

 

1,341

 

 

15,360

 

 

-

 

 

749

 

 

1,063

 

 

4

 

 

22,696

Business Wireline

 

-

 

 

6,380

 

 

4,721

 

 

-

 

 

-

 

 

-

 

 

1,647

 

 

337

 

 

13,085

WarnerMedia

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Turner

 

-

 

 

-

 

 

-

 

 

3,908

 

 

246

 

 

2,527

 

 

172

 

 

-

 

 

6,853

Home Box Office

 

-

 

 

-

 

 

-

 

 

2,850

 

 

371

 

 

-

 

 

5

 

 

-

 

 

3,226

Warner Bros.

 

-

 

 

-

 

 

-

 

 

44

 

 

6,507

 

 

20

 

 

336

 

 

-

 

 

6,907

Eliminations and other

 

-

 

 

-

 

 

-

 

 

103

 

 

(389)

 

 

928

 

 

12

 

 

-

 

 

654

Latin America

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vrio

 

-

 

 

-

 

 

-

 

 

2,099

 

 

-

 

 

-

 

 

-

 

 

-

 

 

2,099

Mexico

 

921

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

455

 

 

1,376

Corporate and Other

 

272

 

 

27

 

 

14

 

 

-

 

 

-

 

 

-

 

 

419

 

 

79

 

 

811

Eliminations and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

consolidations

 

-

 

 

-

 

 

-

 

 

-

 

 

(1,677)

 

 

(749)

 

 

(152)

 

 

-

 

 

(2,578)

Total Operating Revenues

$

28,508

 

$

10,586

 

$

6,076

 

$

24,364

 

$

5,058

 

$

3,613

 

$

3,502

 

$

8,077

 

$

89,784

 

22


AT&T INC.

JUNE 30, 2020

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

 

Deferred Customer Contract Acquisition and Fulfillment Costs

Costs to acquire and fulfill customer contracts, including commissions on service activations, for our wireless, business wireline and video entertainment services, are deferred and amortized over the contract period or expected customer relationship life, which typically ranges from three years to five years. For contracts with an estimated amortization period of less than one year, we expense incremental costs immediately.

 

The following table presents the deferred customer contract acquisition and fulfillment costs included on our consolidated balance sheets:

 

 

 

June 30,

 

 

December 31,

Consolidated Balance Sheets

 

2020

 

 

2019

Deferred Acquisition Costs

 

 

 

 

 

Other current assets

$

2,630

 

$

2,462

Other Assets

 

3,117

 

 

2,991

Total deferred customer contract acquisition costs

$

5,747

 

$

5,453

 

 

 

 

 

 

Deferred Fulfillment Costs

 

 

 

 

 

Other current assets

$

4,362

 

$

4,519

Other Assets

 

5,980

 

 

6,439

Total deferred customer contract fulfillment costs

$

10,342

 

$

10,958

 

The following table presents deferred customer contract acquisition and fulfillment cost amortization included in “Other cost of revenue” for the six months ended:

 

 

 

June 30,

 

 

June 30,

Consolidated Statements of Income

 

2020

 

 

2019

Deferred acquisition cost amortization

$

1,278

 

$

1,026

Deferred fulfillment cost amortization

 

2,636

 

 

2,381

 

Contract Assets and Liabilities

A contract asset is recorded when revenue is recognized in advance of our right to bill and receive consideration. The contract asset will decrease as services are provided and billed. For example, when installment sales include promotional discounts (e.g., “buy one get one free”) the difference between revenue recognized and consideration received is recorded as a contract asset to be amortized over the contract term.

 

When consideration is received in advance of the delivery of goods or services, a contract liability is recorded for deferred revenue. Reductions in the contract liability will be recorded as we satisfy the performance obligations.

 

The following table presents contract assets and liabilities on our consolidated balance sheets:

 

 

 

 

 

June 30,

 

 

December 31,

Consolidated Balance Sheets

 

 

2020

 

 

2019

 

 

 

 

 

 

 

Contract asset

 

$

2,546

 

$

2,472

Contract liability

 

 

6,533

 

 

6,999

 

Our beginning of period contract liability recorded as customer contract revenue during 2020 was $5,004.

 

23


AT&T INC.

JUNE 30, 2020

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

 

Our consolidated balance sheets at June 30, 2020 and December 31, 2019 included approximately $1,638 and $1,611, respectively, for the current portion of our contract asset in “Other current assets” and $5,616 and $5,939, respectively, for the current portion of our contract liability in “Advanced billings and customer deposits.”

 

Remaining Performance Obligations

Remaining performance obligations represent services we are required to provide to customers under bundled or discounted arrangements, which are satisfied as services are provided over the contract term. In determining the transaction price allocated, we do not include non-recurring charges and estimates for usage, nor do we consider arrangements with an original expected duration of less than one year, which are primarily prepaid wireless, video and residential internet agreements.

 

Remaining performance obligations associated with business contracts reflect recurring charges billed, adjusted to reflect estimates for sales incentives and revenue adjustments. Performance obligations associated with wireless contracts are estimated using a portfolio approach in which we review all relevant promotional activities, calculating the remaining performance obligation using the average service component for the portfolio and the average device price. As of June 30, 2020, the aggregate amount of the transaction price allocated to remaining performance obligations was $36,362, of which we expect to recognize approximately 82% by the end of 2021, with the balance recognized thereafter.

 

NOTE 6. PENSION AND POSTRETIREMENT BENEFITS

 

Many of our employees are covered by one of our noncontributory pension plans. We also provide certain medical, dental, life insurance and death benefits to certain retired employees under various plans and accrue actuarially determined postretirement benefit costs. Our objective in funding these plans, in combination with the standards of the Employee Retirement Income Security Act of 1974, as amended (ERISA), is to accumulate assets sufficient to provide benefits described in the plans to employees upon their retirement. We do not have significant funding requirements in 2020.

