TIDM58KN
RNS Number : 4022C
AT & T Inc.
07 February 2020
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, 2019
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 1-8610
AT&T INC.
Incorporated under the laws of the State of Delaware
I.R.S. Employer Identification Number 43-1301883
208 S. Akard St., Dallas, Texas 75202
Telephone Number: (210) 821-4105
Securities registered pursuant to Section 12(b) of the Act
Name of each exchange
Title of each class Trading Symbol(s) on which registered
Common Shares (Par Value $1.00 Per T New York Stock Exchange
Share)
AT&T Inc. Floating Rate Global Notes T 20C New York Stock Exchange
due August 3, 2020
AT&T Inc. 1.875% Global Notes due December T 20 New York Stock Exchange
4, 2020
AT&T Inc. 2.65% Global Notes due December T 21B New York Stock Exchange
17, 2021
AT&T Inc. 1.45% Global Notes due June T 22B New York Stock Exchange
1, 2022
AT&T Inc. 2.50% Global Notes due March T 23 New York Stock Exchange
15, 2023
AT&T Inc. 2.75% Global Notes due May T 23C New York Stock Exchange
19, 2023
AT&T Inc. Floating Rate Global Notes T 23D New York Stock Exchange
due September 5, 2023
AT&T Inc. 1.05% Global Notes due September T 23E New York Stock Exchange
5, 2023
AT&T Inc. 1.30% Global Notes due September T 23A New York Stock Exchange
5, 2023
AT&T Inc. 1.95% Global Notes due September T 23F New York Stock Exchange
15, 2023
AT&T Inc. 2.40% Global Notes due March T 24A New York Stock Exchange
15, 2024
AT&T Inc. 3.50% Global Notes due December T 25 New York Stock Exchange
17, 2025
AT&T Inc. 1.80% Global Notes due September T 26D New York Stock Exchange
5, 2026
AT&T Inc. 2.90% Global Notes due December T 26A New York Stock Exchange
4, 2026
AT&T Inc. 2.35% Global Notes due September T 29D New York Stock Exchange
5, 2029
AT&T Inc. 4.375% Global Notes due September T 29B New York Stock Exchange
14, 2029
AT&T Inc. 2.60% Global Notes due December T 29A New York Stock Exchange
17, 2029
AT&T Inc. 3.55% Global Notes due December T 32 New York Stock Exchange
17, 2032
Name of each exchange
Title of each class Trading Symbol(s) on which registered
AT&T Inc. 5.20% Global Notes due November T 33 New York Stock Exchange
18, 2033
AT&T Inc. 3.375% Global Notes due March T 34 New York Stock Exchange
15, 2034
AT&T Inc. 2.45% Global Notes due March T 35 New York Stock Exchange
15, 2035
AT&T Inc. 3.15% Global Notes due September T 36A New York Stock Exchange
4, 2036
AT&T Inc. 7.00% Global Notes due April T 40 New York Stock Exchange
30, 2040
AT&T Inc. 4.25% Global Notes due June T 43 New York Stock Exchange
1, 2043
AT&T Inc. 4.875% Global Notes due June T 44 New York Stock Exchange
1, 2044
AT&T Inc. 5.35% Global Notes due November TBB New York Stock Exchange
1, 2066
AT&T Inc. 5.625% Global Notes due August TBC New York Stock Exchange
1, 2067
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 [X] Accelerated Filer [ ]
Filer
Non-accelerated [ Smaller reporting [ ]
filer ] 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, 2019, there were 7,307 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,
2019 2018 2019 2018
---------------------- ------ ------- ------- -------- --- ----------------- -----------
Operating Revenues
Service $ 41,023 $ 34,906 $ 81,707 $ 68,552
Equipment 3,934 4,080 8,077 8,472
---------------------- ------ ------- ------- -------- --- ----------------- -----------
Total operating
revenues 44,957 38,986 89,784 77,024
---------------------- ------ ------- ------- -------- --- ----------------- -----------
Operating Expenses
Cost of revenues
Equipment 4,061 4,377 8,563 9,225
Broadcast,
programming and
operations 7,730 5,449 15,382 10,615
Other cost of
revenues (exclusive
of depreciation and
amortization shown
separately below) 8,721 7,632 17,306 15,564
Selling, general and
administrative 9,844 8,684 19,493 16,581
Depreciation and
amortization 7,101 6,378 14,307 12,372
---------------------- ------ ------- ------- -------- --- ----------------- -----------
Total operating
expenses 37,457 32,520 75,051 64,357
---------------------- ------ ------- ------- -------- --- ----------------- -----------
Operating Income 7,500 6,466 14,733 12,667
---------------------- ------ ------- ------- -------- --- ----------------- -----------
Other Income (Expense)
Interest expense (2,149) (2,023) (4,290) (3,794)
Equity in net income
(loss) of affiliates 40 (16) 33 (7)
Other income (expense)
- net (318) 2,353 (32) 4,055
---------------------- ------ ------- ------- -------- --- ----------------- -----------
Total other income
(expense) (2,427) 314 (4,289) 254
---------------------- ------ ------- ------- -------- --- ----------------- -----------
Income Before Income
Taxes 5,073 6,780 10,444 12,921
Income tax expense 1,099 1,532 2,122 2,914
Net Income 3,974 5,248 8,322 10,007
---------------------- ------ ------- ------- -------- --- ----------------- -----------
Less: Net Income
Attributable to
Noncontrolling
Interest (261) (116) (513) (213)
---------------------- ------ ------- ------- -------- --- ----------------- -----------
Net Income
Attributable to AT&T $ 3,713 $ 5,132 $ 7,809 $ 9,794
====================== ====== ======= ======= ======== === ================= ===========
Basic Earnings Per
Share Attributable
to AT&T $ 0.51 $ 0.81 $ 1.06 $ 1.56
Diluted Earnings Per
Share Attributable
to AT&T $ 0.51 $ 0.81 $ 1.06 $ 1.56
---------------------- ------ ------- ------- -------- --- ----------------- -----------
Weighted Average
Number of Common
Shares
Outstanding - Basic
(in millions) 7,323 6,351 7,318 6,257
Weighted Average
Number of Common
Shares
Outstanding - with
Dilution (in
millions) 7,353 6,374 7,347 6,277
====================== ====== ======= ======= ======== === ================= ===========
See Notes to
Consolidated Financial
Statements.
AT&T INC.
------------------------------ ------- ------- -------- --------- ---- ----- ------ ---- ---------
CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME
Dollars in millions
(Unaudited)
------------------------------ ------- ------- -------- --------- ---- ----- ------ ---- ---------
Three months ended Six months ended
June 30, June 30,
2019 2018 2019 2018
------------------------------ ---------------- ------------------- ---- ------------- ---------------
Net income $ 3,974 $ 5,248 $ 8,322 $ 10,007
Other comprehensive income
(loss),
net of tax:
Foreign currency:
Translation adjustment
(includes
$2, $(32), $2 and
$(30)
attributable to
noncontrolling
interest),
net of taxes of
$(1), $(318), $48 and
$(143) (127) (918) 161 (810)
Securities:
Net unrealized gains
(losses), net
of taxes of $10, $0,
$15
and $(4) 26 - 42 (12)
Derivative instruments:
Net unrealized gains
(losses), net
of taxes of $(165),
$(112),
$(131) and $68 (617) (421) (490) 253
Reclassification
adjustment included
in net income,
net of taxes of $3,
$3, $5 and $6 6 11 17 23
Defined benefit
postretirement plans:
Net prior service
(cost) credit arising
during period,
net of taxes of $0,
$(12), $0 and
$173 - (37) - 530
Amortization of net
prior service
credit included in net
income, net of taxes
of $(107), $(109),
$(220)
and $(214) (342) (334) (688) (657)
------------------------------ ------- ------- -------- --------- ---- ----- ------ ---- ---------
Other comprehensive income
(loss) (1,054) (1,699) (958) (673)
------------------------------ ------- ------- -------- --------- ---- ----- ------ ---- ---------
Total comprehensive income 2,920 3,549 7,364 9,334
Less: Total comprehensive
income attributable
to
noncontrolling interest (263) (84) (515) (183)
------------------------------ ------- ------- -------- --------- ---- ----- ------ ---- ---------
Total Comprehensive Income
Attributable
to AT&T $ 2,657 $ 3,465 $ 6,849 $ 9,151
============================== ======= ======= ======== ========= ==== ===== ====== ==== =========
See Notes to Consolidated
Financial
Statements.
AT&T INC.
-------------------------------------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
Dollars in millions except per share amounts
-------------------------------------------------------------------------------------------------------------
December
June 30, 31,
2019 2018
---------------------------------------------------------- ---------------------- ------ -----------------
Assets (Unaudited)
Current Assets
Cash and cash equivalents $ 8,423 $ 5,204
Accounts receivable - net of allowances for doubtful
accounts of $1,086 and $907 22,381 26,472
Prepaid expenses 1,441 2,047
Other current assets 14,973 17,704
---------------------------------------------------------- --------- ----------- ------ ---- -----------
Total current assets 47,218 51,427
---------------------------------------------------------- --------- ----------- ------ ---- -----------
Noncurrent Inventories and Theatrical Film and
Television Production Costs 10,685 7,713
Property, plant and equipment 334,916 330,690
Less: accumulated depreciation and amortization (202,842) (199,217)
---------------------------------------------------------- --------- ----------- ------ ---- -----------
Property, Plant and Equipment - Net 132,074 131,473
---------------------------------------------------------- --------- ----------- ------ ---- -----------
Goodwill 146,662 146,370
Licenses - Net 97,125 96,144
Trademarks and Trade Names - Net 24,088 24,345
Distribution Networks - Net 16,262 17,069
Other Intangible Assets - Net 23,284 26,269
Investments in and Advances to Equity Affiliates 4,133 6,245
Operating lease right-of-use assets 22,650 -
Other Assets 22,733 24,809
---------------------------------------------------------- --------- ----------- ------ ---- -----------
Total Assets $ 546,914 $ 531,864
========================================================== ========= =========== ====== ==== ===========
Liabilities and Stockholders' Equity
Current Liabilities
Debt maturing within one year $ 12,772 $ 10,255
Accounts payable and accrued liabilities 42,082 43,184
Advanced billings and customer deposits 5,734 5,948
Accrued taxes 2,062 1,179
Dividends payable 3,726 3,854
---------------------------------------------------------- --------- ----------- ------ ---- -----------
Total current liabilities 66,376 64,420
---------------------------------------------------------- --------- ----------- ------ ---- -----------
Long-Term Debt 157,790 166,250
---------------------------------------------------------- --------- ----------- ------ ---- -----------
Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes 58,713 57,859
Postemployment benefit obligation 21,210 19,218
Operating lease liabilities 20,568 -
Other noncurrent liabilities 28,176 30,233
---------------------------------------------------------- --------- ----------- ------ ---- -----------
Total deferred credits and other noncurrent liabilities 128,667 107,310
---------------------------------------------------------- --------- ----------- ------ ---- -----------
Stockholders' Equity
Common stock ($1 par value, 14,000,000,000 authorized
at June 30, 2019 and
December 31, 2018: issued 7,620,748,598 at June
30, 2019 and December 31, 2018) 7,621 7,621
Additional paid-in capital 125,109 125,525
Retained earnings 59,389 58,753
Treasury stock (315,719,351 at June 30, 2019 and
339,120,073 at December 31, 2018,
at cost) (11,151) (12,059)
Accumulated other comprehensive income 3,289 4,249
Noncontrolling interest 9,824 9,795
---------------------------------------------------------- --------- ----------- ------ ---- -----------
Total stockholders' equity 194,081 193,884
---------------------------------------------------------- --------- ----------- ------ ---- -----------
Total Liabilities and Stockholders' Equity $ 546,914 $ 531,864
========================================================== ========= =========== ====== ==== ===========
See Notes to Consolidated Financial Statements.
AT&T INC.
-------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
Dollars in millions
(Unaudited)
---------------------------------------------------------- ---------------------- ------ -----------------
Six months ended
June 30,
2019 2018
---------------------------------------------------------- ---------------------- ------ -----------------
Operating Activities
Net income $ 8,322 $ 10,007
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 14,307 12,372
Amortization of television and film costs 5,199 168
Undistributed earnings from investments in equity
affiliates 76 235
Provision for uncollectible accounts 1,216 808
Deferred income tax expense 1,080 2,285
Net (gain) loss from investments, net of impairments (905) (29)
Actuarial (gain) loss on pension and postretirement
benefits 2,131 (2,726)
Changes in operating assets and liabilities:
Accounts receivable 3,540 233
Other current assets, inventories and theatrical
film and television production costs (5,422) 1,039
Accounts payable and other accrued liabilities (3,056) (3,890)
Equipment installment receivables and related
sales 1,144 490
Deferred customer contract acquisition and fulfillment
costs (614) (1,725)
Employee retirement benefits (1,232) (933)
Other - net (450) 842
---------------------------------------------------------- --------- ----------- ------ ---- -----------
Total adjustments 17,014 9,169
---------------------------------------------------------- --------- ----------- ------ ---- -----------
Net Cash Provided by Operating Activities 25,336 19,176
---------------------------------------------------------- --------- ----------- ------ ---- -----------
Investing Activities
Capital expenditures:
Purchase of property and equipment (10,542) (10,959)
Interest during construction (112) (267)
Acquisitions, net of cash acquired (320) (40,715)
Dispositions 3,593 59
(Purchases), sales and settlements of securities
and investments, net 396 (218)
Advances to and investments in equity affiliates,
net (314) (1,035)
Cash collections of deferred purchase price - 500
---------------------------------------------------------- --------- ----------- ------ ---- -----------
Net Cash Used in Investing Activities (7,299) (52,635)
---------------------------------------------------------- --------- ----------- ------ ---- -----------
Financing Activities
Net change in short-term borrowings with original
maturities of three months or less 119 2,227
Issuance of other short-term borrowings 3,067 4,839
Repayment of other short-term borrowings (3,148) -
Issuance of long-term debt 10,030 26,478
Repayment of long-term debt (16,124) (29,447)
Purchase of treasury stock (240) (564)
Issuance of treasury stock 455 12
Dividends paid (7,436) (6,144)
Other (1,506) (1,121)
---------------------------------------------------------- --------- ----------- ------ ---- -----------
Net Cash Used in Financing Activities (14,783) (3,720)
---------------------------------------------------------- --------- ----------- ------ ---- -----------
Net increase (decrease) in cash and cash equivalents
and restricted cash 3,254 (37,179)
Cash and cash equivalents and restricted cash beginning
of year 5,400 50,932
---------------------------------------------------------- --------- ----------- ------ ---- -----------
Cash and Cash Equivalents and Restricted Cash End
of Period $ 8,654 $ 13,753
========================================================== ========= =========== ====== ==== ===========
See Notes to Consolidated Financial Statements.
AT&T INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Dollars and shares in millions except per share amounts
(Unaudited)
-----------------------------------------------------------------------------------------------------------
Three months ended
June 30, 2019 June 30, 2018
---------------------------------- --------- ------------------------------------
Shares Amount Shares Amount
---------------------- --------------- ----------------- ----------- ------ ---------------
Common Stock
Balance at beginning
of quarter 7,621 $ 7,621 6,495 $ 6,495
Issuance of stock - - 1,126 1,126
---------------------- --------------- ------- -------- --------- ----------- ------ ---- ---------
Balance at end of
period 7,621 $ 7,621 7,621 $ 7,621
====================== =============== ======= ======== ========= =========== ====== ==== =========
Additional Paid-In
Capital
Balance at beginning
of quarter $ 125,174 $ 89,404
Issuance of common
stock - 35,473
Issuance of treasury
stock (50) -
Share-based payments (15) 1,083
---------------------- --------------- ------- -------- --------- ----------- ------ ---- ---------
Balance at end of
period $ 125,109 $ 125,960
====================== =============== ======= ======== ========= =========== ====== ==== =========
Retained Earnings
Balance at beginning
of quarter $ 59,424 $ 55,067
Net income
attributable to AT&T
($0.51 and $0.81 per
diluted share) 3,713 5,132
Dividends to
stockholders ($0.51
and $0.50 per share) (3,748) (3,647)
Cumulative effect of
accounting
changes - 3
---------------------- --------------- ------- -------- --------- ----------- ------ ---- ---------
Balance at end of
period $ 59,389 $ 56,555
====================== =============== ======= ======== ========= =========== ====== ==== =========
Treasury Stock
Balance at beginning
of quarter (324) $ (11,452) (348) $ (12,432)
Repurchase and
acquisition of common
stock (2) (72) (14) (443)
Issuance of treasury
stock 10 373 1 3
---------------------- --------------- ------- -------- --------- ----------- ------ ---- ---------
Balance at end of
period (316) $ (11,151) (361) $ (12,872)
====================== =============== ======= ======== ========= =========== ====== ==== =========
Accumulated Other
Comprehensive
Income
Attributable to AT&T,
net of tax
Balance at beginning
of quarter $ 4,345 $ 7,386
Other comprehensive
income attributable
to AT&T (1,056) (1,667)
Amounts reclassified
to retained
earnings - (3)
---------------------- --------------- ------- -------- --------- ----------- ------ ---- ---------
Balance at end of
period $ 3,289 $ 5,716
====================== =============== ======= ======== ========= =========== ====== ==== =========
Noncontrolling
Interest
Balance at beginning
of quarter $ 9,839 $ 1,156
Net income
attributable to
noncontrolling
interest 261 116
Interest acquired by
noncontrolling
owners 1 8
Acquisition of
noncontrolling
interest - 1
Distributions (279) (99)
Translation
adjustments
attributable
to noncontrolling
interest, net of
taxes 2 (32)
Cumulative effect of
accounting
changes - -
---------------------- --------------- ------- -------- --------- ----------- ------ ---- ---------
Balance at end of
period $ 9,824 $ 1,150
====================== =============== ======= ======== ========= =========== ====== ==== =========
Total Stockholders'
Equity at beginning
of quarter $ 194,951 $ 147,076
====================== =============== ======= ======== ========= =========== ====== ==== =========
Total Stockholders'
Equity at end
of period $ 194,081 $ 184,130
====================== =============== ======= ======== ========= =========== ====== ==== =========
See Notes to
Consolidated Financial
Statements.
