TIDM58KN
RNS Number : 6507S
AT & T Inc.
12 March 2019
FORM 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2018
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: (See
attached Schedule A)
Securities registered pursuant to Section 12(g) of the Act:
None.
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the
Securities Act. Yes [X] No [ ]
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d)
of the Act. Yes [ ] No [X]
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 if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and
will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, a
smaller reporting company, or an emerging growth company. See
definition of "large accelerated filer," "accelerated filer,"
"smaller reporting company," and "emerging growth company" in Rule
12b-2 of the Exchange Act.
Large accelerated filer [X] Accelerated filer [
]
Non-accelerated filer [ ] Smaller reporting company
[ ]
Emerging growth company
[ ]
If an emerging growth company, indicate by check mark 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. [ ]
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
Based on the closing price of $32.11 per share on June 30, 2018,
the aggregate market value of our voting and non-voting common
stock held by non-affiliates was $233 billion.
At February 12, 2019, common shares outstanding were
7,284,589,883.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of AT&T Inc.'s Annual Report to Stockholders
for the fiscal year ended December 31, 2018 (Parts I and II).
(2) Portions of AT&T Inc.'s Notice of 2019 Annual Meeting
and Proxy Statement dated on or about March 11, 2019 to be filed
within the period permitted under General Instruction G(3) (Parts
III and IV).
SCHEDULE A
Securities Registered Pursuant To Section 12(b) Of The Act:
Name of each exchange
Title of each class on which registered
Common Shares (Par Value $1.00 New York Stock Exchange
Per Share)
Floating Rate AT&T Inc. New York Stock Exchange
Global Notes due June 4, 2019
Floating Rate AT&T Inc. New York Stock Exchange
Global Notes due August 3,
2020
1.875% AT&T Inc. New York Stock Exchange
Global Notes due December
4, 2020
2.65% AT&T Inc. New York Stock Exchange
Global Notes due December
17, 2021
1.45% AT&T Inc. New York Stock Exchange
Global Notes due June 1, 2022
2.50% AT&T Inc. New York Stock Exchange
Global Notes due March 15,
2023
Floating Rate AT&T Inc. New York Stock Exchange
Global Notes due September
5, 2023
1.05% AT&T Inc. New York Stock Exchange
Global Notes due September
5, 2023
1.30% AT&T Inc. New York Stock Exchange
Global Notes due September
5, 2023
2.75% AT&T Inc. New York Stock Exchange
Global Notes due May 19, 2023
2.40% AT&T Inc. New York Stock Exchange
Global Notes due March 15,
2024
3.50% AT&T Inc. New York Stock Exchange
Global Notes due December
17, 2025
1.80% AT&T Inc. New York Stock Exchange
Global Notes due September
5, 2026
2.90% AT&T Inc. New York Stock Exchange
Global Notes due December
4, 2026
SCHEDULE A - Continued
2.35% AT&T Inc. New York Stock Exchange
Global Notes due September
5, 2029
4.375% AT&T Inc. New York Stock Exchange
Global Notes due September
14, 2029
2.60% AT&T Inc. New York Stock Exchange
Global Notes due December
17, 2029
3.55% AT&T Inc. New York Stock Exchange
Global Notes due December
17, 2032
5.20% AT&T Inc. New York Stock Exchange
Global Notes due November
18, 2033
3.375% AT&T Inc. New York Stock Exchange
Global Notes due March 15,
2034
2.45% AT&T Inc. New York Stock Exchange
Global Notes due March 15,
2035
3.15% AT&T Inc. New York Stock Exchange
Global Notes due September
4, 2036
7.00% AT&T Inc. New York Stock Exchange
Global Notes due April 30,
2040
4.25% AT&T Inc. New York Stock Exchange
Global Notes due June 1, 2043
4.875% AT&T Inc. New York Stock Exchange
Global Notes due June 1, 2044
5.35% AT&T Inc. New York Stock Exchange
Global Notes due November
1, 2066
5.625% AT&T Inc. New York Stock Exchange
Global Notes due August 1,
2067
TABLE OF CONTENTS
Item Page
PART I
1. Business 1
1A. Risk Factors 13
2. Properties 15
3. Legal Proceedings 15
4. Mine Safety Disclosures 15
Executive Officers of the Registrant 16
PART II
5. Market for Registrant's Common Equity, Related 17
Stockholder Matters
and Issuer Purchases of Equity Securities
6. Selected Financial Data 18
7. Management's Discussion and Analysis of Financial 18
Condition
and Results of Operations
7A. Quantitative and Qualitative Disclosures about 18
Market Risk
8. Financial Statements and Supplementary Data 18
9. Changes in and Disagreements with Accountants 18
on Accounting
and Financial Disclosure
9A. Controls and Procedures 19
9B. Other Information 20
PART III
10. Directors, Executive Officers and Corporate Governance 20
11. Executive Compensation 20
12. Security Ownership of Certain Beneficial Owners 20
and
Management and Related Stockholder Matters
13. Certain Relationships and Related Transactions, 21
and Director Independence
14. Principal Accountant Fees and Services 21
PART IV
15. Exhibits and Financial Statement Schedules 21
PART I
ITEM 1. BUSINESS
GENERAL
AT&T Inc. ("AT&T," "we" or the "Company") is a holding