 

We recognize actuarial gains and losses on pension and postretirement plan assets in our consolidated results as a component of “Other income (expense) – net” at our annual measurement date of December 31, unless earlier remeasurements are required.

 

The following table details pension and postretirement benefit costs included in the accompanying consolidated statements of income. The service cost component of net periodic pension cost (benefit) is recorded in operating expenses in the consolidated statements of income while the remaining components are recorded in “Other income (expense) – net.”

24


AT&T INC.

JUNE 30, 2020

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

 

 

Three months ended

 

Six months ended

 

June 30,

 

June 30,

 

2020

 

2019

 

2020

 

2019

Pension cost:

 

 

 

 

 

 

 

 

 

 

 

Service cost – benefits earned during the period

$

258

 

$

243

 

$

515

 

$

483

Interest cost on projected benefit obligation

 

422

 

 

508

 

 

844

 

 

1,057

Expected return on assets

 

(890)

 

 

(880)

 

 

(1,779)

 

 

(1,731)

Amortization of prior service credit

 

(29)

 

 

(24)

 

 

(57)

 

 

(57)

Actuarial (gain) loss

 

-

 

 

1,699

 

 

-

 

 

2,131

Net pension (credit) cost

$

(239)

 

$

1,546

 

$

(477)

 

$

1,883

 

 

 

 

 

 

 

 

 

 

 

 

Postretirement cost:

 

 

 

 

 

 

 

 

 

 

 

Service cost – benefits earned during the period

$

13

 

$

18

 

$

26

 

$

36

Interest cost on accumulated postretirement benefit obligation

 

104

 

 

186

 

 

208

 

 

372

Expected return on assets

 

(45)

 

 

(56)

 

 

(89)

 

 

(112)

Amortization of prior service credit

 

(582)

 

 

(426)

 

 

(1,164)

 

 

(852)

Net postretirement (credit) cost

$

(510)

 

$

(278)

 

$

(1,019)

 

$

(556)

 

 

 

 

 

 

 

 

 

 

 

 

Combined net pension and postretirement (credit) cost

$

(749)

 

$

1,268

 

$

(1,496)

 

$

1,327

 

We also provide senior- and middle-management employees with nonqualified, unfunded supplemental retirement and savings plans. Net supplemental pension benefits costs not included in the table above were $19 and $25 in the second quarter and $38 and $50 for the first six months of 2020 and 2019, respectively.

 

NOTE 7. FAIR VALUE MEASUREMENTS AND DISCLOSURE

 

The Fair Value Measurement and Disclosure framework in ASC 820, “Fair Value Measurement,” provides a three-tiered fair value hierarchy based on the reliability of the inputs used to determine fair value. Level 1 refers to fair values determined based on quoted prices in active markets for identical assets. Level 2 refers to fair values estimated using significant other observable inputs and Level 3 includes fair values estimated using significant unobservable inputs.

 

The level of an asset or liability within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Our valuation techniques maximize the use of observable inputs and minimize the use of unobservable inputs.

 

The valuation methodologies described above may produce a fair value calculation that may not be indicative of future net realizable value or reflective of future fair values. We believe our valuation methods are appropriate and consistent with other market participants. The use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date. There have been no changes in the methodologies used since December 31, 2019.

 

25


AT&T INC.

JUNE 30, 2020

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

 

Long-Term Debt and Other Financial Instruments

The carrying amounts and estimated fair values of our long-term debt, including current maturities, and other financial instruments, are summarized as follows:

 

 

 

June 30, 2020

 

December 31, 2019

 

 

Carrying

 

Fair

 

Carrying

 

Fair

 

 

Amount

 

Value

 

Amount

 

Value

Notes and debentures1

$

164,099

 

$

190,284

 

$

161,109

 

$

182,124

Commercial paper

 

3,001

 

 

3,001

 

 

-

 

 

-

Bank borrowings

 

-

 

 

-

 

 

4

 

 

4

Investment securities2

 

3,632

 

 

3,632

 

 

3,723

 

 

3,723

1

Includes credit agreement borrowings.

2

Excludes investments accounted for under the equity method.

 

The carrying amount of debt with an original maturity of less than one year approximates fair value. The fair value measurements used for notes and debentures are considered Level 2 and are determined using various methods, including quoted prices for identical or similar securities in both active and inactive markets.

 

Following is the fair value leveling for investment securities that are measured at fair value and derivatives as of June 30, 2020 and December 31, 2019. Derivatives designated as hedging instruments are reflected as “Other assets,” “Other noncurrent liabilities,” “Other current assets” and “Accounts payable and accrued liabilities” on our consolidated balance sheets.

 

 

 

June 30, 2020

 

 

Level 1

 

Level 2

 

Level 3

 

Total

Equity Securities

 

 

 

 

 

 

 

 

 

 

 

Domestic equities

$

832

 

$

-

 

$

-

 

$

832

International equities

 

141

 

 

-

 

 

-

 

 

141

Fixed income equities

 

230

 

 

-

 

 

-

 

 

230

Available-for-Sale Debt Securities

 

-

 

 

1,522

 

 

-

 

 

1,522

Asset Derivatives

 

 

 

 

 

 

 

 

 

 

 

Cross-currency swaps

 

-

 

 

67

 

 

-

 

 

67

Foreign exchange contracts

 

-

 

 

14

 

 

-

 

 

14

Liability Derivatives

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps

 

-

 

 

(3)

 

 

-

 

 

(3)

Cross-currency swaps

 

-

 

 

(6,767)

 

 

-

 

 

(6,767)

Foreign exchange contracts

 

-

 

 

(10)

 

 

-

 

 

(10)

 

26


AT&T INC.