AT&T INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Dollars and shares in millions except per share amounts
(Unaudited)
-----------------------------------------------------------------------------------------------------------
Six months ended
June 30, 2019 June 30, 2018
---------------------------------- --------- ------------------------------------
Shares Amount Shares Amount
---------------------- --------------- ----------------- ----------- ------ ---------------
Common Stock
Balance at beginning
of year 7,621 $ 7,621 6,495 $ 6,495
Issuance of stock - - 1,126 1,126
---------------------- --------------- ------- -------- --------- ----------- ------ ---- ---------
Balance at end of
period 7,621 $ 7,621 7,621 $ 7,621
====================== =============== ======= ======== ========= =========== ====== ==== =========
Additional Paid-In
Capital
Balance at beginning
of year $ 125,525 $ 89,563
Issuance of common
stock - 35,473
Issuance of treasury
stock (127) (4)
Share-based payments (289) 928
---------------------- --------------- ------- -------- --------- ----------- ------ ---- ---------
Balance at end of
period $ 125,109 $ 125,960
====================== =============== ======= ======== ========= =========== ====== ==== =========
Retained Earnings
Balance at beginning
of year $ 58,753 $ 50,500
Net income
attributable to AT&T
($1.06 and $1.56 per
diluted share) 7,809 9,794
Dividends to
stockholders ($1.02
and $1.00 per share) (7,489) (6,739)
Cumulative effect of
accounting
changes 316 3,000
---------------------- --------------- ------- -------- --------- ----------- ------ ---- ---------
Balance at end of
period $ 59,389 $ 56,555
====================== =============== ======= ======== ========= =========== ====== ==== =========
Treasury Stock
Balance at beginning
of year (339) $ (12,059) (356) $ (12,714)
Repurchase and
acquisition of common
stock (9) (280) (18) (607)
Issuance of treasury
stock 32 1,188 13 449
---------------------- --------------- ------- -------- --------- ----------- ------ ---- ---------
Balance at end of
period (316) $ (11,151) (361) $ (12,872)
====================== =============== ======= ======== ========= =========== ====== ==== =========
Accumulated Other
Comprehensive
Income
Attributable to AT&T,
net of tax
Balance at beginning
of year $ 4,249 $ 7,017
Other comprehensive
income attributable
to AT&T (960) (643)
Amounts reclassified
to retained
earnings - (658)
---------------------- --------------- ------- -------- --------- ----------- ------ ---- ---------
Balance at end of
period $ 3,289 $ 5,716
====================== =============== ======= ======== ========= =========== ====== ==== =========
Noncontrolling
Interest
Balance at beginning
of year $ 9,795 $ 1,146
Net income
attributable to
noncontrolling
interest 513 213
Interest acquired by
noncontrolling
owners 10 8
Acquisition on
noncontrolling
interest - 1
Distributions (525) (223)
Translation
adjustments
attributable
to noncontrolling
interest, net of
taxes 2 (30)
Cumulative effect of
accounting
changes 29 35
---------------------- --------------- ------- -------- --------- ----------- ------ ---- ---------
Balance at end of
period $ 9,824 $ 1,150
====================== =============== ======= ======== ========= =========== ====== ==== =========
Total Stockholders'
Equity at beginning
of year $ 193,884 $ 142,007
====================== =============== ======= ======== ========= =========== ====== ==== =========
Total Stockholders'
Equity at end
of period $ 194,081 $ 184,130
====================== =============== ======= ======== ========= =========== ====== ==== =========
See Notes to
Consolidated
Financial
Statements.
NOTE 1. PREPARATION OF INTERIM FINANCIAL STATEMENTS
Basis of Presentation Throughout this document, AT&T Inc. is
referred to as "we," "AT&T" or the "Company." The consolidated
financial statements include the accounts of the Company and
subsidiaries and affiliates which we control, including the
operating results of Warner Media, LLC (referred to as "Time
Warner" or "WarnerMedia"), which was acquired on June 14, 2018 (see
Note 8). Our operating results for 2018 include the results from
Time Warner following the acquisition date. AT&T is a holding
company whose subsidiaries and affiliates operate worldwide in the
telecommunications, media and technology industries. You should
read this document in conjunction with the consolidated financial
statements and accompanying notes included in our Annual Report on
Form 10-K for the year ended December 31, 2018. 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 that affect the amounts reported
in the financial statements and accompanying notes, including
estimates of probable losses and expenses. Actual results could
differ from those estimates. Certain prior period amounts have been
conformed to the current period's presentation.
In the tables throughout this document, percentage increases and
decreases that are not considered meaningful are denoted with a
dash.
Adopted Accounting Standards and Other Changes
Leases As of January 1, 2019, we adopted, with modified
retrospective application, Accounting Standards Update (ASU) No.
2016-02, "Leases (Topic 842)" (ASC 842), which replaces existing
leasing rules with a comprehensive lease measurement and
recognition standard and expanded disclosure requirements (see Note
10). ASC 842 requires lessees to recognize most leases on their
balance sheets as liabilities, with corresponding "right-of-use"
assets. For income statement recognition purposes, leases are
classified as either a finance or an operating lease without
relying upon bright-line tests.
The key change upon adoption of the standard was balance sheet
recognition, given that the recognition of lease expense on our
income statement is similar to our historical accounting. Using the
modified retrospective transition method of adoption, we did not
adjust the balance sheet for comparative periods but recorded a
cumulative effect adjustment to retained earnings on January 1,
2019. We elected the package of practical expedients permitted
under the transition guidance within the new standard, which, among
other things, allowed us to carry forward our historical lease
classification. We also elected the practical expedient related to
land easements, allowing us to carry forward our accounting
treatment for land easements on existing agreements that were not
accounted for as leases. We excluded all the leases with original
terms of one year or less. Additionally, we elected to not separate
lease and non-lease components for certain classes of assets in
arrangements where we are the lessee and for certain classes of
assets where we are the lessor. Our accounting for finance leases
did not change from our prior accounting for capital leases.
The adoption of ASC 842 resulted in the recognition of an
operating lease liability of $22,121 and an operating right-of-use
asset of the same amount. Existing prepaid and deferred rent
accruals were recorded as an offset to the right-of-use asset,
resulting in a net asset of $20,960. The cumulative effect of the
adoption to retained earnings was an increase of $316 reflecting
the reclassification of deferred gains related to sale/leaseback
transactions. We do not believe the standard will materially impact
our future income statements or have a notable impact on our
liquidity. The standard will have no impact on our debt-covenant
compliance under our current agreements.
Deferral of Episodic Television and Film Costs In March 2019,
the FASB issued ASU No. 2019-02, "Entertainment-Films-Other
Assets-Film Costs (Subtopic 926-20) and
Entertainment-Broadcasters-Intangibles-Goodwill and Other (Subtopic
920-350): Improvements to Accounting for Costs of Films and License
Agreements for Program Materials" (ASU 2019-02), which we early
adopted as of January 1, 2019, with prospective application. The
standard eliminates certain revenue-related constraints on
capitalization of inventory costs for episodic television that
existed under prior guidance. In addition, the balance sheet
classification requirements that existed in prior guidance for film
production costs and programming inventory were eliminated. As of
January 1, 2019, we reclassified $2,274 of our programming
inventory costs from "Other current assets" to "Other Assets" in
accordance with the guidance. This change in accounting does not
materially impact our income statement.
Spectrum Licenses in Mexico During the first quarter of 2019, in
conjunction with the renewal process of certain spectrum licenses
in Mexico, we reassessed the estimated economic lives and renewal
assumptions for these licenses. As a result, we have changed the
life of these licenses from indefinite to finite-lived. On January
1, 2019, we began amortizing our spectrum licenses in Mexico over
their average remaining economic life of 25 years. This change in
accounting does not materially impact our income statement.
Recently Issued Accounting Standards
Credit Loss Standard In June 2016, the FASB issued ASU No.
2016-13, "Financial Instruments-Credit Losses (Topic 326):
Measurement of Credit Losses on Financial Instruments" (ASU
2016-13, as amended), which replaces the incurred loss impairment
methodology under current GAAP. ASU 2016-13 affects trade
receivables, loans and other financial assets that are not subject
to fair value through net income, as defined by the standard. The
amendments under ASU 2016-13 will be effective for years beginning
after December 15, 2019, and interim periods within those years. We
are currently evaluating ASU 2016-13 but do not anticipate it will
have a material impact on our financial statements.
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, 2019 and 2018, is shown in the table below:
Three months ended Six months ended
June 30, June 30,
2019 2018 2019 2018
---------------------------------------- ------------ -------- ---------- --------
Numerators
Numerator for basic earnings per
share:
Net Income $ 3,974 $ 5,248 $ 8,322 $ 10,007
Less: Net income attributable to
noncontrolling interest (261) (116) (513) (213)
---------------------------------------- -------- ------- ------ -------
Net Income attributable to AT&T 3,713 5,132 7,809 9,794
Dilutive potential common shares:
Share-based payment 4 4 10 9
---------------------------------------- -------- ------- ------ -------
Numerator for diluted earnings per
share $ 3,717 $ 5,136 $ 7,819 $ 9,803
======================================== ======== ======= ====== =======
Denominators (000,000)
Denominator for basic earnings per
share:
Weighted average number of common
shares outstanding 7,323 6,351 7,318 6,257
Dilutive potential common shares:
Share-based payment (in shares) 30 23 29 20
---------------------------------------- -------- ------- ------ -------
Denominator for diluted earnings
per share 7,353 6,374 7,347 6,277
======================================== ======== ======= ====== =======
Basic earnings per share attributable
to AT&T $ 0.51 $ 0.81 $ 1.06 $ 1.56
Diluted earnings per share attributable
to AT&T $ 0.51 $ 0.81 $ 1.06 $ 1.56
======================================== ======== ======= ====== =======
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.
Net
Unrealized
Foreign Gains Net Unrealized Defined Accumulated
Currency (Losses) Gains (Losses) Benefit Other
Translation on on Derivative Postretirement Comprehensive
Adjustment Securities Instruments Plans Income
------------------ --------------- ----------- --- --------------- --- ----------------- --- -----------------
Balance as of
December
31, 2018 $ (3,084) $ (2) $ 818 $ 6,517 $ 4,249
Other comprehensive
income
(loss) before
reclassifications 159 42 (490) - (289)
Amounts
reclassified
from accumulated
OCI - - 17 (1) (688) (2) (671)
------------------- ----------- ---------- --- ----------- --- ------------- --- -------------
Net other
comprehensive
income (loss) 159 42 (473) (688) (960)
------------------- ----------- ---------- --- ----------- --- ------------- --- -------------
Balance as of June
30, 2019 $ (2,925) $ 40 $ 345 $ 5,829 $ 3,289
=================== =========== ========== === =========== === ============= === =============
Net
Unrealized
Foreign Gains Net Unrealized Defined Accumulated
Currency (Losses) Gains (Losses) Benefit Other
Translation on on Derivative Postretirement Comprehensive
Adjustment Securities Instruments Plans Income
------------------ --------------- ----------- --- --------------- --- ----------------- --- -----------------
Balance as of
December
31, 2017 $ (2,054) $ 660 $ 1,402 $ 7,009 $ 7,017
Other comprehensive
income
(loss) before
reclassifications (780) (12) 253 530 (9)
Amounts
reclassified
from accumulated
OCI - - 23 (1) (657) (2) (634)
------------------- ----------- ---------- --- ----------- --- ------------- --- -------------
Net other
comprehensive
income (loss) (780) (12) 276 (127) (643)
------------------- ----------- ---------- --- ----------- --- ------------- --- -------------
Amounts
reclassified
to
retained earnings - (658) (3) - - (658)
------------------- ----------- ---------- --- ----------- --- ------------- --- -------------
Balance as of June
30, 2018 $ (2,834) $ (10) $ 1,678 $ 6,882 $ 5,716
=================== =========== ========== === =========== === ============= === =============
(Gains) losses are included in Interest expense in the consolidated
(1) statements of income (see Note 7).
The amortization of prior service credits associated with postretirement
(2) benefits are included in Other income (expense) in the
consolidated statements of income (see Note 6).
With the adoption of ASU 2016-01, the unrealized (gains) losses on
(3) our equity investments are reclassified to retained earnings.
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 four reportable
segments: (1) Communications, (2) WarnerMedia, (3) Latin America,
and (4) Xandr.
We also evaluate segment and business unit performance based on
EBITDA and/or EBITDA margin, which is defined as operating
contribution excluding equity in net income (loss) of affiliates
and depreciation and amortization. We believe EBITDA to be a
relevant and useful measurement to our investors as it is part of
our internal management reporting and planning processes and it is
an important metric that management uses to evaluate operating
performance. EBITDA does not give effect to cash used for debt
service requirements and thus does not reflect available funds for
distributions, reinvestment or other discretionary uses. EBITDA
margin is EBITDA divided by total revenues.
The Communications segment provides wireless and wireline
telecom, video and broadband services to consumers located in the
U.S. or in U.S. territories and businesses globally. This segment
contains the following business units:
-- Mobility provides nationwide wireless service and equipment.
-- Entertainment Group provides video, including over-the-top
(OTT) services, broadband and voice communications services
primarily to residential customers. This segment also sells
advertising on DIRECTV and U-verse distribution platforms.
-- Business Wireline provides advanced IP-based services, as
well as traditional voice and data services to business
customers.
The WarnerMedia segment develops, produces and distributes
feature films, television, gaming and other content in various
physical and digital formats globally. Historical financial results
from AT&T's Regional Sports Networks (RSNs) and equity
investments (predominantly Game Show Network and Otter Media),
previously included in Entertainment Group, have been reclassified
into the WarnerMedia segment and are combined with the Time Warner
operations for the period subsequent to our acquisition on June 14,
2018. This segment contains the following business units:
-- Turner is comprised of the historic Turner division as well
as the financial results of our RSNs. This business unit primarily
operates multichannel basic television networks and digital
properties. Turner also sells advertising on its networks and
digital properties.
-- Home Box Office consists of premium pay television and OTT
services domestically and premium pay, basic tier television and
OTT services internationally, as well as content licensing and home
entertainment.
-- Warner Bros. consists of the production, distribution and
licensing of television programming and feature films, the
distribution of home entertainment products and the production and
distribution of games.
The Latin America segment provides entertainment and wireless
services outside of the U.S. This segment contains the following
business units:
-- Mexico provides wireless service and equipment to customers in Mexico.
-- Vrio provides video services primarily to residential
customers using satellite technology in Latin America and the
Caribbean.
The Xandr segment provides advertising services and includes
AppNexus, an advertising technology company we acquired in August
2018. Xandr services utilize data insights to develop and deliver
targeted advertising across video and digital platforms. Certain
revenues in this segment are also reported by the Communications
segment and are eliminated upon consolidation.
Corporate and Other reconcile our segment results to
consolidated operating income and income before income taxes, and
include:
-- 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, (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 and (5) the
recharacterization of programming intangible asset amortization,
for released programming acquired in the Time Warner acquisition,
which we continue to report within WarnerMedia segment operating
expense, to consolidated amortization expense. The programming and
intangible asset amortization reclass was $112 in the second
quarter and $262 for the first six months of 2019.
-- Acquisition-related items which consists of items associated
with the merger and integration of acquired businesses, including
amortization of intangible assets.
-- Certain significant items includes (1) employee separation
charges associated with voluntary and/or strategic offers, (2)
losses resulting from abandonment or impairment of assets and (3)
other items for which the segments are not being evaluated.
-- Eliminations and consolidations, which (1) removes
transactions involving dealings between our segments, including
content licensing between WarnerMedia and Communications, and (2)
includes adjustments for our reporting of the advertising
business.
Interest expense and other income (expense) - net, are managed
only on a total company basis and are, accordingly, reflected only
in consolidated results.