company incorporated under the laws of the State of Delaware in
1983 and has its principal executive offices at 208 S. Akard St.,
Dallas, Texas, 75202 (telephone number 210-821-4105). We maintain
an internet website at www.att.com. (This website address is for
information only and is not intended to be an active link or to
incorporate any website information into this document.) We make
available, free of charge, on our website our annual report on Form
10-K, our quarterly reports on Form 10-Q, current reports on Form
8-K and all amendments to those reports as soon as reasonably
practicable after such reports are electronically filed with, or
furnished to, the Securities and Exchange Commission (SEC). We also
make available on that website, and in print, if any stockholder or
other person so requests, our "Code of Ethics" applicable to all
employees and Directors, our "Corporate Governance Guidelines," and
the charters for all committees of our Board of Directors,
including Audit, Human Resources and
Corporate Governance and Nominating. Any changes to our Code of
Ethics or waiver of our Code of Ethics for senior financial
officers, executive officers or Directors will be posted on that
website.
History
AT&T, formerly known as SBC Communications Inc. (SBC), was
formed as one of several regional holding companies created to hold
AT&T Corp.'s (ATTC) local telephone companies. On January 1,
1984, we were spun-off from ATTC pursuant to an anti-trust consent
decree, becoming an independent publicly-traded telecommunications
services provider. At formation, we primarily operated in five
southwestern states.
Following our formation, we have expanded our footprint and
operations by acquiring various businesses, most significantly:
-- Our subsidiaries merged with Pacific Telesis Group in 1997,
Southern New England Telecommunications Corporation in 1998 and
Ameritech Corporation in 1999, thereby expanding our wireline
operations as the incumbent local exchange carrier (ILEC) into a
total of 13 states.
-- In November 2005 we merged one of our subsidiaries with ATTC,
creating one of the world's leading telecommunications providers.
In connection with the merger, we changed the name of our company
from "SBC Communications Inc." to "AT&T Inc."
-- In December 2006 we merged one of our subsidiaries with
BellSouth Corporation (BellSouth) making us the ILEC in an
additional nine states. With the BellSouth acquisition, we also
acquired BellSouth's 40 percent economic interest in AT&T
Mobility LLC (AT&T Mobility), formerly Cingular Wireless LLC,
resulting in 100 percent ownership of AT&T Mobility.
-- In 2014, we completed the acquisition of wireless provider
Leap Wireless International, Inc. and sold our ILEC operations in
Connecticut, which we had previously acquired in 1998.
-- In 2015, we acquired wireless properties in Mexico, and in
July 2015 we acquired DIRECTV, a leading provider of digital
television entertainment services in both the United States and
Latin America.
-- In 2018, we completed the acquisition of Time Warner Inc.
(Time Warner), a leader in media and entertainment that operates
the Turner, Home Box Office (HBO) and Warner Bros. business units.
We also acquired Otter Media Holdings and advertising platform
AppNexus.
General
We are a leading provider of telecommunications, media and
technology services globally. The services and products that we
offer vary by market and utilize various technology platforms in a
range of geographies. Our operating segments are organized as
follows:
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, internet and voice
communications services to residential customers.
-- Business Wireline provides advanced IP-based services
(referred to as "strategic 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 primarily operates multichannel basic television networks and digital properties.
-- Home Box Office primarily operates multichannel premium pay television services.
-- Warner Bros. principally produces and distributes television
shows, feature films and games.
The Latin America segment provides entertainment and wireless
services outside of the U.S. This segment contains the following
business units:
-- Vrio provides video services in Latin America primarily to
residential customers using satellite technology.
-- Mexico provides wireless service and equipment to customers in Mexico.
The Xandr segment provides advertising services. These services
utilize data insights to develop higher-value targeted
advertising.
Our Corporate and Other group reconciles 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 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) and (5) the
recharacterization of programming intangible asset amortization,
for programming acquired in the Time Warner acquisition, which we
continue to report with WarnerMedia segment operating expense, to
consolidated amortization expense.
-- Acquisition-related items, which consists of items associated
with the merger and integration of acquired businesses, including
amortization of intangible assets.