JUNE 30, 2020

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

 

 

 

December 31, 2019

 

 

Level 1

 

Level 2

 

Level 3

 

Total

Equity Securities

 

 

 

 

 

 

 

 

 

 

 

Domestic equities

$

844

 

$

-

 

$

-

 

$

844

International equities

 

183

 

 

-

 

 

-

 

 

183

Fixed income equities

 

229

 

 

-

 

 

-

 

 

229

Available-for-Sale Debt Securities

 

-

 

 

1,444

 

 

-

 

 

1,444

Asset Derivatives

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps

 

-

 

 

2

 

 

-

 

 

2

Cross-currency swaps

 

-

 

 

172

 

 

-

 

 

172

Interest rate locks

 

-

 

 

11

 

 

-

 

 

11

Foreign exchange contracts

 

-

 

 

89

 

 

-

 

 

89

Liability Derivatives

 

 

 

 

 

 

 

 

 

 

 

Cross-currency swaps

 

-

 

 

(3,187)

 

 

-

 

 

(3,187)

Interest rate locks

 

-

 

 

(95)

 

 

-

 

 

(95)

 

Investment Securities

Our investment securities include both equity and debt securities that are measured at fair value, as well as equity securities without readily determinable fair values. A substantial portion of the fair values of our investment securities is estimated based on quoted market prices. Investments in equity securities not traded on a national securities exchange are valued at cost, less any impairment, and adjusted for changes resulting from observable, orderly transactions for identical or similar securities. Investments in debt securities not traded on a national securities exchange are valued using pricing models, quoted prices of securities with similar characteristics or discounted cash flows.

 

The components comprising total gains and losses in the period on equity securities are as follows:

 

 

Three months ended

 

Six months ended

 

June 30,

 

June 30,

 

2020

 

2019

 

2020

 

2019

Total gains (losses) recognized on equity securities

$

161

 

$

50

 

$

(42)

 

$

210

Gains (Losses) recognized on equity securities sold

 

9

 

 

9

 

 

(24)

 

 

27

Unrealized gains (losses) recognized on equity securities

 

 

 

 

 

 

 

 

 

 

 

held at end of period

 

152

 

 

41

 

 

(18)

 

 

183

 

 

At June 30, 2020, available-for-sale debt securities totaling $1,522 have maturities as follows - less than one year: $64; one to three years: $175; three to five years: $156; five or more years: $1,127.

 

Our cash equivalents (money market securities), short-term investments (certificate and time deposits) and nonrefundable customer deposits are recorded at amortized cost, and the respective carrying amounts approximate fair values. Short-term investments and nonrefundable customer deposits are recorded in “Other current assets” and our investment securities are recorded in “Other Assets” on the consolidated balance sheets.

 

Derivative Financial Instruments

We enter into derivative transactions to manage certain market risks, primarily interest rate risk and foreign currency exchange risk. This includes the use of interest rate swaps, interest rate locks, foreign exchange forward contracts and combined interest rate foreign exchange contracts (cross-currency swaps). We do not use derivatives for trading or speculative purposes. We record derivatives on our consolidated balance sheets at fair value that is derived from observable market data, including yield curves and foreign exchange rates (all of our derivatives are Level 2). Cash flows associated with derivative instruments are presented in the same category on the consolidated statements of cash flows as the item being hedged.

27


AT&T INC.

JUNE 30, 2020

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

 

 

Fair Value Hedging Periodically, we enter into and designate 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 six months ended June 30, 2020 and 2019, no ineffectiveness was measured on fair value hedges.

 

Cash Flow Hedging We designate our cross-currency swaps as cash flow hedges. We have entered into multiple cross-currency swaps to hedge our exposure to variability in expected future cash flows that are attributable to foreign currency risk generated from the issuance of our foreign-denominated debt. These agreements include initial and final exchanges of principal from fixed foreign currency denominated amounts to fixed U.S. dollar denominated amounts, to be exchanged at a specified rate that is usually determined by the market spot rate upon issuance. They also include an interest rate swap of a fixed or floating foreign currency-denominated interest rate to a fixed U.S. dollar denominated interest rate.

 

We also designate some of our foreign exchange contracts as cash flow hedges. The purpose of these contracts is to hedge certain film production costs denominated in foreign currencies.

 

Unrealized gains on derivatives designated as cash flow hedges are recorded at fair value as assets, and unrealized losses are recorded at fair value as liabilities. For derivative instruments designated as cash flow hedges, changes in fair value are reported as a component of accumulated OCI and are reclassified into the consolidated statements of income in the same period the hedged transaction affects earnings.

 

Periodically, we enter into and designate interest rate locks to partially hedge the risk of changes in interest payments attributable to increases in the benchmark interest rate during the period leading up to the probable issuance of fixed-rate debt. We designate our interest rate locks as cash flow hedges. Gains and losses when we settle our interest rate locks are amortized into income over the life of the related debt. Over the next 12 months, we expect to reclassify $98 from accumulated OCI to “Interest expense” due to the amortization of net losses on historical interest rate locks.

 

We settled all interest rate locks in May 2020 in conjunction with issuance of fixed rate debt obligations that the interest rate locks were hedging. We paid $731 that was largely offset by the return of collateral at the time of settlement. Cash flows from the interest rate lock settlements and return of collateral were reported as Financing Activities in our Statement of Cash Flows, consistent with our accounting policy for these instruments.

 

Net Investment Hedging We have designated €1,450 million aggregate principal amount of debt as a hedge of the variability of some of the Euro-denominated net investments of our subsidiaries. The gain or loss on the debt that is designated as, and is effective as, an economic hedge of the net investment in a foreign operation is recorded as a currency translation adjustment within accumulated OCI, net on the consolidated balance sheet. Net losses on net investment hedges recognized in accumulated OCI in the second quarter were $30 and for the first six months of 2020 were $5.