For the three months ended June 30, 2019
-------------------------------------------------------------------------------------------------------------
Equity
in Net
Operations Income
and Depreciation Operating (Loss)
Support and Income of Segment
Revenues Expenses EBITDA Amortization (Loss) Affiliates Contribution
--------------------- -------- ---------- ------ ------------ --------- ---------- ------------
Communications
Mobility $ 17,512 $ 9,654 $ 7,858 $ 2,025 $ 5,833 $ - $ 5,833
Entertainment Group 11,368 8,515 2,853 1,339 1,514 - 1,514
Business Wireline 6,628 3,982 2,646 1,256 1,390 - 1,390
--------------------- -------- ---------- ------ ------------ --------- ---------- ------------
Total Communications 35,508 22,151 13,357 4,620 8,737 - 8,737
--------------------- -------- ---------- ------ ------------ --------- ---------- ------------
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
Other (165) 23 (188) 9 (197) 29 (168)
--------------------- -------- ---------- ------ ------------ --------- ---------- ------------
Total WarnerMedia 8,350 6,289 2,061 91 1,970 55 2,025
--------------------- -------- ---------- ------ ------------ --------- ---------- ------------
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)
--------------------- -------- ---------- ------ ------------ --------- ---------- ------------
Xandr 485 147 338 13 325 - 325
--------------------- -------- ---------- ------ ------------ --------- ---------- ------------
Segment Total 46,100 30,281 15,819 5,008 10,811 $ 67 $ 10,878
===================== ======== ========== ====== ============ ========= ========== ============
Corporate and Other
Corporate 209 626 (417) 134 (551)
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
===================== ======== ========== ====== ============ =========
For the three months ended June 30, 2018
-------------------------------------------------------------------------------------------------------------------
Equity
in Net
Operations Income
and Depreciation Operating (Loss)
Support and Income of Segment
Revenues Expenses EBITDA Amortization (Loss) Affiliates Contribution
--------------------- -------- ---------- ------ ------------ --------- ---------- ------------
Communications
Mobility $ 17,282 $ 9,663 $ 7,619 $ 2,113 $ 5,506 $ - $ 5,506
Entertainment Group 11,478 8,657 2,821 1,345 1,476 (1) 1,475
Business Wireline 6,650 4,038 2,612 1,180 1,432 1 1,433
--------------------- -------- ---------- ------ ------------ --------- ---------- ------------
Total Communications 35,410 22,358 13,052 4,638 8,414 - 8,414
--------------------- -------- ---------- ------ ------------ --------- ---------- ------------
WarnerMedia
Turner 667 372 295 11 284 5 289
Home Box Office 281 171 110 5 105 (1) 104
Warner Bros. 507 403 104 14 90 (1) 89
Other (62) (35) (27) 1 (28) (29) (57)
--------------------- -------- ---------- ------ ------------ --------- ---------- ------------
Total WarnerMedia 1,393 911 482 31 451 (26) 425
--------------------- -------- ---------- ------ ------------ --------- ---------- ------------
Latin America
Vrio 1,254 1,016 238 186 52 15 67
Mexico 697 787 (90) 127 (217) - (217)
--------------------- -------- ---------- ------ ------------ --------- ---------- ------------
Total Latin America 1,951 1,803 148 313 (165) 15 (150)
--------------------- -------- ---------- ------ ------------ --------- ---------- ------------
Xandr 392 59 333 - 333 - 333
--------------------- -------- ---------- ------ ------------ --------- ---------- ------------
Segment Total 39,146 25,131 14,015 4,982 9,033 $ (11) $ 9,022
===================== ======== ========== ====== ============ ========= ========== ============
Corporate and Other
Corporate 320 661 (341) 118 (459)
Acquisition-related
items - 321 (321) 1,278 (1,599)
Certain significant
items - 152 (152) - (152)
Eliminations and
consolidations (480) (123) (357) - (357)
--------------------- -------- ---------- ------ ------------ ---------
AT&T Inc. $ 38,986 $ 26,142 $ 12,844 $ 6,378 $ 6,466
===================== ======== ========== ====== ============ =========
For the six months ended June 30, 2019
-------------------------------------------------------------------------------------------------------------------
Equity
in Net
Operations Income
and Depreciation Operating (Loss)
Support and Income of Segment
Revenues Expenses EBITDA Amortization (Loss) Affiliates Contribution
--------------------- -------- ---------- ------ ------------ --------- ---------- ------------
Communications
Mobility $ 35,079 $ 19,835 $ 15,244 $ 4,060 $ 11,184 $ - $ 11,184
Entertainment Group 22,696 17,042 5,654 2,662 2,992 - 2,992
Business Wireline 13,126 8,022 5,104 2,491 2,613 - 2,613
--------------------- -------- ---------- ------ ------------ --------- ---------- ------------
Total Communications 70,901 44,899 26,002 9,213 16,789 - 16,789
--------------------- -------- ---------- ------ ------------ --------- ---------- ------------
WarnerMedia
Turner 6,853 4,353 2,500 99 2,401 36 2,437
Home Box Office 3,226 2,052 1,174 34 1,140 30 1,170
Warner Bros. 6,907 5,837 1,070 83 987 6 993
Other (257) 40 (297) 18 (315) 50 (265)
--------------------- -------- ---------- ------ ------------ --------- ---------- ------------
Total WarnerMedia 16,729 12,282 4,447 234 4,213 122 4,335
--------------------- -------- ---------- ------ ------------ --------- ---------- ------------
Latin America
Vrio 2,099 1,747 352 334 18 12 30
Mexico 1,376 1,538 (162) 250 (412) - (412)
--------------------- -------- ---------- ------ ------------ --------- ---------- ------------
Total Latin America 3,475 3,285 190 584 (394) 12 (382)
--------------------- -------- ---------- ------ ------------ --------- ---------- ------------
Xandr 911 307 604 26 578 - 578
--------------------- -------- ---------- ------ ------------ --------- ---------- ------------
Segment Total 92,016 60,773 31,243 10,057 21,186 $ 134 $ 21,320
===================== ======== ========== ====== ============ ========= ========== ============
Corporate and Other
Corporate 418 1,139 (721) 303 (1,024)
Acquisition-related
items (72) 389 (461) 3,948 (4,409)
Certain significant
items - 342 (342) - (342)
Eliminations and
consolidations (2,578) (1,899) (679) (1) (678)
--------------------- -------- ---------- ------ ------------ ---------
AT&T Inc. $ 89,784 $ 60,744 $ 29,040 $ 14,307 $ 14,733
===================== ======== ========== ====== ============ =========
For the six months ended June 30, 2018
-------------------------------------------------------------------------------------------------------------------
Equity
in Net
Operations Income
and Depreciation Operating (Loss)
Support and Income of Segment
Revenues Expenses EBITDA Amortization (Loss) Affiliates Contribution
--------------------- -------- ---------- ------ ------------ --------- ---------- ------------
Communications
Mobility $ 34,637 $ 19,765 $ 14,872 $ 4,208 $ 10,664 $ - $ 10,664
Entertainment Group 22,909 17,468 5,441 2,655 2,786 (2) 2,784
Business Wireline 13,397 8,054 5,343 2,350 2,993 - 2,993
--------------------- -------- ---------- ------ ------------ --------- ---------- ------------
Total Communications 70,943 45,287 25,656 9,213 16,443 (2) 16,441
--------------------- -------- ---------- ------ ------------ --------- ---------- ------------
WarnerMedia
Turner 779 446 333 12 321 32 353
Home Box Office 281 171 110 5 105 (1) 104
Warner Bros. 507 403 104 14 90 (1) 89
Other (62) (27) (35) 1 (36) (46) (82)
--------------------- -------- ---------- ------ ------------ --------- ---------- ------------
Total WarnerMedia 1,505 993 512 32 480 (16) 464
--------------------- -------- ---------- ------ ------------ --------- ---------- ------------
Latin America
Vrio 2,608 2,017 591 391 200 15 215
Mexico 1,368 1,590 (222) 254 (476) - (476)
--------------------- -------- ---------- ------ ------------ --------- ---------- ------------
Total Latin America 3,976 3,607 369 645 (276) 15 (261)
--------------------- -------- ---------- ------ ------------ --------- ---------- ------------
Xandr 729 109 620 1 619 - 619
--------------------- -------- ---------- ------ ------------ --------- ---------- ------------
Segment Total 77,153 49,996 27,157 9,891 17,266 $ (3) $ 17,263
===================== ======== ========== ====== ============ ========= ========== ============
Corporate and Other
Corporate 653 1,396 (743) 141 (884)
Acquisition-related
items - 388 (388) 2,340 (2,728)
Certain significant
items - 332 (332) - (332)
Eliminations and
consolidations (782) (127) (655) - (655)
--------------------- -------- ---------- ------ ------------ ---------
AT&T Inc. $ 77,024 $ 51,985 $ 25,039 $ 12,372 $ 12,667
===================== ======== ========== ====== ============ =========
The following table is a reconciliation of Segment Contributions
to "Income Before Income Taxes" reported on our consolidated
statements of income:
Three months ended Six months ended
June 30, June 30,
-------------------- ------------------
2019 2018 2019 2018
--------------------------------------------- --- --------- -------- -------- -------
Communications $ 8,737 $ 8,414 $ 16,789 $ 16,441
WarnerMedia 2,025 425 4,335 464
Latin America (209) (150) (382) (261)
Xandr 325 333 578 619
--------------------------------------------- --- --------- -------- -------- -------
Segment Contribution 10,878 9,022 21,320 17,263
--------------------------------------------- --- --------- -------- -------- -------
Reconciling Items:
Corporate and Other (551) (459) (1,024) (884)
Merger and integration items (346) (340) (461) (432)
Amortization of intangibles acquired (1,960) (1,278) (3,948) (2,340)
Employee separation charges (94) (133) (342) (184)
Natural disaster items - - - (104)
Segment equity in net income of affiliates (67) 11 (134) 3
Eliminations and consolidations (360) (357) (678) (655)
--------------------------------------------- --- --------- -------- -------- -------
AT&T Operating Income 7,500 6,466 14,733 12,667
--------------------------------------------- --- --------- -------- -------- -------
Interest Expense (2,149) (2,023) (4,290) (3,794)
Equity in net income (loss) of affiliates 40 (16) 33 (7)
Other income (expense) - net (318) 2,353 (32) 4,055
--------------------------------------------- --- --------- -------- -------- -------
Income Before Income Taxes $ 5,073 $ 6,780 $ 10,444 $ 12,921
============================================= === ========= ======== ======== =======
The following table presents intersegment revenues by
segment:
Intersegment Reconciliation
-------------------------------- ---------- ----- -------- -----
Three months ended Six months ended
June 30, June 30,
---------------------- --------------------
2019 2018 2019 2018
-------------------------------- -------------- ------ ------------ -----
Intersegment revenues
Communications $ 8 $ 2 $ 8 $ 2
WarnerMedia 861 174 1,719 209
Latin America - - - -
Xandr - - - -
-------------------------------- ---------- ----- -------- -----
Total Intersegment Revenues 869 176 1,727 211
Consolidations 453 304 851 571
-------------------------------- ---------- ----- -------- -----
Eliminations and consolidations $ 1,322 $ 480 $ 2,578 $ 782
================================ ========== ===== ======== =====
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, 2019
------------------------------------------------------------------------------------------------------------------------------------------------
Service Revenues
--------------------------------------------------------------------------------------------------
Legacy
Advanced Voice
Wireless Data & Data Subscription Content Advertising Other Equipment Total
---------------- --- -------- -------- ------ ------------ ------- ----------- ----- --------- -------
Communications
Mobility $ 13,935 $ - $ - $ - $ - $ 71 $ - $ 3,506 $ 17,512
Entertainment
Group - 2,109 658 7,636 - 399 562 4 11,368
Business Wireline - 3,221 2,331 - - - 898 178 6,628
WarnerMedia
Turner - - - 1,943 111 1,266 90 - 3,410
Home Box Office - - - 1,516 198 - 2 - 1,716
Warner Bros. - - - 23 3,175 10 181 - 3,389
Eliminations
and Other - - - 54 (237) 9 9 - (165)
Latin America
Vrio - - - 1,032 - - - - 1,032
Mexico 479 - - - - - - 246 725
Xandr - - - - - 485 - - 485
Corporate and
Other (32) - - - - - 211 - 179
Eliminations and
consolidations - - - - (840) (399) (83) - (1,322)
--------------------- -------- -------- ------ ------------ ------- ----------- ----- --------- -------
Total Operating
Revenues $ 14,382 $ 5,330 $ 2,989 $ 12,204 $ 2,407 $ 1,841 $ 1,870 $ 3,934 $ 44,957
================ === ======== ======== ====== ============ ======= =========== ===== ========= =======
For the three months ended June 30, 2018
-----------------------------------------------------------------------------------------------------------------------------------------------
Service Revenues
--------------------------------------------------------------------------------------------------
Legacy
Advanced Voice
Wireless Data & Data Subscription Content Advertising Other Equipment Total
---------------- --- -------- -------- ------ ------------ ------- ----------- ----- --------- ------
Communications
Mobility $ 13,638 $ - $ - $ - $ - $ 44 $ - $ 3,600 $ 17,282
Entertainment
Group - 1,981 772 7,786 - 387 551 1 11,478
Business Wireline - 3,031 2,730 - - - 690 199 6,650
WarnerMedia
Turner - - - 410 21 223 13 - 667
Home Box Office - - - 270 11 - - - 281
Warner Bros. - - - 7 455 8 37 - 507
Eliminations
and Other - - - - (56) (6) - - (62)
Latin America
Vrio - - - 1,254 - - - - 1,254
Mexico 417 - - - - - - 280 697
Xandr - - - - - 392 - - 392
Corporate and
Other - - - - - - 320 - 320
Eliminations and
consolidations - - - - (174) (387) 81 - (480)
--------------------- -------- -------- ------ ------------ ------- ----------- ----- --------- ------
Total Operating
Revenues $ 14,055 $ 5,012 $ 3,502 $ 9,727 $ 257 $ 661 $ 1,692 $ 4,080 $ 38,986
================ === ======== ======== ====== ============ ======= =========== ===== ========= ======
For the six months ended June 30, 2019
--------------------------------------------------------------------------------------------------------------------
Service Revenues
----------------------------------------------------------------------------
Legacy
Advanced Voice
Wireless Data & Data Subscription Content Advertising Other Equipment Total
---------------- -------- -------- ------ ------------ ------- ----------- ----- --------- -------
Communications
Mobility $ 27,660 $ - $ - $ - $ - $ 138 $ - $ 7,281 $ 35,079
Entertainment
Group - 4,179 1,341 15,360 - 749 1,063 4 22,696
Business
Wireline - 6,407 4,735 - - - 1,647 337 13,126
WarnerMedia
Turner - - - 3,908 246 2,527 172 - 6,853
Home Box
Office - - - 2,850 371 - 5 - 3,226
Warner Bros. - - - 44 6,507 20 336 - 6,907
Eliminations
and Other - - - 103 (389) 17 12 - (257)
Latin America
Vrio - - - 2,099 - - - - 2,099
Mexico 921 - - - - - - 455 1,376
Xandr - - - - - 911 - - 911
Corporate and
Other (32) - - - - - 378 - 346
Eliminations and
consolidations - - - - (1,677) (749) (152) - (2,578)
---------------- -------- -------- ------ ------------ ------- ----------- ----- --------- -------
Total Operating
Revenues $ 28,549 $ 10,586 $ 6,076 $ 24,364 $ 5,058 $ 3,613 $3,461 $ 8,077 $ 89,784
================ ======== ======== ====== ============ ======= =========== ===== ========= =======
For the six months ended June 30, 2018
-----------------------------------------------------------------------------------------------------------------------------------------------
Service Revenues
--------------------------------------------------------------------------------------------------
Legacy
Advanced Voice
Wireless Data & Data Subscription Content Advertising Other Equipment Total
---------------- --- -------- -------- ------ ------------ ------- ----------- ----- --------- ------
Communications
Mobility $ 27,000 $ - $ - $ - $ - $ 85 $ - $ 7,552 $ 34,637
Entertainment
Group - 3,859 1,578 15,677 - 721 1,070 4 22,909
Business Wireline - 6,074 5,595 - - - 1,359 369 13,397
WarnerMedia
Turner - - - 508 21 237 13 - 779
Home Box Office - - - 270 11 - - - 281
Warner Bros. - - - 7 455 8 37 - 507
Eliminations
and Other - - - - (56) (6) - - (62)
Latin America
Vrio - - - 2,608 - - - - 2,608
Mexico 821 - - - - - - 547 1,368
Xandr - - - - - 729 - - 729
Corporate and
Other - - - - - - 653 - 653
Eliminations and
consolidations - - - - (209) (721) 148 - (782)
--------------------- -------- -------- ------ ------------ ------- ----------- ----- --------- ------
Total Operating
Revenues $ 27,821 $ 9,933 $ 7,173 $ 19,070 $ 222 $ 1,053 $ 3,280 $ 8,472 $ 77,024
================ === ======== ======== ====== ============ ======= =========== ===== ========= ======
Deferred Customer Contract Acquisition and Fulfillment Costs
Costs to acquire and fulfill customer contracts, including
commissions on service activations, for our wireless, business
wireline and video entertainment services, are deferred and
amortized over the contract period or expected customer
relationship life, which typically ranges from three years to five
years. For contracts with an estimated amortization period of less
than one year, we expense incremental costs immediately.
The following table presents the deferred customer contract
acquisition costs and deferred customer contract fulfillment costs
included on our consolidated balance sheets:
December
June 30, 31,
Consolidated Balance Sheets 2019 2018
--------------------------------------------------- -------- --------
Deferred Acquisition Costs
Other current assets $ 1,952 $ 1,901
Other Assets 2,760 2,073
--------------------------------------------------- -------- --------
Total deferred customer contract acquisition costs 4,712 3,974
--------------------------------------------------- -------- --------
Deferred Fulfillment Costs
Other current assets 4,620 4,090
Other Assets 6,796 7,450
--------------------------------------------------- -------- --------
Total deferred customer contract fulfillment costs $ 11,416 $ 11,540
=================================================== ======== ========
The following table presents deferred customer contract
acquisition cost and deferred customer contract fulfillment cost
amortization for the six months ended:
June 30, June 30,
Consolidated Statements of Income 2019 2018
--------------------------------------- -------- --------
Deferred acquisition cost amortization $ 1,026 $ 595
Deferred fulfillment cost amortization 2,381 1,889
======================================= ======== ========
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:
December
June 30, 31,
Consolidated Balance Sheets 2019 2018
---------------------------- -------- --------
Contract asset $ 2,188 $ 1,896
Contract liability 6,653 6,856
============================= ======== ========
Our January 1, 2019 contract liability recorded as customer
contract revenue during 2019 was $4,974.
Our consolidated balance sheets at June 30, 2019 and December
31, 2018 included approximately $1,463 and $1,244, respectively,
for the current portion of our contract asset in "Other current
assets" and $5,533 and $5,752, respectively, for the current
portion of our contract liability in "Advanced billings and
customer deposits."
Remaining Performance Obligations
Remaining performance obligations represent services we are
required to provide to customers under bundled or discounted
arrangements, which are satisfied as services are provided over the
contract term. In determining the transaction price allocated, we
do not include non-recurring charges and estimates for usage, nor
do we consider arrangements with an original expected duration of
less than one year, which are primarily prepaid wireless, video and
residential internet agreements.
Remaining performance obligations associated with business
contracts reflect recurring charges billed, adjusted to reflect
estimates for sales incentives and revenue adjustments. Performance
obligations associated with wireless contracts are estimated using
a portfolio approach in which we review all relevant promotional
activities, calculating the remaining performance obligation using
the average service component for the portfolio and the average
device price. As of June 30, 2019, the aggregate amount of the
transaction price allocated to remaining performance obligations
was $40,646, of which we expect to recognize approximately 80% by
the end of 2020, with the balance recognized thereafter.
NOTE 6. PENSION AND POSTRETIREMENT BENEFITS
Many of our employees are covered by one of our noncontributory
pension plans. We also provide certain medical, dental, life
insurance and death benefits to certain retired employees under
various plans and accrue actuarially determined postretirement
benefit costs. Our objective in funding these plans, in combination
with the standards of the Employee Retirement Income Security Act
of 1974, as amended (ERISA), is to accumulate assets sufficient to
provide benefits described in the plans to employees upon their
retirement.
In first quarter of 2019, for certain management participants in
our pension plan who terminated employment before April 1, 2019, we
offered the option of more favorable 2018 interest rates and
mortality basis for determining lump-sum distributions. For the
quarter ended March 31, 2019, we recorded special termination
benefits of $93 associated with this offer in "Other income
(expense) - net." We also committed to a plan to offer certain
terminated vested pension plan participants the opportunity to
receive their benefit in a lump-sum amount.
We recognize actuarial gains and losses on pension and
postretirement plan assets in our consolidated results as a
component of "Other income (expense) - net" at our annual
measurement date of December 31, unless earlier remeasurements are
required. We anticipate total distributions from the pension plan
will exceed the threshold of service and interest costs for 2019,
requiring us to follow settlement accounting and remeasure our
pension benefit obligation each quarter-end of 2019. These
remeasurements resulted in the recognition of actuarial losses of
$432 and $1,699 in the first and second quarters of 2019,
respectively.
As part of our 2019 remeasurements, we decreased the
weighted-average discount rate used to measure our pension benefit
obligation from 4.50% at December 31, 2018 to 4.10% at March 31,
2019, and to 3.70% at June 30, 2019. The discount rate in effect
for determining pension service and interest costs after
remeasurement is 3.90% and 3.25%, respectively. Our remeasurements
also reflect actual returns on plan assets of 10.0% (six-month
rate). Our expected long-term rate of return on pension plan assets
is an annualized 7.00% for the remainder of 2019.