-- Certain significant items, which 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 individual 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.
Areas of Focus
With continuing advances in technology and in response to
changing demands from our customers, in recent years we have
focused on providing enhanced broadband, video and voice services.
We are also capitalizing on data insights from our
direct-to-consumer relationships and our premium video and digital
advertising inventory to provide advertising that matters. Our
acquisitions over the past few years and our continued investment
in a premier network experience make our customers' lives more
convenient and productive and foster competition and further
innovation in the communications and entertainment industry. In
2019, we plan to focus on the areas discussed below.
Communications
As the communications industry continues to move toward
internet-based technologies that are capable of blending wireline,
satellite and wireless products, we are offering services that take
advantage of these more sophisticated technologies. In particular,
our focus is on expanding our high-speed internet and video
offerings and on developing IP-based services that allow customers
to integrate their home or business wireline services with their
mobile service. During 2019, we will continue to develop and
provide unique integrated video, mobile and broadband solutions. We
believe offering integrated services facilitates our customers'
desire to view video anywhere on demand and encourages customer
retention.
Wireless Service
We are experiencing rapid growth in data usage as consumers are
demanding seamless access across their wireless and wired devices,
and as more and more machines are being connected to the internet.
We expect to continue to strengthen the reach and sophistication of
our network facilities to offer a variety of wireless
communications services.
Our 4G LTE technology covers over 400 million people in North
America, and, in the United States, we cover all major metropolitan
areas and almost 325 million people with our LTE technology. Our 3G
network provides services to customers using older handsets and
connected devices. We are contemplating the redeployment of
spectrum currently used for our 3G services and project that we
will discontinue service on our 3G network in early 2022, and will
manage this process consistent with previous network upgrades. As
of December 31, 2018, about 11% of our postpaid subscribers were
using 3G handsets, and we expect them to transition to newer
technologies. We do not expect this transition to have a material
impact on our consolidated operating results.
We are currently beginning the deployment of the latest wireless
technology (5G) in multiple U.S. cities. In late 2018, we were the
first U.S. company to introduce mobile 5G service in parts of 12
cities and plan to expand that deployment nationwide by early 2020.
The introduction of 5G service is largely dependent on the
development of 5G standards. To that end, we are one of the top
North American wireless carrier contributors into 3rd Generation
Partnership Project's (3GPP) work on 5G standards. We have been
awarded the contract to provide national coverage for emergency
personnel (first responders) by the First Responder Network
Authority (FirstNet), which gives us access to a nationwide low
band 20 MHz of spectrum. We will continue to invest in our wireless
network as we look to provide future service offerings and
participate in technologies such as 5G and millimeter-wave bands.
The increased speeds and network operating efficiency expected with
5G technology should enable massive deployment of devices connected
to the internet as well as faster delivery of data services. We
expect that 5G will enhance our customers' entire connected
experience and not just provide faster speeds.
As the wireless industry has matured, future wireless growth
will increasingly depend on our ability to offer innovative data
services on a wireless network that has sufficient spectrum and
capacity to support these innovations. We continue to invest
significant capital in expanding our network capacity, as well as
obtaining additional spectrum that meets our long-term needs. We
have participated in recent FCC spectrum auctions and have been
redeploying spectrum previously used for more basic services to
support more advanced mobile internet services.
Internet Protocol (IP) Technology IP is generally used to
describe the transmission of data, which can include voice (called
voice over IP or VoIP), using a software-based technology rather
than a traditional telephone network. Software-based technology
presents cost-savings and growth opportunities by using bandwidth
more efficiently than a legacy copper wire network and by improving
our ability to provide data and video services to both fixed
locations and mobile devices. We are rapidly converting to a
software-based network and managing the migration of wireline
customers to services using IP; we expect to continue this
transition through at least 2020. Software-based technologies align
with our global leadership in software defined network (SDN) and
network function virtualization (NFV). This network approach, of
which we are a global leader in our commitment to virtualize 75% of
our network by 2020, delivers a demonstrable cost advantage in the
deployment of next-generation technology over the traditional,
hardware-intensive network approach. Our virtualized network will
be able to support next-generation applications like 5G and
IP-based services quickly and efficiently.
Media
We produce and distribute high-quality video content to take
advantage of growing global demand. Our media businesses use their
strong brands, distinctive intellectual property and global scale
to produce and distribute quality content. As the television
industry continues to evolve from a distribution system using
satellite and cable offerings to individual streaming video
services, we are well-positioned to address and capitalize on these
changes, but we face risks and new sources of competition
associated with these developments. We plan in 2019 to continue
launching more personalized services offered directly to
consumers.