 

Collateral and Credit-Risk Contingency We have entered into agreements with our derivative counterparties establishing collateral thresholds based on respective credit ratings and netting agreements. At June 30, 2020, we had posted collateral of $694 (a deposit asset) and held collateral of $16 (a receipt liability). Under the agreements, if AT&T’s credit rating had been downgraded one rating level by Fitch Ratings, before the final collateral exchange in June, we would have been required to post additional collateral of $76. If AT&T’s credit rating had been downgraded four ratings levels by Fitch Ratings, two levels by S&P, and two levels by Moody’s, we would have been required to post additional collateral of $5,487. If DIRECTV

28


AT&T INC.

JUNE 30, 2020

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

 

Holdings LLC’s credit rating had been downgraded below BBB- by S&P, we would have been required to post additional collateral of $321. At December 31, 2019, we had posted collateral of $204 (a deposit asset) and held collateral of $44 (a receipt liability). We do not offset the fair value of collateral, whether the right to reclaim cash collateral (a receivable) or the obligation to return cash collateral (a payable) exists, against the fair value of the derivative instruments.

 

Following are the notional amounts of our outstanding derivative positions:

 

 

 

June 30,

 

December 31,

 

2020

 

2019

Interest rate swaps

$

21

 

$

853

Cross-currency swaps

 

45,606

 

 

42,325

Interest rate locks

 

-

 

 

3,500

Foreign exchange contracts

 

298

 

 

269

Total

$

45,925

 

$

46,947

 

Following are the related hedged items affecting our financial position and performance:

 

Effect of Derivatives on the Consolidated Statements of Income

 

 

 

 

 

 

 

 

 

Three months ended

 

Six months ended

 

June 30,

 

June 30,

Fair Value Hedging Relationships

2020

 

2019

 

2020

 

2019

Interest rate swaps (Interest expense):

 

 

 

 

 

 

 

 

 

 

 

Gain (Loss) on interest rate swaps

$

(14)

 

$

35

 

$

(4)

 

$

59

Gain (Loss) on long-term debt

 

14

 

 

(35)

 

 

4

 

 

(59)

 

In addition, the net swap settlements that accrued and settled in the quarters ended June 30, 2020 and 2019 were offset against interest expense.

 

The following table presents information for our cash flow hedging relationships:

 

 

Three months ended

 

Six months ended

 

June 30,

 

June 30,

Cash Flow Hedging Relationships

2020

 

2019

 

2020

 

2019

Cross-currency swaps:

 

 

 

 

 

 

 

 

 

 

 

Gain (Loss) recognized in accumulated OCI

$

809

 

$

(763)

 

$

(3,170)

 

$

(595)

Foreign exchange contracts:

 

 

 

 

 

 

 

 

 

 

 

Gain (Loss) recognized in accumulated OCI

 

2

 

 

4

 

 

(11)

 

 

(3)

Other income (expense) - net reclassified from

 

 

 

 

 

 

 

 

 

 

 

accumulated OCI into income

 

(3)

 

 

7

 

 

13

 

 

10

Interest rate locks:

 

 

 

 

 

 

 

 

 

 

 

Gain (Loss) recognized in accumulated OCI

 

(12)

 

 

(23)

 

 

(648)

 

 

(23)

Interest income (expense) reclassified from

 

 

 

 

 

 

 

 

 

 

 

accumulated OCI into income

 

(18)

 

 

(16)

 

 

(34)

 

 

(32)

 

29


AT&T INC.

JUNE 30, 2020

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

 

NOTE 8. ACQUISITIONS, DISPOSITIONS AND OTHER ADJUSTMENTS

 

Acquisitions

 

HBO Latin America Group (HBO LAG) In May 2020, we acquired the remaining interest in HBO LAG for $141, net of cash acquired. At acquisition, we remeasured the fair value of the total business, which exceeded the carrying amount of our equity method investment and resulted in a pre-tax gain of $68. We consolidated that business upon close and recorded those assets at fair value, including $640 of trade names, $271 of distribution networks and $343 of goodwill that is reported in the WarnerMedia segment. These estimates are preliminary in nature and subject to adjustments, which will be finalized within one year from the date of acquisition.

 

Spectrum Auctions In June 2020, we completed the acquisition of $2,379 of 37/39 GHz spectrum in a Federal Communications Commission (FCC) auction. Prior to the auction, we exchanged the 39 GHz licenses with a book value of approximately $300 that were previously acquired through FiberTower Corporation for vouchers to be applied against the winning bids and recorded a $900 gain in the first quarter of 2020. These vouchers yielded a value of approximately $1,200, which was applied toward our gross bids. In the second quarter of 2020, we made the final cash payment of $949, bringing the total cash payment to $1,186.

 

NOTE 9. SALES OF RECEIVABLES

 

We have agreements with various third-party financial institutions pertaining to the sales of certain types of our accounts receivable. The most significant of these programs are discussed in detail below and generally consist of (1) receivables arising from equipment installment plans, which are sold for cash and a deferred purchase price, and (2) revolving service and trade receivables. Under these programs, we transfer receivables to purchasers in exchange for cash and additional consideration upon settlement of the receivables, where applicable. Under the terms of our agreements for these programs, we continue to bill and collect the payments from our customers on behalf of the financial institutions.

 

The sales of receivables did not have a material impact on our consolidated statements of income or to “Total Assets” reported on our consolidated balance sheets. We reflect cash receipts on sold receivables as cash flows from operations in our consolidated statements of cash flows. Cash receipts on the deferred purchase price are classified as cash flows from investing activities.