The following table details pension and postretirement benefit
costs included in the accompanying consolidated statements of
income. The service cost component of net periodic pension cost
(benefit) is recorded in operating expenses in the consolidated
statements of income while the remaining components are recorded in
"Other income (expense) - net."
Three months ended Six months ended
June 30, June 30,
2019 2018 2019 2018
---------------------------------------------- ------------ -------- ------------ --------
Pension cost:
Service cost - benefits earned during
the period $ 243 $ 284 $ 483 $ 575
Interest cost on projected benefit
obligation 508 504 1,057 991
Expected return on assets (880) (755) (1,731) (1,515)
Amortization of prior service credit (24) (29) (57) (59)
Actuarial (gain) loss 1,699 (1,796) 2,131 (1,796)
---------------------------------------------- ---- ------ ------- --- ------- -------
Net pension (credit) cost $ 1,546 $(1,792) $ 1,883 $(1,804)
============================================== ==== ====== ======= === ======= =======
Postretirement cost:
Service cost - benefits earned during
the period $ 18 $ 26 $ 36 $ 55
Interest cost on accumulated postretirement
benefit obligation 186 195 372 386
Expected return on assets (56) (75) (112) (152)
Amortization of prior service credit (426) (413) (852) (810)
Actuarial (gain) loss - - - (930)
---------------------------------------------- ---- ------ ------- --- ------- -------
Net postretirement (credit) cost $ (278) $ (267) $ (556) $(1,451)
============================================== ==== ====== ======= === ======= =======
Combined net pension and postretirement
(credit) cost $ 1,268 $(2,059) $ 1,327 $(3,255)
============================================== ==== ====== ======= === ======= =======
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 $25 and $21 in the second quarter and $50 and $42 for
the first six months of 2019 and 2018, 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 fair value measurements level of an asset or liability
within the fair value hierarchy is based on the lowest level of any
input that is significant to the fair value measurement. Our
valuation techniques maximize the use of observable inputs and
minimize the use of unobservable inputs.
The valuation methodologies described above may produce a fair
value calculation that may not be indicative of future net
realizable value or reflective of future fair values. We believe
our valuation methods are appropriate and consistent with other
market participants. The use of different methodologies or
assumptions to determine the fair value of certain financial
instruments could result in a different fair value measurement at
the reporting date. There have been no changes in the methodologies
used since December 31, 2018.
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, 2019 December 31, 2018
------------------------------------ -----------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------------------------- ----------------- ----------------- ----------------- ----------------
Notes and debentures(1) $ 165,443 $ 181,230 $ 171,529 $ 172,287
Commercial paper 3,164 3,164 3,048 3,048
Bank borrowings 4 4 4 4
Investment securities(2) 3,518 3,518 3,409 3,409
========================== ============= ============= ============= ============
(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 market value. The fair value
measurements used for notes and debentures are considered Level 2
and are determined using various methods, including quoted prices
for identical or similar securities in both active and inactive
markets.
Following is the fair value leveling for investment securities
and derivatives that are measured at fair value as of June 30, 2019
and December 31, 2018. Derivatives designated as hedging
instruments are reflected as "Other assets," "Other noncurrent
liabilities" and, for a portion of interest rate swaps, "Other
current assets" on our consolidated balance sheets.
June 30, 2019
----------------------------------------
Level 1 Level 2 Level 3 Total
----------------------------------- --------- -------- --------- --------
Equity Securities
Domestic equities $ 1,016 $ - $ - $ 1,016
International equities 235 - - 235
Fixed income equities 209 - - 209
Available-for-Sale Debt Securities - 1,031 - 1,031
Asset Derivatives
Interest rate swaps - 26 - 26
Cross-currency swaps - 307 - 307
Foreign exchange contracts - 68 - 68
Liability Derivatives
Cross-currency swaps - (2,929) - (2,929)
Interest rate locks - (23) - (23)
Foreign exchange contracts - (3) - (3)
==================================== ===== ======= ==== === =======
December 31, 2018
----------------------------------------
Level 1 Level 2 Level 3 Total
----------------------------------- --------- -------- --------- --------
Equity Securities
Domestic equities $ 1,061 $ - $ - $ 1,061
International equities 256 - - 256
Fixed income equities 172 - - 172
Available-for-Sale Debt Securities - 870 - 870
Asset Derivatives
Cross-currency swaps - 472 - 472
Foreign exchange contracts - 87 - 87
Liability Derivatives
Interest rate swaps - (39) - (39)
Cross-currency swaps - (2,563) - (2,563)
Foreign exchange contracts - (2) - (2)
==================================== ===== ======= ==== === =======
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 on equity
securities are as follows:
Three months
ended Six months ended
June 30, June 30,
2019 2018 2019 2018
----------------------------------------------- --------- ----- ---------- --------
Total gains (losses) recognized on equity
securities $ 50 $ 21 $ 210 $ 8
Gains (Losses) recognized on equity securities
sold 69 (3) 155 49
----------------------------------------------- ----- ---- ------ -------
Unrealized gains (losses) recognized on equity
securities held at end of period (19) 24 55 (41)
=============================================== ===== ==== ====== =======
At June 30, 2019, available-for-sale debt securities totaling
$1,031 have maturities as follows - less than one year: $26; one to
three years: $185; three to five years: $151; five or more years:
$669.
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.
Fair Value Hedging We designate our fixed-to-floating interest
rate swaps as fair value hedges. The purpose of these swaps is to
manage interest rate risk by managing our mix of fixed-rate and
floating-rate debt. These swaps involve the receipt of fixed-rate
amounts for floating interest rate payments over the life of the
swaps without exchange of the underlying principal amount.
We also designate some of our foreign exchange contracts as fair
value hedges. The purpose of these contracts is to hedge currency
risk associated with foreign-currency-denominated operating assets
and liabilities.
Accrued and realized gains or losses from fair value hedges
impact the same category on the consolidated statements of income
as the item being hedged. Unrealized gains on fair value hedges are
recorded at fair market value as assets, and unrealized losses are
recorded at fair market value as liabilities. Changes in the fair
value of derivative instruments designated as fair value hedges are
offset against the change in fair value of the hedged assets or
liabilities through earnings. In the six months ended June 30, 2019
and 2018, no ineffectiveness was measured on fair value hedges.
Cash Flow Hedging We designate our cross-currency swaps as cash
flow hedges. We have entered into multiple cross-currency swaps to
hedge our exposure to variability in expected future cash flows
that are attributable to foreign currency risk generated from the
issuance of our foreign-denominated debt. These agreements include
initial and final exchanges of principal from fixed foreign
currency denominated amounts to fixed U.S. dollar denominated
amounts, to be exchanged at a specified rate that is usually
determined by the market spot rate upon issuance. They also include
an interest rate swap of a fixed or floating foreign
currency-denominated interest rate to a fixed U.S. dollar
denominated interest rate.
We also designate some of our foreign exchange contracts as cash
flow hedges. The purpose of these contracts is to hedge currency
risk associated with variability in anticipated
foreign-currency-denominated cash flows, such as unremitted or
forecasted royalty and license fees owed to WarnerMedia's domestic
companies for the sale or anticipated sale of U.S. copyrighted
products abroad or cash flows for certain film production costs
denominated in a foreign currency.
Unrealized gains on derivatives designated as cash flow hedges
are recorded at fair value as assets, and unrealized losses are
recorded at fair value as liabilities. For derivative instruments
designated as cash flow hedges, the effective portion is reported
as a component of accumulated OCI until reclassified into the
consolidated statements of income in the same period the hedged
transaction affects earnings. The gain or loss on the ineffective
portion is recognized as "Other income (expense) - net" in the
consolidated statements of income in each period. We evaluate the
effectiveness of our cash flow hedges each quarter. In the six
months ended June 30, 2019 and 2018, no ineffectiveness was
measured on cash flow hedges.
Periodically, we enter into and designate interest rate locks to
partially hedge the risk of changes in interest payments
attributable to increases in the benchmark interest rate during the
period leading up to the probable issuance of fixed-rate debt. We
designate our interest rate locks as cash flow hedges. Gains and
losses from the settlement of our interest rate locks are amortized
into income over the life of the related debt, except where a
material amount is deemed to be ineffective, which would be
immediately reclassified to "Other income (expense) - net" in the
consolidated statements of income. Over the next 12 months, we
expect to reclassify $63 from accumulated OCI to interest expense
due to the amortization of net losses on historical interest rate
locks.
Net Investment Hedging We have designated EUR700 million
aggregate principal amount of debt as a hedge of the variability of
some of the Euro-denominated net investments of WarnerMedia. 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.
Collateral and Credit-Risk Contingency We have entered into
agreements with our derivative counterparties establishing
collateral thresholds based on respective credit ratings and
netting agreements. At June 30, 2019, we had posted collateral of
$242 (a deposit asset) and held collateral of $86 (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 $137. 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 $2,668. If DIRECTV Holdings LLC's
credit rating had been downgraded below BBB- by S&P, we would
have been required to post additional collateral of $262. At
December 31, 2018, we had posted collateral of $1,675 (a deposit
asset) and held collateral of $103 (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:
December
June 30, 31,
---------------------------
2019 2018
--------------------------- ----------------------------------- ----------------------------------
Interest rate swaps(1) $ 1,633 $ 3,483
Cross-currency swaps 40,311 42,192
Interest rate locks 2,000 -
Foreign exchange contracts 669 2,094
---------------------------- ----- ---------------------------- ----- ---------------------------
Total $ 44,613 $ 47,769
============================ ===== ============================ ===== ===========================
In July 2019 we settled interest rate swaps with a notional value
(1) of $780.
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 2019 2018 2019 2018
---------------------------------------- ------------ ---------- ----------- -------
Interest rate swaps (Interest expense):
Gain (Loss) on interest rate swaps $ 35 $ (9) $ 59 $ (62)
Gain (Loss) on long-term debt (35) 9 (59) 62
======================================== ======== ====== ======= ======
In addition, the net swap settlements that accrued and settled
in the quarter ended June 30 were offset against interest
expense.
Three months ended Six months ended
June 30, June 30,
Cash Flow Hedging Relationships 2019 2018 2019 2018
---------------------------------------------- ------------ -------- ------------ ------
Cross-currency swaps:
Gain (Loss) recognized in accumulated
OCI $ (763) $ (533) $ (595) $ 321
Foreign exchange contracts:
Gain (Loss) recognized in accumulated
OCI 4 - (3) -
Other income (expense) - net reclassified
from
accumulated OCI into income 7 - 10 -
Interest rate locks:
Gain (Loss) recognized in accumulated
OCI (23) - (23) -
Interest income (expense) reclassified
from
accumulated OCI into income (16) (14) (32) (29)
============================================== ======== ======= ======== =====
NOTE 8. ACQUISITIONS, DISPOSITIONS AND OTHER ADJUSTMENTS
Acquisitions
Time Warner On June 14, 2018, we completed our acquisition of
Time Warner, a leader in media and entertainment whose major
businesses encompass an array of some of the most respected media
brands. We paid Time Warner shareholders $36,599 in AT&T stock
and $42,100 in cash. Total consideration, including share-based
payment arrangements and other adjustments totaled $79,358,
excluding Time Warner's net debt at acquisition.
The fair values of the assets acquired and liabilities assumed
were determined using the income, cost and market approaches. The
fair value measurements were primarily based on significant inputs
that are not observable in the market and thus represent a Level 3
measurement as defined in ASC 820, other than cash and long-term
debt acquired in the acquisition. The income approach was primarily
used to value the intangible assets, consisting primarily of
distribution network, released TV and film content, in-place
advertising network, trade names, and franchises. The income
approach estimates fair value for an asset based on the present
value of cash flow projected to be generated by the asset.
Projected cash flow is discounted at a required rate of return that
reflects the relative risk of achieving the cash flow and the time
value of money. The cost approach, which estimates value by
determining the current cost of replacing an asset with another of
equivalent economic utility, was used, as appropriate, for plant,
property and equipment. The cost to replace a given asset reflects
the estimated reproduction or replacement cost for the property,
less an allowance for loss in value due to depreciation.
Goodwill is calculated as the difference between the acquisition
date fair value of the consideration transferred and the fair value
of the net assets acquired, and represents the future economic
benefits that we expect to achieve as a result of the
acquisition.
The following table summarizes the fair values of the Time
Warner assets acquired and liabilities assumed and related deferred
income taxes as of the acquisition date:
Assets acquired
Cash $ 1,889
Accounts receivable 9,020
All other current assets 2,913
Noncurrent inventory and theatrical film and television
production costs 5,591
Property, plant and equipment 4,693
Intangible assets subject to amortization
Distribution network 18,040
Released television and film content 10,806
Trademarks and trade names 18,081
Other 10,300
Investments and other assets 9,438
Goodwill 38,801
------------------------------------------------------------------- -------
Total assets acquired 129,572
------------------------------------------------------------------- -------
Liabilities assumed
Current liabilities, excluding current portion of long-term
debt 8,294
Debt maturing within one year 4,471
Long-term debt 18,394
Other noncurrent liabilities 19,054
------------------------------------------------------------------- -------
Total liabilities assumed 50,213
------------------------------------------------------------------- -------
Net assets acquired 79,359
------------------------------------------------------------------- -------
Noncontrolling interest (1)
------------------------------------------------------------------- -------
Aggregate value of consideration paid $ 79,358
=================================================================== =======
Purchased goodwill is not expected to be deductible for tax
purposes. All of the goodwill was allocated to the WarnerMedia
segment.
Dispositions
Hudson Yards In June 2019, we sold our ownership in Hudson Yards
North Tower Holdings LLC under a sale-leaseback arrangement for
cash proceeds of $2,081 and recorded a loss of $102 resulting from
transaction costs (primarily real estate transfer taxes).
Hulu In April 2019, we sold our ownership in Hulu for cash
proceeds of $1,430 and recorded a gain of $740.
NOTE 9. SALES OF RECEIVABLES
We have agreements with various third-party financial
institutions pertaining to the sale of certain types of our
accounts receivable. The most significant of these programs are
discussed in detail below and generally consist of (1) receivables
arising from equipment installment plans, which are sold for cash
and a deferred purchase price, and (2) receivables related to our
WarnerMedia business. 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 WarnerMedia programs are discussed
in detail below. A summary of the receivables and accounts being
serviced is as follows:
June 30, 2019 December 31, 2018
------------------------------------------------ ------------------------------------
Equipment Equipment
Installment WarnerMedia Installment WarnerMedia
--------------------- ----------------------- ----------------------- --------------------- -------------
Gross receivables: $ 4,519 $ 2,769 $ 5,994 $ -
Balance sheet
classification
Accounts receivable
Notes receivable 2,599 - 3,457 -
Trade receivables 449 2,286 438 -
Other Assets
Noncurrent notes
and trade
receivables 1,471 483 2,099 -
---------------------- ---- ----------------- ---- ----------------- --- ---------------- ------ -----
Outstanding portfolio
of receivables
derecognized from
our consolidated
balance sheets 9,528 3,725 9,065 -
Cash proceeds
received, net of
remittances(1) 7,073 3,725 6,508 -
====================== ==== ================= ==== ================= === ================ ====== =====
Represents amounts to which financial institutions remain entitled,
(1) excluding the deferred purchase price.
Equipment Installment Receivables
We offer our customers the option to purchase certain wireless
devices in installments over a specified period of time and, in
many cases, once certain conditions are met, they may be eligible
to trade in the original equipment for a new device and have the
remaining unpaid balance paid or settled.
We maintain a program under which we transfer a portion of these
receivables 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 during the three and six months ended
June 30, 2019 and 2018:
Three months ended Six months ended
June 30, June 30,
2019 2018 2019 2018
------------------------ -------------------- -------------------- ------------------- ------------------
Gross receivables sold $ 2,244 $ 1,906 $ 4,945 $ 4,916
Net receivables sold(1) 2,133 1,811 4,679 4,606
Cash proceeds received 1,920 1,532 4,195 3,927
Deferred purchase price
recorded 261 307 570 826
Guarantee obligation
recorded 93 72 194 195
========================= === =============== === =============== === ============== ==============
Receivables net of allowance, imputed interest and equipment trade-in
(1) right guarantees.
The deferred purchase price and guarantee obligation are
initially recorded at estimated fair value and subsequently carried
at the lower of cost or net realizable value. 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 shows 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, 2019 and 2018:
Three months ended Six months ended
June 30, June 30,
2019 2018 2019 2018
------------------- ------------------ ------------------------- ---------------- -----------------------
Fair value of
repurchased
receivables $ 235 $ 1,481 $ 658 $ 1,481
Carrying value of
deferred purchase
price 225 1,393 632 1,393
-------------------- ---- ------------ ---- ------------------- --- ----------- --- ------------------
Gain (loss) on
repurchases(1) $ 10 $ 88 $ 26 $ 88
==================== ==== ============ ==== =================== === =========== === ==================
These gains (losses) are included in "Selling, general and administrative"
(1) in the consolidated statements of income.
At June 30, 2019 and December 31, 2018, our deferred purchase
price receivable was $2,242 and $2,370, respectively, of which
$1,531 and $1,448 are included in "Other current assets" on our
consolidated balance sheets, with the remainder in "Other Assets."
The guarantee obligation at June 30, 2019 and December 31, 2018 was
$454 and $439, respectively, of which $91 and $196 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.
WarnerMedia Receivables
In March 2019, we entered into a revolving agreement to transfer
$1,400 of certain receivables from our WarnerMedia business to
various financial institutions on a recurring basis in exchange for
cash equal to the gross receivables transferred. As customers pay
their balances, we transfer additional receivables into the
program, resulting in our gross receivables sold exceeding net cash
flow impacts. In June 2019, we expanded the program another $2,600
for a total maximum outstanding amount of $4,000, of which
approximately $3,725 is outstanding at June 30, 2019. The
transferred receivables are fully guaranteed by our subsidiary,
which holds additional receivables in the amount of $2,769 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. Our maximum exposure to loss
related to selling these receivables is limited to the amount
outstanding.