 

Our equipment installment and revolving receivable programs are discussed in detail below. The following table sets forth a summary of the receivables and accounts being serviced:

 

 

 

June 30, 2020

 

December 31, 2019

 

 

Equipment

 

 

 

 

Equipment

 

 

 

 

 

Installment

 

Revolving

 

Installment

 

Revolving

Gross receivables:

$

3,931

 

$

3,745

 

$

4,576

 

$

3,324

Balance sheet classification

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable

 

 

 

 

 

 

 

 

 

 

 

Notes receivable

 

2,056

 

 

-

 

 

2,467

 

 

-

Trade receivables

 

496

 

 

3,547

 

 

477

 

 

2,809

Other Assets

 

 

 

 

 

 

 

 

 

 

 

Noncurrent notes and trade receivables

 

1,379

 

 

198

 

 

1,632

 

 

515

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding portfolio of receivables derecognized from

 

 

 

 

 

 

 

 

 

 

 

our consolidated balance sheets

 

8,917

 

 

5,300

 

 

9,713

 

 

4,300

Cash proceeds received, net of remittances1

 

6,429

 

 

5,300

 

 

7,211

 

 

4,300

1

Represents amounts to which financial institutions remain entitled, excluding the deferred purchase price.

 

30


AT&T INC.

JUNE 30, 2020

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

 

Equipment Installment Receivables Program

We offer our customers the option to purchase certain wireless devices in installments over a specified period of time and, in many cases, once certain conditions are met, they may be eligible to trade in the original equipment for a new device and have the remaining unpaid balance paid or settled.

 

We maintain a program under which we transfer a portion of these receivables through our bankruptcy-remote subsidiary in exchange for cash and additional consideration upon settlement of the receivables, referred to as the deferred purchase price. In the event a customer trades in a device prior to the end of the installment contract period, we agree to make a payment to the financial institutions equal to any outstanding remaining installment receivable balance. Accordingly, we record a guarantee obligation for this estimated amount at the time the receivables are transferred.

 

The following table sets forth a summary of equipment installment receivables sold under this program during the three and six months ended June 30, 2020 and 2019:

 

 

 

Three months ended

 

Six months ended

 

 

June 30,

 

June 30,

 

 

2020

 

2019

 

2020

 

2019

Gross receivables sold

$

1,506

 

$

2,244

 

$

3,873

 

$

4,945

Net receivables sold1

 

1,449

 

 

2,133

 

 

3,722

 

 

4,679

Cash proceeds received

 

1,225

 

 

1,920

 

 

3,175

 

 

4,195

Deferred purchase price recorded

 

232

 

 

261

 

 

585

 

 

570

Guarantee obligation recorded

 

27

 

 

93

 

 

71

 

 

194

1

Receivables net of allowance, imputed interest and equipment trade-in right guarantees.

 

The deferred purchase price and guarantee obligation are initially recorded at estimated fair value and subsequently adjusted for changes in present value of expected cash flows. The estimation of their fair values is based on remaining installment payments expected to be collected and the expected timing and value of device trade-ins. The estimated value of the device trade-ins considers prices offered to us by independent third parties that contemplate changes in value after the launch of a device model. The fair value measurements used for the deferred purchase price and the guarantee obligation are considered Level 3 under the Fair Value Measurement and Disclosure framework (see Note 7).

 

The following table presents the previously transferred equipment installment receivables, which we repurchased in exchange for the associated deferred purchase price during the three and six months ended June 30, 2020 and 2019:

 

 

 

Three months ended

 

Six months ended

 

 

June 30,

 

June 30,

 

 

2020

 

2019

 

2020

 

2019

Fair value of repurchased receivables

$

285

 

$

235

 

$

573

 

$

658

Carrying value of deferred purchase price

 

281

 

 

225

 

 

558

 

 

632

Gain on repurchases1

$

4

 

$

10

 

$

15

 

$

26

1

These gains are included in “Selling, general and administrative” in the consolidated statements of income.

 

At June 30, 2020 and December 31, 2019, our deferred purchase price receivable was $2,319 and $2,336, respectively, of which $1,591 and $1,569 are included in “Other current assets” on our consolidated balance sheets, with the remainder in “Other Assets.” The guarantee obligation at June 30, 2020 and December 31, 2019 was $315 and $384, respectively, of which $213 and $148 are included in “Accounts payable and accrued liabilities” on our consolidated balance sheets, with the remainder in “Other noncurrent liabilities.” Our maximum exposure to loss as a result of selling these equipment installment receivables is limited to the total amount of our deferred purchase price and guarantee obligation.

 

31


AT&T INC.

JUNE 30, 2020

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

 

Revolving Receivables Program

In 2019, we entered into a one-year revolving agreement to transfer up to $4,300 of certain receivables through our bankruptcy-remote subsidiaries to various financial institutions on a recurring basis in exchange for cash equal to the gross receivables transferred. In the first quarter of 2020, we expanded the program limit to $5,300. In the second quarter of 2020, we extended the agreement by one year. As customers pay their balances, we transfer additional receivables into the program, resulting in our gross receivables sold exceeding net cash flow impacts (e.g., collect and reinvest). The transferred receivables are fully guaranteed by our bankruptcy-remote subsidiaries, which hold additional receivables in the amount of $3,745 that are pledged as collateral under this agreement. The transfers are recorded at fair value of the proceeds received and obligations assumed less derecognized receivables. The obligation is subsequently adjusted for changes in estimated expected credit losses and interest rates. Our maximum exposure to loss related to these receivables transferred is limited to the amount outstanding.

 

The fair value measurement used for the obligation is considered Level 3 under the Fair Value Measurement and Disclosure framework (see Note 7).

 

The following table sets forth a summary of receivables sold:

 

 

 

Three months ended

 

Six months ended

 

 

June 30,

 

June 30,

 

 

2020

 

2019

 

2020

 

2019

Gross receivables sold/cash proceeds received1

$

3,805

 

$

4,452

 

$

8,027

 

$

5,852

Collections reinvested under revolving agreement

 

3,805

 

 

2,127

 

 

7,027

 

 

2,127

Net cash proceeds received (remitted)

$

-

 

$

2,325

 

$

1,000

 

$

3,725

 

 

 

 

 

 

 

 

 

 

 

 

 

Net receivables sold2

$

3,819

 

$

4,134

 

$

7,957

 

$

5,497

Obligations recorded (reversed)

 

(12)

 

 

384

 

 

114

 

 

436

1

Includes initial sale of receivables of $0 and $2,325 for the three months and $1,000 and $3,725 for the six months ended

 

June 30, 2020 and 2019, respectively.

 

 

 

 

 

 

 

 

 

 

 

2

Receivables net of allowance, return and incentive reserves and imputed interest

 

NOTE 10. LEASES

 

We have operating and finance leases for certain facilities and equipment used in operations. Our leases generally have remaining lease terms of up to 15 years. Some of our real estate operating leases contain renewal options that may be exercised, and some of our leases include options to terminate the leases within one year.

 

We have recognized a right-of-use asset for both operating and finance leases, and an operating lease liability that represents the present value of our obligation to make payments over the lease term. The present value of the lease payments is calculated using the incremental borrowing rate for operating and finance leases, which was determined using a portfolio approach based on the rate of interest that we would have to pay to borrow an amount equal to the lease payments on a collateralized basis over a similar term. We use the unsecured borrowing rate and risk-adjust that rate to approximate a collateralized rate in the currency of the lease, which will be updated on a quarterly basis for measurement of new lease liabilities.

 

32


AT&T INC.

JUNE 30, 2020

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

 

The components of lease expense were as follows:

 

 

Three months ended

 

Six months ended

 

June 30,

 

June 30,

 

2020

 

2019

 

2020

 

2019

Operating lease cost

$

1,449

 

$

1,610

 

$

2,826

 

$

2,852

 

 

 

 

 

 

 

 

 

 

 

 

Finance lease cost:

 

 

 

 

 

 

 

 

 

 

 

Amortization of right-of-use assets

$

73

 

$

70

 

$

140

 

$

136

Interest on lease obligation

 

36

 

 

42

 

 

77

 

 

84

Total finance lease cost

$

109

 

$

112

 

$

217

 

$

220

 

Supplemental balance sheet information related to leases is as follows:

 

 

June 30,

December 31,

 

 

2020

2019

 

Operating Leases

 

 

 

 

 

Operating lease right-of-use assets

$

24,692

$

24,039

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

$

3,474

$

3,451

 

Operating lease obligation

 

22,230

 

21,804

 

Total operating lease obligation

$

25,704

$

25,255

 

 

 

 

 

 

 

Finance Leases

 

 

 

 

 

Property, plant and equipment, at cost

$

3,468

$

3,534

 

Accumulated depreciation and amortization

 

(1,347)

 

(1,296)

 

Property, plant and equipment, net

$

2,121

$

2,238

 

 

 

 

 

 

 

Current portion of long-term debt

$

180

$

162

 

Long-term debt

 

1,683

 

1,872

 

Total finance lease obligation

$

1,863

$

2,034

 

 

 

 

 

 

 

Weighted-Average Remaining Lease Term (years)

 

 

 

 

 

Operating leases

 

8.5

 

8.4

 

Finance leases

 

10.2

 

10.7

 

 

 

 

 

 

 

Weighted-Average Discount Rate

 

 

 

 

 

Operating leases

 

4.2

%

4.7

%

Finance leases

 

8.2

%

8.5

%

33


AT&T INC.

JUNE 30, 2020

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

 

Future minimum maturities of lease obligations are as follows:

 

At June 30, 2020

Operating

 

Finance

 

Leases

 

Leases

Remainder of 2020

$

2,447

 

$

190

2021

 

4,582

 

 

309

2022

 

4,277

 

 

291

2023

 

3,889

 

 

262

2024

 

3,357

 

 

242

Thereafter

 

13,031

 

 

1,632

Total lease payments

 

31,583

 

 

2,926

Less imputed interest

 

(5,879)

 

 

(1,063)

Total

$

25,704

 

$

1,863

 

NOTE 11. PREFERRED SHARES

 

We have authorized 10 million preferred shares of AT&T stock, each with a par value of $1.00 per share. Cumulative perpetual preferred shares consist of the following:

Series A: 48 thousand shares outstanding at June 30, 2020 and December 31, 2019, with a $25,000 per share liquidation preference and a dividend rate of 5.00%.

Series B: 20 thousand shares outstanding at June 30, 2020 and 0 issued and outstanding at December 31, 2019, with a €100,000 per share liquidation preference, and an initial dividend rate of 2.875%, subject to reset beginning on May 1, 2025.

Series C: 70 thousand shares outstanding at June 30, 2020 and 0 issued and outstanding at December 31, 2019, with a $25,000 per share liquidation preference and a dividend rate of 4.75%.

 

So long as the preferred dividends are declared and paid on a timely basis on each series of preferred shares, there are no 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 12. ADDITIONAL FINANCIAL INFORMATION

 

Cash and Cash Flows

We typically maintain our restricted cash balances for purchases and sales of certain investment securities and funding of certain deferred compensation benefit payments:

 

 

 

 

June 30,

 

December 31,

 

 

 

2020

 

 

2019

 

 

2019

 

 

2018

Cash and cash equivalents

 

$

16,941

 

$

8,423

 

$

12,130

 

$

5,204

Restricted cash in Other current assets

 

 

3

 

 

15

 

 

69

 

 

61

Restricted cash in Other Assets

 

 

87

 

 

216

 

 

96

 

 

135

Cash and Cash Equivalents and Restricted Cash

 

$

17,031

 

$

8,654

 

$

12,295

 

$

5,400

 

34


AT&T INC.