The following table sets forth a summary of WarnerMedia
receivables sold during the three and six months ended June 30,
2019 and 2018:
Three months ended Six months ended
June 30, June 30,
2019 2018 2019 2018
----------------------- ----------------------------- ----------- ---------------------------- ----------
Initial sale of
receivables $ 2,325 $ - $ 3,725 $ -
Collections reinvested
under revolving
agreement 2,127 - 2,127 -
------------------------ ----- ---------------------- ----- ---- ---- ---------------------- ---- ----
Gross receivables
sold/cash proceeds
received 4,452 - 5,852 -
Net receivables sold(1) 4,134 - 5,497 -
Obligations recorded 384 - 436 -
======================== ===== ====================== ===== ==== ==== ====================== ==== ====
Receivables net of allowance, return and incentive reserves and imputed
(1) interest
NOTE 10. LEASES
We have operating and finance leases for certain facilities and
equipment used in operations. As of June 30, 2019, our leases have
remaining lease terms of 1 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.
Subsequent to the adoption of ASC 842 on January 1, 2019, 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 is updated on a quarterly basis for measurement of new lease
obligations.
The components of lease expense were as follows:
Three months ended Six months ended
June 30, 2019 June 30, 2019
-------------------------------------- -------------------- ------------------
Operating lease cost $ 1,610 $ 2,852
-------------------------------------- --- --------------- --- -------------
Finance lease cost:
Amortization of right-of-use assets $ 70 $ 136
Interest on lease obligation 42 84
-------------------------------------- --- --------------- --- -------------
Total finance lease cost $ 112 $ 220
====================================== === =============== === =============
Supplemental balance sheet information related to leases is as
follows:
At June 30, 2019
Operating Leases
Operating lease right-of-use assets $ 22,650
Accounts payable and accrued liabilities $ 3,344
Operating lease obligation 20,568
-------------------------------------------- ------- ---
Total operating lease obligation $ 23,912
============================================ ======= ===
Finance Leases
Property, plant and equipment, at cost $ 3,362
Accumulated depreciation and amortization (1,178)
-------------------------------------------- ------- ---
Property, plant and equipment, net $ 2,184
============================================ ======= ===
Current portion of long-term debt $ 137
Long-term debt 1,809
-------------------------------------------- ------- ---
Total finance lease obligation $ 1,946
============================================ ======= ===
Weighted-Average Remaining Lease Term
Operating leases 8.4 yrs
Finance leases 10.7 yrs
Weighted-Average Discount Rate
Operating leases 4.7%
Finance leases 8.5%
-------------------------------------------- -------
Future minimum maturities of lease obligations are as
follows:
At June 30, 2019 Operating Finance
Leases Leases
---------------------- ----------- --------
Remainder of 2019 $ 2,250 $ 169
2020 4,276 296
2021 3,841 274
2022 3,561 264
2023 3,228 253
Thereafter 12,502 1,814
---------------------- ------- -------
Total lease payments 29,658 3,070
----------------------
Less imputed interest (5,746) (1,124)
Total $ 23,912 $ 1,946
NOTE 11. ADDITIONAL FINANCIAL INFORMATION
Cash and Cash Flows
We typically maintain our restricted cash balances for purchases
and sales of certain investment securities and funding of certain
deferred compensation benefit payments. The components comprising
cash and cash equivalents and restricted cash are as follows:
June 30, December 31,
2019 2018 2018 2017
Cash and cash equivalents $8,423 $13,523 $5,204 $50,498
Restricted cash in Other current
assets 15 12 61 6
Restricted cash in Other Assets 216 218 135 428
Cash and cash equivalents and
restricted cash $8,654 $13,753 $5,400 $50,932
Supplemental disclosures for the statement of cash flows related
to operating leases are as follows:
Six months ended
June 30,
2019 2018
Cash Flows from Operating Activities
Cash paid for amounts included in lease obligations
Operating cash flows from operating leases $ 2,464 $ 2,458
Supplemental Lease Cash Flow Disclosures
Operating lease right-of-use assets obtained
in exchange for new operating lease obligations 3,899 -
------- ------
Cash paid (received) from interest and income taxes during the
period are as follows:
Six months ended
June 30,
2019 2018
Interest $ 4,410 $ 4,045
Income taxes, net of refunds (32) (757)
Other Noncash Investing and Financing Activities In 2019, we
recorded approximately $1,265 of new vendor financing commitments
related to capital investments, and we have repaid $1,836 of such
obligations during the year. In connection with capital
improvements, we negotiate favorable payment terms (referred to as
vendor financing), which are excluded from our investing activities
and reported as financing activities.
OVERVIEW
AT&T Inc. is referred to as "we," "AT&T" or the
"Company" throughout this document, and the names of the particular
subsidiaries and affiliates providing the services generally have
been omitted. AT&T is a holding company whose subsidiaries and
affiliates operate worldwide in the telecommunications, media and
technology industries. You should read this discussion in
conjunction with the consolidated financial statements and
accompanying notes (Notes). We completed the acquisition of Time
Warner Inc. (Time Warner) on June 14, 2018, and have included its
results after that date. In accordance with U.S. generally accepted
accounting principles (GAAP), operating results from Time Warner
prior to the acquisition are excluded.
We have four reportable segments: (1) Communications, (2)
WarnerMedia, (3) Latin America and (4) Xandr. Our segment results
presented in Note 4 and discussed below follow our internal
management reporting. We analyze our segments based on segment
operating contribution, which consists of operating income,
excluding acquisition-related costs and other significant items and
equity in net income (loss) of affiliates for investments managed
within each segment. Percentage increases and decreases that are
not considered meaningful are denoted with a dash.
Second Quarter Six-Month Period
Percent Percent
2019 2018 Change 2019 2018 Change
-------- ------- -------- -------
Operating Revenues
Communications $ 35,508 $35,410 0.3% $ 70,901 $70,943 (0.1)%
WarnerMedia 8,350 1,393 - 16,729 1,505 -
Latin America 1,757 1,951 (9.9) 3,475 3,976 (12.6)
Xandr 485 392 23.7 911 729 25.0
Corporate and other 179 320 (44.1) 346 653 (47.0)
Eliminations and
consolidation (1,322) (480) - (2,578) (782) -
AT&T Operating Revenues 44,957 38,986 15.3 89,784 77,024 16.6
Operating Contribution
Communications 8,737 8,414 3.8 16,789 16,441 2.1
WarnerMedia 2,025 425 - 4,335 464 -
Latin America (209) (150) (39.3) (382) (261) (46.4)
Xandr 325 333 (2.4) 578 619 (6.6)
Segment Operating
Contribution $ 10,878 $ 9,022 20.6% $ 21,320 $17,263 23.5%
The Communications segment provides services to businesses and
consumers located in the U.S. or in U.S. territories and businesses
globally. Our business strategies reflect bundled product offerings
that cut across product lines and utilize shared assets. This
segment contains the following business units:
-- Mobility provides nationwide wireless service and equipment.
-- Entertainment Group provides video, including over-the-top
(OTT) services, broadband and voice communications services
primarily to residential customers. This segment also sells
advertising on DIRECTV and U-verse distribution platforms.
-- Business Wireline provides advanced IP-based services, as
well as traditional voice and data services to business
customers.
The WarnerMedia segment develops, produces and distributes
feature films, television, gaming and other content over various
physical and digital formats. This segment contains the following
business units:
-- Turner is comprised of the historic Turner division as well
as the financial results of our RSNs. This business unit primarily
operates multichannel basic television networks and digital
properties. Turner also sells advertising on its networks and
digital properties.
-- Home Box Office consists of premium pay television and OTT
services domestically and premium pay, basic tier television and
OTT services internationally, as well as content licensing and home
entertainment.
-- Warner Bros. consists of the production, distribution and
licensing of television programming and feature films, the
distribution of home entertainment products and the production and
distribution of games.
The Latin America segment provides entertainment and wireless
services outside of the U.S. This segment contains the following
business units:
-- Mexico provides wireless service and equipment to customers in Mexico.
-- Vrio provides video services primarily to residential
customers using satellite technology in Latin America and the
Caribbean.
The Xandr segment provides advertising services and includes our
recently acquired AppNexus. These services utilize data insights to
develop and deliver targeted advertising across video and digital
platforms.
RESULTS OF OPERATIONS
Consolidated Results Our financial results are summarized in the
following discussions. Additional analysis is discussed in our
"Segment Results" section. Certain prior period amounts have been
reclassified to conform to the current period's presentation.
Second Quarter Six-Month Period
Percent Percent
2019 2018 Change 2019 2018 Change
Operating Revenues
Service $41,023 $34,906 17.5% $81,707 $68,552 19.2%
Equipment 3,934 4,080 (3.6) 8,077 8,472 (4.7)
Total Operating Revenues 44,957 38,986 15.3 89,784 77,024 16.6
Operating expenses
Operations and support 30,356 26,142 16.1 60,744 51,985 16.8
Depreciation and amortization 7,101 6,378 11.3 14,307 12,372 15.6
Total Operating Expenses 37,457 32,520 15.2 75,051 64,357 16.6
Operating Income 7,500 6,466 16.0 14,733 12,667 16.3
Interest expense 2,149 2,023 6.2 4,290 3,794 13.1
Equity in net income
(loss)
of affiliates 40 (16) - 33 (7) -
Other income (expense)
- net (318) 2,353 - (32) 4,055 -
Income Before Income
Taxes 5,073 6,780 (25.2) 10,444 12,921 (19.2)
Net Income 3,974 5,248 (24.3) 8,322 10,007 (16.8)
Net Income Attributable
to AT&T $ 3,713 $ 5,132 (27.7)% $ 7,809 $ 9,794 (20.3)%
Operating revenues increased in the second quarter and the first
six months of 2019. The increase was primarily due to our 2018
acquisition of Time Warner. Partially offsetting these increases in
revenues were declines in our Latin America segment, which were
negatively impacted by foreign exchange pressure. Revenues in our
Communications segment were stable with growth in wireless service,
strategic and managed business services and IP broadband revenues
offsetting lower legacy services, video and wireless equipment
revenues.
Operations and support expenses increased in the second quarter
and the first six months of 2019. The increase was primarily due to
our 2018 acquisition of Time Warner. This increase was partially
offset by lower costs in our Communications segment, including
lower wireless equipment costs and lower content and other costs
related to lower video volumes, foreign exchange rate impacts in
our Latin America segment, and lower expenses due to our continued
focus on cost management.
Depreciation and amortization expense increased in the second
quarter and for the first six months of 2019. Depreciation expense
increased $27, or 0.5% in the second quarter and $163, or 1.6% for
the first six months of 2019 primarily due to the Time Warner
acquisition.
Amortization expense increased $696, or 50.6% in the second
quarter and $1,772, or 72.7% for the first six months of 2019
primarily due to the amortization of intangibles associated with
WarnerMedia.
Operating income increased in the second quarter and the first
six months of 2019. Our operating income margin for the second
quarter increased from 16.6% in 2018 to 16.7% in 2019 and
maintained at 16.4% for the first six months of 2018 and 2019.
Interest expense increased in the second quarter and first six
months of 2019. The increase was primarily due to lower capitalized
interest associated with putting spectrum into network service and
higher debt balances related to our acquisition of Time Warner. The
increase also reflects higher interest rates.
Equity in net income of affiliates increased in the second
quarter and for the first six months of 2019, primarily due to
changes in our investment portfolio resulting from
acquisition-related activity.
Other income (expense) - net decreased earnings in the second
quarter and for the first six months of 2019. The decreases were
primarily due to actuarial losses of $1,699 in the second quarter
and $2,131 for the first six months of 2019, compared to actuarial
gains of $1,796 and $2,726 in the comparable prior year. Offsetting
the decline from the remeasurement of our benefit plans was a $740
gain on the second-quarter 2019 sale of our investment in Hulu and
lower premiums on debt redemptions.
Income taxes decreased in the second quarter and for the first
six months of 2019. Our effective tax rate was 21.7% for the second
quarter and 20.3% for the first six months of 2019, versus 22.6%
for the second quarter and for the first six months of 2018. The
decrease in income tax expense and the effective tax rate was
primarily due to lower income before income taxes, including
impacts of actuarial losses of $1,699 in the second quarter and
$2,131 for the first six months of 2019, compared to actuarial
gains of $1,796 and $2,726 in 2018.
COMMUNICATIONS SEGMENT Second Quarter Six-Month Period
Percent Percent
2019 2018 Change 2019 2018 Change
Segment Operating Revenues
Mobility $17,512 $17,282 1.3% $35,079 $34,637 1.3%
Entertainment Group 11,368 11,478 (1.0) 22,696 22,909 (0.9)
Business Wireline 6,628 6,650 (0.3) 13,126 13,397 (2.0)
Total Segment Operating
Revenues 35,508 35,410 0.3 70,901 70,943 (0.1)
Segment Operating Contribution
Mobility 5,833 5,506 5.9 11,184 10,664 4.9
Entertainment Group 1,514 1,475 2.6 2,992 2,784 7.5
Business Wireline 1,390 1,433 (3.0) 2,613 2,993 (12.7)
Total Segment Operating
Contribution $ 8,737 $ 8,414 3.8% $16,789 $16,441 2.1%
====== ====== ====== ======
Selected Subscribers and Connections
------ ------
June 30,
(000s) 2019 2018
------ ------
Total domestic broadband connections 15,698 15,772
Network access lines in service 9,207 10,832
U-verse VoIP connections 4,766 5,449
====== ======
Operating revenues increased in the second quarter and decreased
for the first six months of 2019. The increase in the quarter was
driven by increases in our Mobility business unit, partially offset
by declines in our Entertainment Group and Business Wireline
business units. Revenues reflect higher wireless service, growth in
strategic and managed business services and IP broadband, and
licensing of intellectual property assets, which were partially
offset by continued declines in legacy voice and data products, the
shift to over-the-top (OTT) video offerings and decreased equipment
revenues.
The decrease for the first six months was primarily due to the
declines in our Business Wireline and Entertainment Group business
units, offset by increases in our Mobility business unit. The
decrease reflects the shift away from legacy communications and
linear video offerings, and lower equipment revenues, largely
offset by higher wireless service and advanced data revenues.
Operating contribution increased in the second quarter and for
the first six months of 2019, reflecting improvement in our
Mobility and Entertainment Group business units, partially offset
by declines in our Business Wireline business unit. Our
Communications segment operating income margin in the second
quarter increased from 23.8% in 2018 to 24.6% in 2019 and for the
first six months increased from 23.2% in 2018 to 23.7% in 2019.
Communications Business Unit Discussion
Mobility Results
Second Quarter Six-Month Period
Percent Percent
2019 2018 Change 2019 2018 Change
Operating revenues
Service $14,006 $13,682 2.4% $27,798 $27,085 2.6%
Equipment 3,506 3,600 (2.6) 7,281 7,552 (3.6)
Total Operating Revenues 17,512 17,282 1.3 35,079 34,637 1.3
Operating expenses
Operations and support 9,654 9,663 (0.1) 19,835 19,765 0.4
Depreciation and amortization 2,025 2,113 (4.2) 4,060 4,208 (3.5)
Total Operating Expenses 11,679 11,776 (0.8) 23,895 23,973 (0.3)
Operating Income 5,833 5,506 5.9 11,184 10,664 4.9
Equity in Net Income
of Affiliates - - - - - -
Operating Contribution $ 5,833 $ 5,506 5.9% $11,184 $10,664 4.9%
====== ====== ====== ======
The following tables highlight other key measures of performance
for Mobility:
June 30, Percent
(in 000s) 2019 2018 Change
Wireless Subscribers
Postpaid
smartphones 60,737 60,183 0.9%
Postpaid feature
phones
and
data-centric
devices 15,545 17,189 (9.6)
Postpaid 76,282 77,372 (1.4)
Prepaid 17,602 16,217 8.5
Reseller 7,392 8,582 (13.9)
Connected devices(1) 58,389 44,718 30.6
Total Wireless
Subscribers 159,665 146,889 8.7
Postpaid Phone
Subscribers 63,415 63,543 (0.2)
Total Phone
Subscribers 80,003 78,919 1.4%
(1) Includes data-centric devices such as wholesale automobile systems,
monitoring devices, fleet management, and session-based tablets.
Second Quarter Six-Month Period
Percent Percent
(in 000s) 2019 2018 Change 2019 2018 Change
Wireless Net Additions(2)
Postpaid (154) 73 -% (358) 122 -%
Prepaid 341 453 (24.7) 437 694 (37.0)
Reseller (214) (444) 51.8 (467) (832) 43.9
Connected devices(1) 3,959 2,982 32.8 7,047 5,710 23.4
Wireless Net Subscriber
Additions 3,932 3,064 28.3 6,659 5,694 16.9
Postpaid Phone Net
Additions 72 51 41.2 152 (9) -
Total Phone Net Additions 355 407 (12.8)% 520 539 (3.5)%
Postpaid Churn(3) 1.08 1.02 6 BP 1.12 1.04 8 BP
Postpaid Phone-Only
Churn(3) 0.86 0.82 4 BP 0.89 0.83 6 BP
(1) Includes data-centric devices such as wholesale automobile systems,
monitoring devices, fleet management, and session-based tablets.
(2) Excludes acquisition-related additions during the period.
(3) Calculated by dividing the aggregate number of wireless subscribers
who canceled service during a month divided by the total number
of wireless subscribers at the beginning of that month. The churn
rate for the period is equal to the average of the churn rate for
each month of that period.
Service revenue increased in the second quarter and for the
first six months of 2019 largely due to growth in Cricket and
AT&T PREPAID(SM) subscribers and higher postpaid average
revenue per subscriber (ARPU).
ARPU
ARPU increased in the second quarter and for the first six
months primarily due to postpaid price actions that were not in
effect in the comparative prior year.
Churn
The effective management of subscriber churn is critical to our
ability to maximize revenue growth and to maintain and improve
margins. Postpaid churn and postpaid phone-only churn were higher
due to tablet and involuntary churn. Also contributing to higher
churn for the first six months was continued competitive pricing in
the industry.
Equipment revenue decreased in the second quarter and for the
first six months of 2019 driven by lower postpaid smartphone sales,
resulting from the continuing trend of customers choosing to
upgrade devices less frequently or bring their own.
Operations and support expenses decreased in the second quarter
and increased for the first six months of 2019. The decrease in the
quarter was primarily due to lower postpaid smartphone volumes and
increased operational efficiencies, partially offset by higher bad
debt expense and commission deferral amortization. In the second
quarter of 2019, we extended the estimated economic life of our
customers, which resulted in a decline of commission deferral
amortization on a sequential basis.
The increase for the first six months was primarily due to
increased bad debt expense and higher commission deferral
amortization in the six-month period, partially offset by lower
postpaid smartphone volumes and increased operational
efficiencies.
Depreciation expense decreased in the second quarter and for the
first six months of 2019 primarily due to fully depreciated assets,
partially offset by ongoing capital spending for network upgrades
and expansion.