JUNE 30, 2020

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued

Dollars in millions except per share amounts

 

Consolidated Statements of Cash Flows

Six months ended

 

June 30,

Cash paid (received) during the period for:

 

2020

 

 

2019

Interest

$

4,202

 

$

4,410

Income taxes, net of refunds

 

(214)

 

 

(32)

 

 

 

Six months ended

 

 

June 30,

 

 

2020

 

2019

Cash Flows from Operating Activities

 

 

 

 

 

 

Cash paid for amounts included in lease obligations

 

 

 

 

 

 

Operating cash flows from operating leases

 

$

2,424

 

$

2,464

 

 

 

 

 

 

 

Supplemental Lease Cash Flow Disclosures

 

 

 

 

 

 

Operating lease right-of-use assets obtained

 

 

 

 

 

 

in exchange for new operating lease obligations

 

 

2,895

 

 

3,899

 

Other Noncash Investing and Financing Activities In connection with capital improvements and the acquisition of other productive assets, we negotiate favorable payment terms (referred to as vendor financing), which are reported as financing activities when paid. For the first six months, we recorded vendor financing commitments related to capital investments of approximately $1,680 in 2020 and $1,265 in 2019.

 

Financing Activities

 

Debt Transactions At June 30, 2020, our total long-term debt obligations totaled $168,964. Our debt activity primarily consisted of the following:

Net borrowings of approximately $2,960 of debt under our commercial paper program.

In April 2020, entry into and draw on a $5,500 Term Loan Credit Agreement, with certain commercial banks and Bank of America, N.A., as lead agent, which was redeemed in May 2020 (originally due on December 31, 2020).

Issuance of $16,545 of AT&T global notes due 2027 to 2060.

Issuance of €3,000 million global notes ($3,281 at issuance) due 2028 to 2038.

Redemptions of $12,689 of AT&T global notes due 2020 to 2047.

Redemptions of $1,800 under term loan credit agreements with certain banks.

Redemptions of $1,000 annual put reset securities issued by BellSouth.

 

Our long-term debt issuances carried a weighted average interest rate of 3.5%, and our long-term debt redemptions had a weighted average interest rate of 3.4%.

 

Subsequent Events In July 2020, we completed redemptions of $4,264 of AT&T, WarnerMedia and DIRECTV notes due 2022, with an average interest rate of 3.4%.

 

In August 2020, we issued $11,000 of global notes due 2028 to 2061, with an average interest rate of 2.7%.

35


AT&T INC.

JUNE 30, 2020

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Dollars, subscribers and connections in millions, except per share and per subscriber amounts

 

OVERVIEW

AT&T Inc. is referred to as “we,” “AT&T” or the “Company” throughout this document, and the names of the particular subsidiaries and affiliates providing the services generally have been omitted. AT&T is a holding company whose subsidiaries and affiliates operate worldwide in the telecommunications, media and technology industries. You should read this discussion in conjunction with the consolidated financial statements and accompanying notes (Notes).

 

We have three reportable segments: (1) Communications, (2) WarnerMedia and (3) Latin America. Our segment results presented in Note 4 and discussed below follow our internal management reporting. We analyze our segments based on segment operating contribution, which consists of operating income, excluding acquisition-related costs and other significant items and equity in net income (loss) of affiliates for investments managed within each segment. Percentage increases and decreases that are not considered meaningful are denoted with a dash.

 

We have recast our segment results for all prior periods to include our prior Xandr segment within our WarnerMedia segment.

 

 

Second Quarter

 

 

Six-Month Period

 

 

 

 

 

 

 

Percent

 

 

 

 

 

 

 

Percent

 

 

2020

 

2019

Change

 

 

2020

 

2019

Change

 

Operating Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Communications

$

33,592

 

$

35,267

(4.7)

%

 

$

67,841

 

$

70,436

(3.7)

%

WarnerMedia

 

6,814

 

 

8,835

(22.9)

 

 

 

14,662

 

 

17,640

(16.9)

 

Latin America

 

1,232

 

 

1,757

(29.9)

 

 

 

2,822

 

 

3,475

(18.8)

 

Corporate and other

 

437

 

 

420

4.0

 

 

 

825

 

 

811

1.7

 

Eliminations and consolidation

 

(1,125)

 

 

(1,322)

14.9

 

 

 

(2,421)

 

 

(2,578)

6.1

 

AT&T Operating Revenues

 

40,950

 

 

44,957

(8.9)

 

 

 

83,729

 

 

89,784

(6.7)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Contribution

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Communications

 

8,112

 

 

8,671

(6.4)

 

 

 

16,315

 

 

16,682

(2.2)

 

WarnerMedia

 

1,917

 

 

2,350

(18.4)

 

 

 

3,930

 

 

4,913

(20.0)

 

Latin America

 

(201)

 

 

(209)

3.8

 

 

 

(385)

 

 

(382)

(0.8)

 

Segment Operating Contribution

$

9,828

 

$

10,812

(9.1)

%

 

$

19,860

 

$

21,213

(6.4)

%

 

The Communications segment provides services to businesses and consumers located in the U.S. and businesses globally. Our business strategies reflect bundled product offerings that cut across product lines and utilize shared assets. This segment contains the following business units:

Mobility provides nationwide wireless service and equipment.

Entertainment Group provides video, including over-the-top (OTT) services, broadband and voice communications services primarily to residential customers. This segment also sells advertising on distribution platforms.

Business Wireline provides advanced IP-based services, as well as traditional voice and data services to business customers.

 

36


AT&T INC.