Operating income increased in the second quarter and for the
first six months of 2019. Our Mobility operating income margin in
the second quarter increased from 31.9% in 2018 to 33.3% in 2019,
and for the first six months increased from 30.8% in 2018 to 31.9%
in 2019. Our Mobility EBITDA margin in the second quarter increased
from 44.1% in 2018 to 44.9% in 2019, and for the first six months
increased from 42.9% in 2018 to 43.5% in 2019. EBITDA is defined as
operating contribution excluding equity in net income (loss) of
affiliates and depreciation and amortization.
Subscriber Relationships
As the wireless industry has matured, future wireless growth
will increasingly depend on our ability to offer innovative
services, plans and devices and to provide these services in
bundled product offerings with our video and broadband services.
Subscribers that purchase two or more services from us have
significantly lower churn than subscribers that purchase only one
service. To support higher mobile video and data usage, our
priority is to best utilize a wireless network that has sufficient
spectrum and capacity to support these innovations on as broad a
geographic basis as possible.
To attract and retain subscribers in a mature and highly
competitive market, we have launched a wide variety of plans.
Virtually all of our postpaid smartphone subscribers are on plans
that provide for service on multiple devices at reduced rates, and
such subscribers tend to have higher retention and lower churn
rates. Such offerings are intended to encourage existing
subscribers to upgrade their current services and/or add devices,
attract subscribers from other providers and/or minimize subscriber
churn.
Connected Devices
Connected devices include data-centric devices such as wholesale
automobile system, monitoring devices, fleet management and
session-based tablets. Connected device subscribers increased in
2019, and during the second quarter and for the first six months of
2019, we added approximately 2.1 million and 4.0 million wholesale
connected cars through agreements with various carmakers, and
experienced strong growth in other Internet of Things (IoT)
connections. We believe that these connected car agreements give us
the opportunity to create future retail relationships with the car
owners.
Entertainment Group Results
---
Second Quarter Six-Month Period
Percent Percent
2019 2018 Change 2019 2018 Change
Operating revenues
Video entertainment $ 8,035 $ 8,173 (1.7)% $16,109 $ 16,398 (1.8)%
High-speed internet 2,109 1,981 6.5 4,179 3,859 8.3
Legacy voice and data
services 658 772 (14.8) 1,341 1,578 (15.0)
Other service and equipment 566 552 2.5 1,067 1,074 (0.7)
---
Total Operating Revenues 11,368 11,478 (1.0) 22,696 22,909 (0.9)
---
Operating expenses
Operations and support 8,515 8,657 (1.6) 17,042 17,468 (2.4)
Depreciation and amortization 1,339 1,345 (0.4) 2,662 2,655 0.3
---
Total Operating Expenses 9,854 10,002 (1.5) 19,704 20,123 (2.1)
---
Operating Income 1,514 1,476 2.6 2,992 2,786 7.4
Equity in Net Income
(Loss)
of Affiliates - (1) - - (2) -
------ ------
Operating Contribution $ 1,514 $ 1,475 2.6% $ 2,992 $ 2,784 7.5%
===
The following tables highlight other key measures of performance
for Entertainment Group:
June 30, Percent
2019 2018 Change
Video Connections
Premium TV 21,581 23,640 (8.7)%
DIRECTV NOW(1) 1,340 1,809 (25.9)
----------
Total Video Connections 22,921 25,449 (9.9)
============ ==========
Broadband Connections
IP 13,822 13,692 0.9
DSL 598 763 (21.6)
----------
Total Broadband
Connections 14,420 14,455 (0.2)
============
Retail Consumer Switched
Access Lines 3,630 4,333 (16.2)
U-verse Consumer VoIP
Connections 4,211 4,950 (14.9)
----------
Total Retail Consumer
Voice Connections 7,841 9,283 (15.5)
============
Fiber Broadband
Connections
(included in IP) 3,378 2,204 53.3%
Consistent with industry practice, DIRECTV NOW includes connections
(1) that are on a free-trial.
Second Quarter Six-Month Period
Percent Percent
(in 000s) 2019 2018 Change 2019 2018 Change
Video Net Additions
Premium TV(2) (778) (262) -% (1,322) (449) -%
DIRECTV NOW(1) (168) 342 - (251) 654 -
Net Video Additions (946) 80 - (1,573) 205 -
========== ==========
Broadband Net Additions
IP - 76 - 93 230 (59.6)
DSL (34) (53) 35.8 (82) (125) 34.4
Net Broadband Additions (34) 23 - 11 105 (89.5)
========== ============
Fiber Broadband Net
Additions
(included in IP) 318 249 27.7% 615 475 29.5%
Consistent with industry practice, DIRECTV NOW includes connections
(1) that are on a free-trial.
(2) Includes disconnections for customers that migrated to DIRECTV NOW.
Video entertainment revenues are comprised of subscription and
advertising revenues. Revenues decreased in the second quarter and
for the first six months of 2019, largely driven by an 8.7% decline
in premium TV subscribers. Our customers continue to shift,
consistent with the rest of the industry, from a premium linear
service to our more economically priced OTT video service or to
competitors, which has pressured our video revenues. OTT net
additions declined in the second quarter and for the first six
months due to price changes and fewer promotions. Churn rose for
subscribers with premium TV-only service, partially reflecting
price increases.
High-speed internet revenues increased in the second quarter and
for the first six months of 2019 reflecting the shift of
subscribers to our higher-speed fiber services. Our bundling
strategy is helping to lower churn with subscribers who bundle
broadband with another AT&T service.
Legacy voice and data service revenues decreased in the second
quarter and for the first six months of 2019, reflecting the
continued migration of customers to our more advanced IP-based
offerings or to competitors.
Operations and support expenses decreased in the second quarter
and for the first six months of 2019. Contributing to the decreases
were lower content costs largely due to lower subscribers, lower
volumes and our ongoing focus on cost initiatives. Partially
offsetting the decreases was higher amortization of fulfillment
cost deferrals, including the impact of updates to the estimated
economic life for our Entertainment Group customers.
Depreciation expense decreased in the second quarter and
increased for the first six months of 2019. The decrease in the
quarter was primarily due to fully depreciated assets, largely
offset by ongoing capital spending for network upgrades and
expansion. The increase for the first six months was primarily due
to our ongoing capital spending for network upgrades and
expansion.
Operating income increased in the second quarter and for the
first six months of 2019. Our Entertainment Group operating income
margin in the second quarter increased from 12.9% in 2018 to 13.3%
in 2019, and for the first six months increased from 12.2% in 2018
to 13.2% in 2019. Our Entertainment Group EBITDA margin in the
second quarter increased from 24.6% in 2018 to 25.1% in 2019, and
for the first six months increased from 23.8% in 2018 to 24.9% in
2019.
Business Wireline Results
Second Quarter Six-Month Period
Percent Percent
2019 2018 Change 2019 2018 Change
Operating revenues
Strategic and managed
services $3,848 $3,603 6.8% $ 7,640 $ 7,198 6.1%
Legacy voice and data
services 2,331 2,730 (14.6) 4,735 5,595 (15.4)
Other service and equipment 449 317 41.6 751 604 24.3
Total Operating Revenues 6,628 6,650 (0.3) 13,126 13,397 (2.0)
Operating expenses
Operations and support 3,982 4,038 (1.4) 8,022 8,054 (0.4)
Depreciation and amortization 1,256 1,180 6.4 2,491 2,350 6.0
Total Operating Expenses 5,238 5,218 0.4 10,513 10,404 1.0
Operating Income 1,390 1,432 (2.9) 2,613 2,993 (12.7)
Equity in Net Income
of Affiliates - 1 - - - -
Operating Contribution $1,390 $1,433 (3.0)% $ 2,613 $ 2,993 (12.7)%
Strategic and managed services revenues increased in the second
quarter and for the first six months of 2019. Our strategic
services are made up of (1) data services, including our VPN,
dedicated internet ethernet and broadband, (2) voice service,
including VoIP and cloud-based voice solutions, (3) security and
cloud solutions, and (4) managed, professional and outsourcing
services. Revenue increases were primarily attributable to growth
in our security and cloud solutions and managed services.
Legacy voice and data service revenues decreased in the second
quarter and for the first six months of 2019, primarily due to
lower demand as customers continue to shift to our more advanced
IP-based offerings or our competitors.
Other service and equipment revenues increased in the second
quarter and for the first six months of 2019, driven by licensing
of intellectual property assets. Other service revenues include
project-based revenue, which is nonrecurring in nature, as well as
revenues from customer premises equipment.
Operations and support expenses decreased in the second quarter
and for the first six months of 2019, primarily due to our
continued efforts to shift to a software-based network and automate
and digitize our customer support activities, partially offset by
higher fulfillment deferral amortization.
Depreciation expense increased in the second quarter and for the
first six months of 2019, primarily due to increases in capital
spending for network upgrades and expansion.
Operating income decreased in the second quarter and for the
first six months of 2019. Our Business Wireline operating income
margin in the second quarter decreased from 21.5% in 2018 to 21.0%
in 2019, and for the first six months decreased from 22.3% in 2018
to 19.9% in 2019. Our Business Wireline EBITDA margin in the second
quarter increased from 39.3% in 2018 to 39.9% in 2019, and for the
first six months decreased from 39.9% in 2018 to 38.9% in 2019.
WARNERMEDIA SEGMENT Second Quarter Six-Month Period
Percent Percent
2019 2018 Change 2019 2018 Change
Segment Operating Revenues
Turner $3,410 $ 667 -% $ 6,853 $ 779 -%
Home Box Office 1,716 281 - 3,226 281 -
Warner Bros. 3,389 507 - 6,907 507 -
Eliminations & Other (165) (62) - (257) (62) -
Total Segment Operating
Revenues 8,350 1,393 - 16,729 1,505 -
Segment Operating Contribution
Turner 1,165 289 - 2,437 353 -
Home Box Office 588 104 - 1,170 104 -
Warner Bros. 440 89 - 993 89 -
Eliminations & Other (168) (57) - (265) (82) -
Total Segment Operating
Contribution $2,025 $ 425 -% $ 4,335 $ 464 -%
Our WarnerMedia segment consists of our Turner, Home Box Office
and Warner Bros. business units. The order of presentation reflects
the consistency of revenue streams, rather than overall magnitude
as that is subject to timing and frequency of studio releases.
WarnerMedia also includes our financial results for RSNs.
The WarnerMedia segment does not include results from Time
Warner operations for the periods prior to our June 14, 2018
acquisition. Otter Media is included as an equity method investment
for periods prior to our August 7, 2018 acquisition of the
remaining interest and is in the segment operating results
following the acquisition. Consistent with our past practice, many
of the impacts of the fair value adjustments from the application
of purchase accounting required under GAAP have not been allocated
to the segment, instead they are reported as acquisition-related
items in the reconciliation to consolidated results.
Segment and business unit results in the second quarter and for
the first six months are not comparable to prior periods and
therefore not discussed. Comparative results will be discussed
beginning with our third-quarter 2019 results.
WarnerMedia Business Unit Discussion
Turner Results
Second Quarter Six-Month Period
Percent Percent
2019 2018 Change 2019 2018 Change
Operating revenues
Subscription $ 1,943 $410 -% $3,908 $508 -%
Advertising 1,266 223 - 2,527 237 -
Content and other 201 34 - 418 34 -
Total Operating Revenues 3,410 667 - 6,853 779 -
Operating expenses
Operations and support 2,217 372 - 4,353 446 -
Depreciation and amortization 39 11 - 99 12 -
Total Operating Expenses 2,256 383 - 4,452 458 -
Operating Income 1,154 284 - 2,401 321 -
Equity in Net Income
of Affiliates 11 5 - 36 32 12.5
Operating Contribution $ 1,165 $289 -% $2,437 $353 -%
Turner includes the WarnerMedia businesses managed by Turner as
well as our financial results for RSNs.
Operating revenues for Turner are generated primarily from
licensing programming to distribution affiliates and from selling
advertising on its networks and digital properties. Our Turner
operating income margin was 33.8% in the second quarter and 35.0%
for the first six months of 2019. Our Turner EBITDA margin was
35.0% in the second quarter and 36.5% for the first six months of
2019.
Home Box Office Results
Second Quarter Six-Month Period
Percent Percent
2019 2018 Change 2019 2018 Change
Operating revenues
Subscription $ 1,516 $270 -% $ 2,850 $270 -%
Content and other 200 11 - 376 11 -
Total Operating Revenues 1,716 281 - 3,226 281 -
Operating expenses
Operations and support 1,131 171 - 2,052 171 -
Depreciation and amortization 12 5 - 34 5 -
Total Operating Expenses 1,143 176 - 2,086 176 -
Operating Income 573 105 - 1,140 105 -
Equity in Net Income
(Loss)
of Affiliates 15 (1) - 30 (1) -
Operating Contribution $ 588 $104 -% $ 1,170 $104 -%
Operating revenues for Home Box Office are generated from the
exploitation of original and licensed programming through
distribution outlets. Our Home Box Office operating income margin
was 33.4% in the second quarter and 35.3% for the first six months
of 2019. Our Home Box Office EBITDA margin was 34.1% in the second
quarter and 36.4% for the first six months of 2019.
Warner Bros. Results
Second Quarter Six-Month Period
Percent Percent
2019 2018 Change 2019 2018 Change
Operating revenues
Theatrical product $ 1,527 $223 -% $ 3,033 $223 -%
Television product 1,310 203 - 2,923 203 -
Games and other 552 81 - 951 81 -
Total Operating Revenues 3,389 507 - 6,907 507 -
Operating expenses
Operations and support 2,918 403 - 5,837 403 -
Depreciation and amortization 31 14 - 83 14 -
Total Operating Expenses 2,949 417 - 5,920 417 -
Operating Income 440 90 - 987 90 -
Equity in Net Income
(Loss)
of Affiliates - (1) - 6 (1) -
Operating Contribution $ 440 $ 89 -% $ 993 $ 89 -%
Operating revenues for Warner Bros. primarily relate to
theatrical product (which is content made available for initial
exhibition in theaters) and television product (which is content
made available for initial airing on television or OTT services).
Our Warner Bros. operating income margin was 13.0% in the second
quarter and 14.3% for the first six months of 2019. Our Warner
Bros. EBITDA margin was 13.9% in the second quarter and 15.5% for
the first six months of 2019.
LATIN AMERICA SEGMENT Second Quarter Six-Month Period
Percent Percent
2019 2018 Change 2019 2018 Change
Segment Operating Revenues
Vrio $1,032 $1,254 (17.7)% $2,099 $2,608 (19.5)%
Mexico 725 697 4.0 1,376 1,368 0.6
Total Segment Operating
Revenues 1,757 1,951 (9.9) 3,475 3,976 (12.6)
Segment Operating Contribution
Vrio (2) 67 - 30 215 (86.0)
Mexico (207) (217) 4.6 (412) (476) 13.4
Total Segment Operating
Contribution $(209) $(150) (39.3)% $(382) $(261) (46.4)%
Operating Results
Our Latin America operations conduct business in their local
currency and operating results are converted to U.S. dollars using
official exchange rates, subjecting results to foreign currency
fluctuations.
Operating revenues decreased in the second quarter and for the
six months of 2019 driven by lower revenues for Vrio, primarily
resulting from foreign exchange pressures related to Argentina's
hyperinflationary economy.
Operating contribution decreased in the second quarter and for
the first six months of 2019, reflecting foreign exchange pressure.
Our Latin America segment operating income margin in the second
quarter decreased from (8.5)% in 2018 to (12.6)% in 2019, and for
the first six months decreased from (6.9)% in 2018 to (11.3)% in
2019.
Latin America Business Unit
Discussion
Mexico Results
Second Quarter Six-Month Period
Percent Percent
2019 2018 Change 2019 2018 Change
----------
Operating revenues
Service $ 479 $ 417 14.9% $ 921 $ 821 12.2%
Equipment 246 280 (12.1) 455 547 (16.8)
Total Operating Revenues 725 697 4.0 1,376 1,368 0.6
Operating expenses
Operations and support 813 787 3.3 1,538 1,590 (3.3)
Depreciation and amortization 119 127 (6.3) 250 254 (1.6)
Total Operating Expenses 932 914 2.0 1,788 1,844 (3.0)
Operating Income (Loss) (207) (217) 4.6 (412) (476) 13.4
Equity in Net Income
of Affiliates - - - - - -
Operating Contribution $(207) $(217) 4.6% $(412) $(476) 13.4%
The following tables highlight other key measures of performance
for Mexico:
June 30, Percent
(in 000s) 2019 2018 Change
Mexico Wireless
Subscribers(1)
Postpaid 5,489 5,749 (4.5)%
Prepaid 12,180 10,468 16.4
Reseller 352 181 94.5
Total Mexico
Wireless
Subscribers 18,021 16,398 9.9%
Second Quarter Six-Month Period
Percent Percent
2019 2018 Change 2019 2018 Change
Mexico Wireless
Net Additions
Postpaid (153) 142 -% (222) 251 -%
Prepaid 401 611 (34.4) 515 1,070 (51.9)
Reseller 51 3 - 99 (22) -
Mexico
Wireless
Net
Subscriber
Additions 299 756 (60.4)% 392 1,299 (69.8)%
2019 excludes the impact of 692 subscriber disconnections resulting
(1) from the churn of customers related to sales by certain third-party
distributors and the sunset of 2G services in Mexico, which are reflected
in beginning of period subscribers.
Service revenues increased in the second quarter and for the
first six months of 2019, primarily due to growth in our subscriber
base.
Equipment revenues decreased in the second quarter and for the
first six months of 2019, primarily due to higher demand in the
prior year for our initial offering of equipment installment
programs.
Operations and support expenses increased in the second quarter
and decreased for the first six months of 2019. The increases in
the second quarter were primarily driven by higher bad debt
expenses. The decreases for the first six months were primarily
driven by lower equipment sales, partially offset by higher bad
debt expenses. Approximately 7% of Mexico expenses are U.S. dollar
based, with the remainder in the local currency.
Depreciation and amortization expense decreased in the second
quarter and for the first six months of 2019 primarily due to
changes in the useful lives of certain assets, partially offset by
the amortization of spectrum licenses and higher in-service
assets.
Operating income increased in the second quarter and first six
months of 2019. Our Mexico operating income margin in the second
quarter increased from (31.1)% in 2018 to (28.6)% in 2019, and for
the first six months increased from (34.8)% in 2018 to (29.9)% in
2019. Our Mexico EBITDA margin in the second quarter increased from
(12.9)% in 2018 to (12.1)% in 2019, and for the first six months
increased from (16.2)% in 2018 to (11.8)% in 2019.
Vrio Results
Second Quarter Six-Month Period
Percent Percent
2019 2018 Change 2019 2018 Change
Operating revenues $1,032 $1,254 (17.7)% $2,099 $2,608 (19.5)%
Operating expenses
Operations and support 881 1,016 (13.3) 1,747 2,017 (13.4)
Depreciation and amortization 165 186 (11.3) 334 391 (14.6)
Total Operating Expenses 1,046 1,202 (13.0) 2,081 2,408 (13.6)
Operating Income (14) 52 - 18 200 (91.0)
Equity in Net Income
of Affiliates 12 15 (20.0) 12 15 (20.0)
Operating Contribution $ (2) $ 67 -% $ 30 $ 215 (86.0)%
The following tables highlight other key measures of performance
for Vrio:
June 30, Percent
(in 000s) 2019 2018 Change
Vrio Video
Subscribers(1,2) 13,473 13,713 (1.8)%
============= =============
Second Quarter Six -Month Period
Percent Percent
(in 000s) 2019 2018 Change 2019 2018 Change
Vrio Video Net
Subscriber
Additions(3) (111) 140 -% (143) 125 -%
Excludes subscribers of our equity investment in SKY Mexico, in which
(1) we own a 41.3% stake. SKY Mexico had 7.4 million
subscribers at March 31, 2019 and 8.0 million subscribers at June
30, 2018.
2019 excludes the impact of 222 subscriber disconnections resulting
(2) from conforming our video credit policy across the region, which is
reflected in beginning of period subscribers.
Excludes SKY Mexico net subscriber losses of 251 and 41 for the period
(3) end March 31, 2019 and June 30, 2018, respectively.
Operating revenues decreased in the second quarter and for the
first six months of 2019, primarily due to foreign exchange
pressures.
Operations and support expenses decreased in the second quarter
and for the first six months of 2019, primarily due to changes in
foreign currency exchange rates. Approximately 18% of Vrio expenses
are U.S. dollar based, with the remainder in the local
currency.
Depreciation expense decreased in the second quarter and for the
first six months of 2019, primarily due to changes in foreign
currency exchange rates.
Operating income decreased in the second quarter and for the
first six months of 2019. Our Vrio operating income margin in the
second quarter decreased from 4.1% in 2018 to (1.4)% in 2019, and
for the first six months decreased from 7.7% in 2018 to 0.9% in
2019. Our Vrio EBITDA margin in the second quarter decreased from
19.0% in 2018 to 14.6% in 2019, and for the first six months
decreased from 22.7% in 2018 to 16.8% in 2019.
XANDR SEGMENT
Second Quarter Six-Month Period
Percent Percent
2019 2018 Change 2019 2018 Change
Operating revenues $ 485 $392 23.7% $ 911 $729 25.0%
Operating expenses
Operations and support 147 59 - 307 109 -
Depreciation and amortization 13 - - 26 1 -
Total Operating Expenses 160 59 - 333 110 -
Operating Income 325 333 (2.4) 578 619 (6.6)
Equity in Net Income - - - - - -
of Affiliates
Operating Contribution $ 325 $333 (2.4)% $ 578 $619 (6.6)%
Operating revenues increased in the second quarter and for the
first six months of 2019 primarily due to our acquisition of
AppNexus in August 2018.
Operations and support expenses increased in the second quarter
and for the first six months of 2019, primarily due to our
acquisition of AppNexus and our ongoing development of the platform
supporting Xandr's business.
Operating income decreased in the second quarter and for the
first six months of 2019. Our Xandr segment operating income margin
in the second quarter decreased from 84.9% in 2018 to 67.0% in
2019, and for the first six months decreased from 84.9% in 2018 to
63.4% in 2019.
SUPPLEMENTAL TOTAL ADVERTISING REVENUE INFORMATION
As a supplemental presentation to our Xandr segment operating
results, we are providing a view of total advertising revenues
generated by AT&T. This combined view presents the entire
portfolio of advertising revenues reported across all operating
segments and represents a significant strategic initiative and
growth opportunity for AT&T. See revenue categories tables in
Note 5 for a reconciliation.
Total Advertising Revenues
Second Quarter Six-Month Period
Percent Percent
2019 2018 Change 2019 2018 Change
Operating Revenues
WarnerMedia $1,285 $ 225 -% $2,564 $ 239 -%
Communications 470 431 9.0 887 806 10.0
Xandr 485 392 23.7 911 729 25.0
Eliminations (399) (387) (3.1) (749) (721) (3.9)
Total Advertising Revenues $1,841 $ 661 -% $3,613 $1,053 -%
===== ===== ===== =====
SUPPLEMENTAL COMMUNICATIONS OPERATING INFORMATION
As a supplemental presentation to our Communications segment
operating results, we are providing a view of our AT&T Business
Solutions results which includes both wireless and wireline
operations. This combined view presents a complete profile of the
entire business customer relationship, and underscores the
importance of mobile solutions to serving our business customers.
See "Discussion and Reconciliation of Non-GAAP Measure" for a
reconciliation of these supplemental measures to the most directly
comparable financial measures calculated and presented in
accordance with GAAP.
Business Solutions Results
Second Quarter Six-Month Period
Percent Percent
2019 2018 Change 2019 2018 Change
Operating revenues
Wireless service $2,022 $1,829 10.6% $ 3,935 $ 3,620 8.7%
Strategic and managed
services 3,848 3,603 6.8 7,640 7,198 6.1
Legacy voice and data
services 2,331 2,730 (14.6) 4,735 5,595 (15.4)
Other service and equipment 449 317 41.6 751 604 24.3
Wireless equipment 622 584 6.5 1,218 1,162 4.8
Total Operating Revenues 9,272 9,063 2.3 18,279 18,179 0.6
Operating expenses
Operations and support 5,539 5,616 (1.4) 11,179 11,210 (0.3)
Depreciation and amortization 1,561 1,487 5.0 3,102 2,945 5.3
Total Operating Expenses 7,100 7,103 - 14,281 14,155 0.9
Operating Income 2,172 1,960 10.8 3,998 4,024 (0.6)
Equity in Net Income
of Affiliates - 1 - - - -
Operating Contribution $2,172 $1,961 10.8% $ 3,998 $ 4,024 (0.6)%
OTHER BUSINESS MATTERS
Time Warner In June 2018, we completed our acquisition of Time
Warner, a leader in media and entertainment whose major businesses
encompass an array of some of the most respected media brands. In
July 2018, the U.S. Department of Justice (DOJ) appealed the U.S.
District Court's decision permitting the merger. On February 26,
2019, the D.C. Circuit unanimously affirmed our win. The DOJ did
not appeal to the United States Supreme Court, thereby ending the
litigation.
Labor Contracts As of June 30, 2019, we employed approximately
258,000 persons. Approximately 40% of our employees are represented
by the Communications Workers of America (CWA), the International
Brotherhood of Electrical Workers (IBEW) or other unions. After
expiration of the agreements, work stoppages or labor disruptions
may occur in the absence of new contracts or other agreements being
reached. A contract covering approximately 8,000 traditional
wireline employees in our Midwest region expired in April 2018. In
July 2019, we reached a tentative agreement on a new four-year
contract that will expire in April 2022, if ratified. In addition,
a contract covering approximately 3,000 traditional wireline
employees in our legacy AT&T Corp. business also expired in
April 2018. In July 2019, we reached a tentative agreement on a new
four-year contract that will expire in April 2022, if ratified.
COMPETITIVE AND REGULATORY ENVIRONMENT
Overview AT&T subsidiaries operating within the United
States are subject to federal and state regulatory authorities.
AT&T subsidiaries operating outside the United States are
subject to the jurisdiction of national and supranational
regulatory authorities in the markets where service is
provided.
In the Telecommunications Act of 1996 (Telecom Act), Congress
established a national policy framework intended to bring the
benefits of competition and investment in advanced
telecommunications facilities and services to all Americans by
opening all telecommunications markets to competition and reducing
or eliminating regulatory burdens that harm consumer welfare. Since
the Telecom Act was passed, the Federal Communications Commission
(FCC) and some state regulatory commissions have maintained or
expanded certain regulatory requirements that were imposed decades
ago on our traditional wireline subsidiaries when they operated as
legal monopolies. The new leadership at the FCC is charting a more
predictable and balanced regulatory course that will encourage
long-term investment and benefit consumers. Based on its public
statements, we expect the FCC to continue to eliminate antiquated,
unnecessary regulations and streamline processes. In addition, we
are pursuing, at both the state and federal levels, additional
legislative and regulatory measures to reduce regulatory burdens
that are no longer appropriate in a competitive telecommunications
market and that inhibit our ability to compete more effectively and
offer services wanted and needed by our customers, including
initiatives to transition services from traditional networks to all
IP-based networks. At the same time, we also seek to ensure that
legacy regulations are not further extended to broadband or
wireless services, which are subject to vigorous competition.
We have organized the following discussion by reportable
segment.
Communications Segment
Internet In February 2015, the FCC released an order classifying
both fixed and mobile consumer broadband internet access services
as telecommunications services, subject to Title II of the
Communications Act. The Order, which represented a departure from
longstanding bipartisan precedent, significantly expanded the FCC's
authority to regulate broadband internet access services, as well
as internet interconnection arrangements. In December 2017, the FCC
reversed its 2015 decision by reclassifying fixed and mobile
consumer broadband services as information services and repealing
most of the rules that were adopted in 2015. In lieu of broad
conduct prohibitions, the order requires internet service providers
to disclose information about their network practices and terms of
service, including whether they block or throttle internet traffic
or offer paid prioritization. Several parties appealed the FCC's
December 2017 decision and the D.C. Circuit heard oral argument on
the appeals on February 1, 2019. Although the FCC order expressly
preempted inconsistent state or local measures, a number of states
are considering or have adopted legislation that would reimpose the
very rules the FCC repealed, and in some cases, establish
additional requirements that go beyond the FCC's February 2015
order. Additionally, some state governors have issued executive
orders that effectively reimpose the repealed requirements. Suits
have recently been filed concerning laws in California and Vermont,
and other lawsuits are possible. The California and Vermont suits
have been stayed pursuant to agreements by those states not to
enforce their laws pending resolution of appeals of the FCC's
December 2017 order. We will continue to support congressional
action to codify a set of standard consumer rules for the
internet.
In October 2016, a sharply divided FCC adopted new rules
governing the use of customer information by providers of broadband
internet access service. Those rules were more restrictive in
certain respects than those governing other participants in the
internet economy, including so-called "edge" providers such as
Google and Facebook. In April 2017, the president signed a
resolution passed by Congress repealing the new rules under the
Congressional Review Act.
Privacy-related legislation has been considered in a number of
states. Legislative and regulatory action could result in increased
costs of compliance, claims against broadband internet access
service providers and others, and increased uncertainty in the
value and availability of data. On June 28, 2018, the state of
California enacted comprehensive privacy legislation that,
effective as of January 1, 2020, gives California consumers the
right to know what personal information is being collected about
them, and whether and to whom it is sold or disclosed, and to
access and request deletion of this information. Subject to certain
exceptions, it also gives consumers the right to opt-out of the
sale of personal information. The law applies the same rules to all
companies that collect consumer information.
Wireless The industry-wide deployment of 5G technology, which is
needed to satisfy extensive demand for video and internet access,
will involve significant deployment of "small cell" equipment and
therefore increase the need for local permitting processes that
allow for the placement of small cell equipment on reasonable
timelines and terms. Federal regulations also can delay and impede
broadband services, including small cell equipment. In March,
August and September 2018, the FCC adopted orders to streamline the
wireless infrastructure review process in order to facilitate
deployment of next-generation wireless facilities. Those orders
have been appealed and the various appeals remain pending in the DC
Circuit and 9th Circuit Court of Appeals. In addition, to date, 28
states and Puerto Rico have adopted legislation to facilitate small
cell deployment.
In December 2018, we introduced the nation's first commercial
mobile 5G service. We currently have mobile 5G in parts of 20 U.S.
cities and we plan to roll out mobile 5G service in parts of at
least 29 cities by the end of the year. We expect to have mobile 5G
service nationwide to more than 200 million people by the first
half of 2020.
LIQUIDITY AND CAPITAL RESOURCES
We had $8,423 in cash and cash equivalents available at June 30,
2019. Cash and cash equivalents included cash of $3,512 and money
market funds and other cash equivalents of $4,911. Approximately
$1,700 of our cash and cash equivalents were held by our foreign
entities in accounts predominantly outside of the U.S. and may be
subject to restrictions on repatriation.
Cash and cash equivalents increased $3,219 since December 31,
2018. In the first six months of 2019, cash inflows were primarily
provided by the cash receipts from operations, including cash from
our sale and transfer of certain wireless equipment installment and
WarnerMedia receivables to third parties, sale of investments,
issuance of commercial paper and long-term debt and collateral
received from banks and other participants in our derivative
arrangements. These inflows were offset by cash used to meet the
needs of the business, including, but not limited to, payment of
operating expenses, debt repayments, funding capital expenditures
and vendor financing payments, and dividends to stockholders.
Cash Provided by or Used in Operating Activities
During the first six months of 2019, cash provided by operating
activities was $25,336, compared to $19,176 for the first six
months of 2018. Higher operating cash flows in 2019 were primarily
due to contributions from WarnerMedia, including our new
receivables securitization program (see Note 9), cash from our sale
and transfer of certain wireless equipment installment receivables
to third parties and higher cash flows from working capital
initiatives, partly offset by lower net tax refunds.
We actively manage the timing of our supplier payments for
non-capital items to optimize the use of our cash. Among other
things, we seek to make payments on 90-day or greater terms, while
providing the suppliers with access to bank facilities that permit
earlier payments at their cost. In addition, for payments to a key
supplier, we have arrangements that allow us to extend payment
terms up to 90 days at an additional cost to us (referred to as
supplier financing). The net impact of supplier financing on cash
from operating activities was to reduce working capital $496 for
the first six months of 2019, and to improve working capital $584
for the first six months of 2018. All supplier financing payments
are due within one year.
Cash Used in or Provided by Investing Activities
For the first six months of 2019, cash used in investing
activities totaled $7,299, and consisted primarily of $10,654
(including interest during construction) for capital expenditures,
($572 lower than the prior-year comparable period), and proceeds
from the sales of our ownership interests in Hulu and WarnerMedia's
headquarters (Hudson Yards) under a sale-leaseback arrangement (see
Note 8).
For capital improvements, we have negotiated favorable vendor
payment terms of 120 days or more (referred to as vendor financing)
with some of our vendors, which are excluded from capital
expenditures and reported as financing activities. For the first
six months of 2019, these vendor financing payments were $1,836,
and when combined with $10,654 of capital expenditures, total
capital investment was $12,490 ($1,007 higher than the prior-year
comparable period). In the first six months of 2019, we placed
$1,265 of equipment in service under vendor financing
arrangements.
The vast majority of our capital expenditures are spent on our
networks, including product development and related support
systems. During the first six months, approximately $600 of assets
related to the FirstNet build were placed into service. Total
reimbursements from the government for FirstNet during the first
six months were $134 for 2019 and $336 for 2018, predominantly for
capital expenditures.
The amount of capital expenditures is influenced by demand for
services and products, capacity needs and network enhancements. In
July 2019, we completed our DIRECTV merger commitment, marketing
fiber-to-the-premises network to nearly 14 million customer
locations.
Cash Provided by or Used in Financing Activities
For the first six months of 2019, cash used in financing
activities totaled $14,783 and included net proceeds of $10,030,
which consisted primarily of the following issuances:
-- January draw of $2,850 on an 11-month syndicated term loan agreement.
-- January draw of $750 on a private financing agreement.
-- February issuance of $3,000 of 4.350% global notes due 2029.
-- February issuance of $2,000 of 4.850% global notes due 2039.
-- Borrowings of $725 in January and $525 in June that are
supported by government agencies to support network equipment
purchases.
-- June draw of $300 on U.S. Bank credit agreement.
During the first six months of 2019, repayment of long-term debt
totaled $16,124. Repayments primarily consisted of the
following:
Notes redeemed at maturity:
-- $1,850 of 2.300% AT&T global notes in the first quarter.
-- $400 of AT&T floating-rate notes in the first quarter.
-- EUR1,500 of AT&T floating-rate notes in the second quarter.
-- $650 of 2.100% WarnerMedia, LLC notes in the second quarter.
Notes redeemed prior to maturity:
-- $2,010 of AT&T global notes with interest rates ranging
from 4.750% to 5.200% and original maturities in 2020 and 2021, in
the first quarter.
-- $2,000 of Warner Media, LLC notes with interest rates ranging
from 4.700% to 5.200% and original maturities in 2021, in the first
quarter.
-- $590 of Warner Media, LLC and/or Historic TW Inc. notes that
were tendered for cash in our May 2019 obligor debt exchange. The
notes had interest rates ranging between 6.500% and 9.150% and
original maturities ranging from 2023 to 2036.
-- $243 of open market redemptions of AT&T notes, with
interest rates ranging from 7.125% to 8.750% and original
maturities in 2031, in the second quarter.
Credit facilities and other borrowings:
-- $2,625 of final amounts outstanding under our Acquisition
Term Loan (defined below) in the first quarter.
-- $750 of January borrowings under a private financing agreement, in the first quarter.
-- $1,500 of four-year and five-year borrowings under the Nova
Scotia Credit Agreement (defined below) in the second quarter.
-- $600 of borrowings under our credit agreement with Canadian
Imperial Bank of Commerce in the second quarter.
-- $500 of advances under our November 2018 Term Loan (defined below) in the second quarter.
-- $250 of borrowings under a U.S. Bank credit agreement in the second quarter.
Our weighted average interest rate of our entire long-term debt
portfolio, including the impact of derivatives, was approximately
4.4% as of both June 30, 2019 and December 31, 2018. We had
$165,443 of total notes and debentures outstanding at June 30,
2019, which included Euro, British pound sterling, Swiss franc,
Brazilian real, Mexican peso, Canadian dollar and Australian dollar
denominated debt that totaled approximately $39,588.
At June 30, 2019, we had $12,772 of debt maturing within one
year, including $3,164 of commercial paper borrowings and $9,467 of
long-term debt issuances. Debt maturing within one year includes
the following notes that may be put back to us by the holders:
-- $1,000 of annual put reset securities issued by BellSouth
that may be put back to us each April until maturity in 2021.
-- An accreting zero-coupon note that may be redeemed each May
until maturity in 2022. If the remainder of the zero-coupon note
(issued for principal of $500 in 2007 and partially exchanged in
the 2017 debt exchange offers) is held to maturity, the redemption
amount will be $592.