JUNE 30, 2020

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

Dollars, subscribers and connections in millions, except per share and per subscriber amounts

 

The WarnerMedia segment develops, produces and distributes feature films, television, gaming and other content in various physical and digital formats globally. Historical financial results from Xandr, previously a separate reportable segment, have been combined with the WarnerMedia segment within Eliminations and other. This segment contains the following business units:

Turner primarily operates multichannel basic television networks and digital properties. Turner also sells advertising on its networks and digital properties.

Home Box Office consists of premium pay television and OTT and streaming services domestically and premium pay, basic tier television and OTT services internationally, as well as content licensing and home entertainment.

Warner Bros. primarily consists of the production, distribution and licensing of television programming and feature films, the distribution of home entertainment products and the production and distribution of games.

 

The Latin America segment provides entertainment and wireless services outside of the U.S. This segment contains the following business units:

Vrio provides video services primarily to residential customers using satellite technology in Latin America and the Caribbean.

Mexico provides wireless service and equipment to customers in Mexico.

 

COVID-19 Update

In March 2020, the World Health Organization designated the coronavirus (COVID-19) a pandemic and the President of the United States declared a national emergency. To date, COVID-19 has surfaced in nearly all regions around the world and resulted in travel restrictions and business slowdowns or shutdowns.

 

Disruptions caused by COVID-19 and measures taken to prevent its spread or mitigate its effects both domestically and internationally have impacted our results of operations. We recorded approximately $320, or $0.03 per diluted share, in the second quarter and $750, or $0.08 per diluted share, for the first six months of 2020, of incremental costs associated with voluntary corporate actions taken primarily to protect and compensate front-line employees and contractors, and WarnerMedia production disruption costs.

 

In addition to these incremental costs, we estimate that our operations and comparability were impacted by approximately $510, or $0.06 per diluted share, in the second quarter and $470, or $0.05 per diluted share, for the first six months of 2020, for the following COVID-19 related pressures: (1) the cancellation and postponement of televised sporting events, resulting in lower advertising revenues and associated expenses, (2) the closure of movie theaters and postponement of theatrical releases, leading to lower content revenues and associated expenses, (3) the imposition of travel restrictions, driving significantly lower international wireless roaming services that do not have a directly correlated expense reduction and most significantly impact profitability and (4) closures of retail stores, contributing to lower wireless equipment sales, with a corresponding reduction in equipment expense.

 

All subscriber counts at and for the period ended June 30, 2020, exclude customers who we have agreed not to terminate service under the FCC’s “Keep Americans Connected Pledge.” For reporting purposes, we count the following nonpaying subscribers as if they had disconnected, even though they are still receiving service:

Postpaid subscribers totaling 466,0000 (including 338,000 postpaid phone) in the second quarter and 521,000 (including 382,000 postpaid phone) for the first six months;

Premium TV connections totaling 91,000 in the second quarter and 157,000 for the first six months; and

Broadband connections totaling 159,000 (including 48,000 fiber) in the second quarter and 194,000 (including 58,000 fiber) for the first six months.

 

The economic effects of the pandemic and resulting societal changes are currently not predictable. There are a number of uncertainties that could impact our future results of operations, including the effectiveness of COVID-19 mitigation measures; the duration of the pandemic; global economic conditions; changes to our operations; changes in consumer confidence, behaviors and spending; work from home trends; and the sustainability of supply chains. We expect operating results and cash flows to continue to be adversely impacted by COVID-19 for at least the duration of the pandemic. We expect our third-quarter results to be impacted by the following:

37


AT&T INC.

JUNE 30, 2020

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued

Dollars, subscribers and connections in millions, except per share and per subscriber amounts

 

The shift in timing of advertising revenues from the postponement, restarting or cancellation of sporting events and the related timing of the sports costs;

Lower revenues from the closure of movie theaters and postponement of theatrical releases, partially offset by lower production and marketing costs, and other programming expenses;

The decline in revenues from international roaming wireless services due to reduced travel;

Higher expenses to protect front-line employees, contractors and customers; and

The continued transition of customers to our fiber broadband services and the acceleration of the disconnection of linear TV services due to the pandemic.

 

RESULTS OF OPERATIONS

 

Consolidated Results Our financial results are summarized in the discussions that follow. Additional analysis is discussed in our “Segment Results” section. Certain prior period amounts have been reclassified to conform to the current period’s presentation.

 

 

Second Quarter

 

 

Six-Month Period

 

 

 

 

 

 

 

Percent

 

 

 

 

 

 

 

Percent

 

 

2020

 

2019

Change

 

 

2020

 

2019

Change

 

Operating Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service

$

37,051

 

$

41,023

(9.7)

%

 

$

75,934

 

$

81,707

(7.1)

%

Equipment

 

3,899

 

 

3,934

(0.9)

 

 

 

7,795

 

 

8,077

(3.5)

 

Total Operating Revenues

 

40,950

 

 

44,957

(8.9)

 

 

 

83,729

 

 

89,784

(6.7)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operations and support

 

30,133

 

 

30,356

(0.7)

 

 

 

58,204

 

 

60,744

(4.2)

 

Depreciation and amortization

 

7,285

 

 

7,101

2.6

 

 

 

14,507

 

 

14,307

1.4

 

Total Operating Expenses

 

37,418

 

 

37,457

(0.1)

 

 

 

72,711

 

 

75,051

(3.1)

 

Operating Income

 

3,532

 

 

7,500

(52.9)

 

 

 

11,018

 

 

14,733

(25.2)

 

Interest expense

 

2,041

 

 

2,149

(5.0)

 

 

 

4,059

 

 

4,290

(5.4)

 

Equity in net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

of affiliates

 

(10)

 

 

40

-

 

 

 

(16)

 

 

33

-

 

Other income (expense) – net

 

1,017

 

 

(318)

-

 

 

 

1,820

 

 

(32)

-

 

Income Before Income Taxes

 

2,498

 

 

5,073

(50.8)

 

 

 

8,763

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