For the first six months of 2019, we paid $1,836 of cash under
our vendor financing program, compared to $257 in the first six
months of 2018. Total vendor financing payables included in our
June 30, 2019 consolidated balance sheet were $1,930, with $1,455
due within one year (in "Accounts payable and accrued liabilities")
and the remainder predominantly due within two to three years (in
"Other noncurrent liabilities").
At June 30, 2019, we had approximately 376 million shares
remaining from share repurchase authorizations approved by the
Board of Directors in 2013 and 2014.
We paid dividends of $7,436 during the first six months of 2019,
compared with $6,144 for the first six months of 2018, primarily
reflecting the increase in the number of shares outstanding related
to our June 2018 acquisition of Time Warner as well as an increase
in our quarterly dividend approved by our Board of Directors in
December 2018. Dividends declared by our Board of Directors totaled
$1.02 per share in the first six months of 2019 and $1.00 per share
for the first six months of 2018. Our dividend policy considers the
expectations and requirements of stockholders, capital funding
requirements of AT&T and long-term growth opportunities. It is
our intent to provide the financial flexibility to allow our Board
of Directors to consider dividend growth and to recommend an
increase in dividends to be paid in future periods. All dividends
remain subject to declaration by our Board of Directors.
Credit Facilities
The following summary of our various credit and loan agreements
does not purport to be complete and is qualified in its entirety by
reference to each agreement filed as exhibits to our Annual Report
on Form 10-K.
We use credit facilities as a tool in managing our liquidity
status. In December 2018, we amended our five-year revolving credit
agreement (the "Amended and Restated Credit Agreement") and
concurrently entered into a new five-year agreement (the "Five Year
Credit Agreement") such that we now have two $7,500 revolving
credit agreements totaling $15,000. The Amended and Restated Credit
Agreement terminates on December 11, 2021 and the Five Year Credit
Agreement terminates on December 11, 2023. No amounts were
outstanding under either agreement as of June 30, 2019.
In September 2017, we entered into a $2,250 syndicated term loan
credit agreement (the "Nova Scotia Credit Agreement") containing
(i) a three-year $750 term loan facility (the "2021 facility"),
(ii) a four-year $750 term loan facility (the "2022 facility") and
(iii) a five-year $750 term loan facility (the "2023 facility"),
with certain investment and commercial banks and The Bank of Nova
Scotia, as administrative agent. We drew on all three facilities
during the first quarter of 2018, and paid the 2022 and 2023
facilities during the second quarter of 2019. The 2021 facility was
outstanding as of June 30, 2019.
On November 20, 2018, we entered into and drew on a 4.5 year
$3,550 term loan credit agreement (the "November 2018 Term Loan")
with Bank of America, N.A., as agent. We used the proceeds to
finance the repayment, in part, of loans outstanding under the
Acquisition Term Loan. We paid $500 of these borrowings in the
second quarter of 2019, and $3,050 was outstanding under this
agreement as of June 30, 2019.
On January 31, 2019, we entered into and drew on an 11-month
$2,850 syndicated term loan credit agreement (the "Citibank Term
Loan"), with certain investment and commercial banks and Citibank,
N.A., as administrative agent. As of June 30, 2019, $2,850 was
outstanding under this agreement.
In anticipation of the Time Warner acquisition, we entered into
a $16,175 term loan agreement ("Acquisition Term Loan") containing
(i) a 2.5 year $8,087.5 facility (the "Tranche A Facility") and
(ii) a 4.5 year $8,087.5 facility (the "Tranche B Facility") with a
commitment termination date of December 31, 2018, for which we paid
the remaining $2,625 of the Tranche A advances on February 20,
2019, and terminated the facility.
We also utilize other external financing sources, which include
various credit arrangements supported by government agencies to
support network equipment purchases, as well as a commercial paper
program.
Each of our credit and loan agreements contains covenants that
are customary for an issuer with an investment grade senior debt
credit rating as well as a net debt-to-EBITDA financial ratio
covenant requiring AT&T to maintain, as of the last day of each
fiscal quarter, a ratio of not more than 3.5-to-1. As of June 30,
2019, we were in compliance with the covenants for our credit
facilities.
Collateral Arrangements
During the year, we amended collateral arrangements with certain
counterparties to require cash collateral posting by AT&T only
when derivative market values exceed certain thresholds. Under
these arrangements, counterparties are still required to post
collateral. During the first six months of 2019, we received $1,417
of cash collateral, on a net basis, primarily driven by the amended
arrangements. Cash postings under these arrangements vary with
changes in credit ratings and netting agreements. (See Note 7)
Other
Our total capital consists of debt (long-term debt and debt
maturing within one year) and stockholders' equity. Our capital
structure does not include debt issued by our equity method
investments. At June 30, 2019, our debt ratio was 46.8%, compared
to 50.8% at June 30, 2018 and 47.7% at December 31, 2018. Our net
debt ratio was 44.5% at June 30, 2019, compared to 47.2% at June
30, 2018 and 46.2% at December 31, 2018. The debt ratio is affected
by the same factors that affect total capital, and reflects our
recent debt issuances and repayments.
During the first six months of 2019, we have received
approximately $3,600 from the disposition of assets, and when
combined with cash proceeds from the sale of equipment installment
and WarnerMedia receivables, excluding repurchases, total cash
received from asset monetizations was approximately $14,000. We
plan to continue to explore similar opportunities.
DISCUSSION AND RECONCILIATION OF NON-GAAP MEASURE
We believe the following measure is relevant and useful
information to investors as it is used by management as a method of
comparing performance with that of many of our competitors. This
supplemental measure should be considered in addition to, but not
as a substitute of, our consolidated and segment financial
information.
Business Solutions Reconciliation
We provide a supplemental discussion of our Business Solutions
operations that is calculated by combining our Mobility and
Business Wireline business units, and then adjusting to remove
non-business operations. The following table presents a
reconciliation of our supplemental Business Solutions results.
Three Months Ended
June 30, 2019 June 30, 2018
Business Business Business Business
Mobility Wireline Adjustments(1) Solutions Mobility Wireline Adjustments(1) Solutions
Operating
Revenues
Wireless
service $ 14,006 $ - $ (11,984) $ 2,022 $ 13,682 $ - $ (11,853) $ 1,829
Strategic and
managed
services - 3,848 - 3,848 - 3,603 - 3,603
Legacy voice
and data
services - 2,331 - 2,331 - 2,730 - 2,730
Other service
and
equipment - 449 - 449 - 317 - 317
Wireless
equipment 3,506 - (2,884) 622 3,600 - (3,016) 584
-------- -------- -------- --------
Total Operating
Revenues 17,512 6,628 (14,868) 9,272 17,282 6,650 (14,869) 9,063
Operating
Expenses
Operations
and support 9,654 3,982 (8,097) 5,539 9,663 4,038 (8,085) 5,616
EBITDA 7,858 2,646 (6,771) 3,733 7,619 2,612 (6,784) 3,447
Depreciation
and
amortization 2,025 1,256 (1,720) 1,561 2,113 1,180 (1,806) 1,487
-------- -------- -------- --------
Total Operating
Expense 11,679 5,238 (9,817) 7,100 11,776 5,218 (9,891) 7,103
Operating
Income 5,833 1,390 (5,051) 2,172 5,506 1,432 (4,978) 1,960
Equity in net
income
of affiliates - - - - - 1 - 1
Operating
Contribution $ 5,833 $ 1,390 $ (5,051) $ 2,172 $ 5,506 $ 1,433 $ (4,978) $ 1,961
(1) Non-business wireless reported in the Communications segment under the Mobility business
unit.
Six Months Ended
June 30, 2019 June 30, 2018
Business Business Business Business
Mobility Wireline Adjustments(1) Solutions Mobility Wireline Adjustments(1) Solutions
Operating
Revenues
Wireless
service $ 27,798 $ - $ (23,863) $ 3,935 $ 27,085 $ - $ (23,465) $ 3,620
Strategic and
managed
services - 7,640 - 7,640 - 7,198 - 7,198
Legacy voice
and data
services - 4,735 - 4,735 - 5,595 - 5,595
Other service
and
equipment - 751 - 751 - 604 - 604
Wireless
equipment 7,281 - (6,063) 1,218 7,552 - (6,390) 1,162
-------- -------- -------- --------
Total Operating
Revenues 35,079 13,126 (29,926) 18,279 34,637 13,397 (29,855) 18,179
Operating
Expenses
Operations
and support 19,835 8,022 (16,678) 11,179 19,765 8,054 (16,609) 11,210
EBITDA 15,244 5,104 (13,248) 7,100 14,872 5,343 (13,246) 6,969
Depreciation
and
amortization 4,060 2,491 (3,449) 3,102 4,208 2,350 (3,613) 2,945
-------- -------- -------- --------
Total Operating
Expense 23,895 10,513 (20,127) 14,281 23,973 10,404 (20,222) 14,155
Operating
Income 11,184 2,613 (9,799) 3,998 10,664 2,993 (9,633) 4,024
Equity in net
income
of affiliates - - - - - - - -
Operating
Contribution $ 11,184 $ 2,613 $ (9,799) $ 3,998 $ 10,664 $ 2,993 $ (9,633) $ 4,024
(1) Non-business wireless reported in the Communications segment under the Mobility business
unit.
At June 30, 2019, we had interest rate swaps with a notional
value of $1,633 and a fair value of $26.
We have fixed-to-fixed and floating-to-fixed cross-currency
swaps on foreign currency-denominated debt instruments with a U.S.
dollar notional value of $40,311 to hedge our exposure to changes
in foreign currency exchange rates. These derivatives have been
designated at inception and qualify as cash flow hedges with a net
fair value of $(2,622) at June 30, 2019. We have rate locks with a
notional value of $2,000 and a fair value of $(23) at June 30,
2019.
We have foreign exchange contracts with a U.S. dollar notional
value of $669 to provide currency at a fixed rate to hedge a
portion of the exchange risk involved in foreign
currency-denominated transactions. These foreign exchange contracts
include fair value hedges, cash flow hedges and economic
(nonqualifying) hedges with a total net fair value of $65 at June
30, 2019.
We have designated EUR700 million aggregate principal amount of
debt as a hedge of the variability of some of the Euro-denominated
net investments of WarnerMedia. The gain or loss on the debt that
is designated as, and is effective as, an economic hedge of the net
investment in a foreign operation is recorded as a currency
translation adjustment within accumulated other comprehensive
income, net on the consolidated balance sheet.
Item 4. Controls and Procedures
The registrant maintains disclosure controls and procedures that
are designed to ensure that information required to be disclosed by
the registrant is recorded, processed, summarized, accumulated and
communicated to its management, including its principal executive
and principal financial officers, to allow timely decisions
regarding required disclosure, and reported within the time periods
specified in the Securities and Exchange Commission's rules and
forms. The chief executive officer and chief financial officer have
performed an evaluation of the effectiveness of the design and
operation of the registrant's disclosure controls and procedures as
of June 30, 2019. Based on that evaluation, the chief executive
officer and chief financial officer concluded that the registrant's
disclosure controls and procedures were effective as of June 30,
2019.
Information set forth in this report contains forward-looking
statements that are subject to risks and uncertainties, and actual
results could differ materially. Many of these factors are
discussed in more detail in the "Risk Factors" section. We claim
the protection of the safe harbor for forward-looking statements
provided by the Private Securities Litigation Reform Act of
1995.
The following factors could cause our future results to differ
materially from those expressed in the forward-looking
statements:
-- Adverse economic and/or capital access changes in the markets
served by us or in countries in which we have significant
investments, including the impact on customer demand and our
ability and our suppliers' ability to access financial markets at
favorable rates and terms.
-- Increases in our benefit plans' costs, including increases
due to adverse changes in the United States and foreign securities
markets, resulting in worse-than-assumed investment returns and
discount rates; adverse changes in mortality assumptions; adverse
medical cost trends; and unfavorable or delayed implementation or
repeal of healthcare legislation, regulations or related court
decisions.
-- The final outcome of FCC and other federal, state or foreign
government agency proceedings (including judicial review, if any,
of such proceedings) and legislative efforts involving issues that
are important to our business, including, without limitation,
special access and business data services; pending Notices of
Apparent Liability; the transition from legacy technologies to
IP-based infrastructure, including the withdrawal of legacy
TDM-based services; universal service; broadband deployment;
wireless equipment siting regulations; E911 services; competition
policy; privacy; net neutrality; multichannel video programming
distributor services and equipment; content licensing and copyright
protection; availability of new spectrum, on fair and balanced
terms; and wireless and satellite license awards and renewals.
-- Enactment of additional state, local, federal and/or foreign
regulatory and tax laws and regulations, or changes to existing
standards and actions by tax agencies and judicial authorities
including the resolution of disputes with any taxing jurisdictions,
pertaining to our subsidiaries and foreign investments, including
laws and regulations that reduce our incentive to invest in our
networks, resulting in lower revenue growth and/or higher operating
costs.
-- Potential changes to the electromagnetic spectrum currently
used for broadcast television and satellite distribution being
considered by the FCC could negatively impact WarnerMedia's ability
to deliver linear network feeds of its domestic cable networks to
its affiliates, and in some cases, WarnerMedia's ability to produce
high-value news and entertainment programming on location.
-- U.S. and foreign laws and regulations regarding intellectual
property rights protection and privacy, personal data protection
and user consent are complex and rapidly evolving and could result
in impact to our business plans, increased costs, or claims against
us that may harm our reputation.
-- Our ability to respond to revenue and margin pressures from
increasing competition, including services that use alternative
technologies and/or government-owned or subsidized networks.
-- The ability of our competitors to offer product/service
offerings at lower prices due to lower cost structures and
regulatory and legislative actions adverse to us, including
non-regulation of comparable alternative technologies.
-- The continued development and delivery of attractive and
profitable wireless, video and broadband offerings and devices; the
extent to which regulatory and build-out requirements apply to our
offerings; our ability to match speeds offered by our competitors
and the availability, cost and/or reliability of the various
technologies and/or content required to provide such offerings.
-- Our ability to generate advertising revenue from attractive
video content, especially from WarnerMedia, in the face of
unpredictable and rapidly evolving public viewing habits.
-- The availability and cost and our ability to adequately fund
additional wireless spectrum and network upgrades; and regulations
and conditions relating to spectrum use, licensing, obtaining
additional spectrum, technical standards and deployment and usage,
including network management rules.
-- Our ability to manage growth in wireless data services,
including network quality and acquisition of adequate spectrum at
reasonable costs and terms.
-- The outcome of pending, threatened or potential litigation
(which includes arbitrations), including, without limitation,
patent and product safety claims by or against third parties.
-- The impact from major equipment or software failures on our
networks, including satellites operated by DIRECTV; the effect of
security breaches related to the network or customer information;
our inability to obtain handsets, equipment/software or have
handsets, equipment/software serviced in a timely and
cost-effective manner from suppliers; and in the case of satellites
launched, timely provisioning of services from vendors; or severe
weather conditions including flooding and hurricanes, natural
disasters including earthquakes and forest fires, pandemics, energy
shortages, wars or terrorist attacks.
-- The issuance by the Financial Accounting Standards Board or
other accounting oversight bodies of new accounting standards or
changes to existing standards.
-- Our ability to successfully integrate our WarnerMedia
operations, including the ability to manage various businesses in
widely dispersed business locations and with decentralized
management.
-- Our ability to take advantage of the desire of advertisers to
change traditional video advertising models.
-- Our increased exposure to foreign economies, including
foreign exchange fluctuations as well as regulatory and political
uncertainty.
-- Changes in our corporate strategies, such as changing
network-related requirements or acquisitions and dispositions,
which may require significant amounts of cash or stock, to respond
to competition and regulatory, legislative and technological
developments.
-- The uncertainty surrounding further congressional action to
address spending reductions, which may result in a significant
decrease in government spending and reluctance of businesses and
consumers to spend in general.
Readers are cautioned that other factors discussed in this
report, although not enumerated here, also could materially affect
our future earnings.
Item 1A. Risk Factors
We discuss in our Annual Report on Form 10-K various risks that
may materially affect our business. We use this section to update
this discussion to reflect material developments since our Form
10-K was filed. For the second quarter of 2019, there were no such
material developments.
Item 2. Unregistered Sales of Equity Securities and
Use of Proceeds
(c) A summary of our repurchases of common stock during the second
quarter of 2019 is as follows:
(a) (b) (c) (d)
Maximum Number
(or Approximate
Total Number Dollar Value)
of Shares (or of Shares (or
Total Number Units) Purchased Units) That May
of Shares (or Average Price as Part of Publicly Yet Be Purchased
Units) Purchased Paid Per Share Announced Plans Under The Plans
Period (1, 2, 3) (or Unit) or Programs(1) or Programs
April 1, 2019
-
April 30, 2019 1,182,997 $ 31.92 - 375,662,000
May 1, 2019 -
May 31, 2019 96,857 31.66 - 375,662,000
June 1, 2019 -
June 30, 2019 954,818 32.42 - 375,662,000
Total 2,234,672 $ 32.12 -
===
In March 2014, our Board of Directors approved an additional authorization
(1) to repurchase up to 300 million shares of our common
stock. In March 2013, our Board of Directors authorized the repurchase
of up to an additional 300 million shares of our common stock.
The authorizations have no expiration date.
Of the shares repurchased, 1,593,271 shares were acquired through
(2) the withholding of taxes on the vesting of restricted stock
and performance shares or on the exercise price of options.
Of the shares repurchased, 641,401 shares were acquired through reimbursements
(3) from AT&T maintained Voluntary Employee Benefit
Association (VEBA) trusts.
Item 6. Exhibits
The following exhibits are filed or incorporated by reference as
a part of this report:
Exhibit
Number Exhibit Description
3-b Bylaws (exhibit 3 to Form 8-K on July 3, 2019)
31 Rule 13a-14(a)/15d-14(a) Certifications
31.1 Certification of Principal Executive Officer
31.2 Certification of Principal Financial Officer
32 Section 1350 Certifications
101 The following financial statements from the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 2019, formatted in Inline XBRL: (i) Consolidated Statements of Cash
Flows, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive
Income, (iv) Consolidated Balance Sheets, and (v) Notes to Consolidated Financial Statements,
tagged as blocks of text and including detailed tags.
104 The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 2019, formatted in Inline XBRL.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
AT&T Inc.
August 5, 2019 /s/ John J. Stephens
John J. Stephens
Senior Executive Vice President
and Chief Financial Officer
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR ZZGGZNNGGGZM
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