Advertising
Our Xandr segment relies on using data (on an anonymous basis)
from our more than 170 million customer relationships, to develop
digital advertising that is more relevant to consumers. Advertisers
are interested in capitalizing on our broad distribution and
ability to offer more precise marketing to customers through a
digital platform. We also are expanding relationships with other
broadband and video providers to use our digital platform to reach
their audiences. This segment experienced rapid growth in 2018, and
we believe this growth will continue in 2019.
Latin America
We believe that the wireless model in the U.S., with
accelerating demand for mobile internet service and the associated
economic benefits, will be repeated around the world as companies
invest in high-speed mobile networks. Due in part to changes in the
legal and regulatory framework in Mexico in 2015, we acquired
Mexican wireless operations to establish a seamless, cross-border
North American wireless network covering over 400 million people
and businesses in the United States and Mexico. During 2018, we
largely completed building a 4G LTE network in Mexico which covers
approximately 100 million people and businesses.
BUSINESS OPERATIONS
OPERATING SEGMENTS
Our segments are strategic business units that offer different
products and services over various technology platforms and/or in
different geographies that are managed accordingly. We analyze our
operating segments based on segment 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 operating segment. We have four
reportable segments: (1) Communications, (2) WarnerMedia, (3) Latin
America and (4) Xandr.
Additional information about our segments, including financial
information, is included under the heading "Segment Results" on
pages 21 through 32 and in Note 4 of the Annual Report and is
incorporated herein by reference pursuant to General Instruction
G(2).
COMMUNICATIONS
Our 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. Our
Communications services and products are marketed under the
AT&T, Cricket, AT&T PREPAID and DIRECTV brand names. The
Communications segment provided approximately 84% of 2018 segment
operating revenues and 84% of our 2018 total segment contribution.
This segment contains the Mobility, Entertainment Group and
Business Wireline business units.
Mobility - Our Mobility business unit provides nationwide
wireless services to consumers and wholesale and resale wireless
subscribers located in the United States or U.S. territories by
utilizing our network to provide voice and data services, including
high-speed internet over wireless devices. We classify our
subscribers as either postpaid, prepaid, connected device or
reseller. At December 31, 2018, we served 153 million Mobility
subscribers, including 77 million postpaid, 17 million prepaid, 8
million reseller and 51 million connected devices. Our Mobility
business unit revenue includes the following categories: service
and equipment.
Wireless Services
We offer a comprehensive range of high-quality nationwide
wireless voice and data communications services in a variety of
pricing plans to meet the communications needs of targeted customer
categories. Our wireless services also include advertising revenues
generated from the subscriber relationships.
Wireless data services continue to be a growing area for this
segment, representing an increasing share of overall subscriber
revenue. We are experiencing solid growth in this area as an
increasing number of our subscribers have upgraded their handsets
to more advanced integrated devices, are using data-centric devices
such as tablets and connected cars, and are utilizing the network
to connect and control physical devices using embedded computing
systems and/or software, commonly called the Internet of Things
(IoT). We offer plans that include unlimited features allowing for
the sharing of voice, text and data across multiple devices, which
attracts subscribers from other providers and minimize subscriber
churn. Customers in our "connected device" category (e.g., users of
session-based tablets, monitoring devices and automobile systems)
generally purchase those devices from third-party suppliers that
buy data access supported by our network. We continue to upgrade
our network and coordinate with equipment manufacturers and
application developers to further capitalize on the continued
growing demand for wireless data services.
We also offer nationwide wireless voice and data communications
to certain customers who prefer to pay in advance. These services
are offered under the Cricket and AT&T PREPAID(SM) brands and
are typically monthly prepaid services.
Equipment
We sell a wide variety of handsets, wirelessly enabled computers
(e.g., tablets and notebooks) and wireless data cards manufactured
by various suppliers for use with our voice and data services. We
also sell accessories, such as carrying cases and hands-free
devices. We sell through our own company-owned stores, agents and
third-party retail stores. Like other wireless service providers,
we have historically provided postpaid contract subscribers
substantial equipment subsidies to initiate, renew or upgrade
service. We have now largely eliminated these subsidies and provide
our customers with more service options, the ability to purchase
handsets on an installment basis and the opportunity to bring their
own device. With the elimination of most handset subsidies, our
subscribers have been bringing their own devices or retaining their
handsets for longer periods, which could impact future upgrade
activity.
Entertainment Group - Our Entertainment Group business unit
provides video, internet, voice communication and interactive and
targeted advertising services to customers in the United States and
U.S. territories by utilizing our IP-based and copper wired network
and/or our satellite technology. Our Entertainment Group business
unit revenue includes the following categories: video
entertainment, high-speed internet, legacy voice and data services
and other service and equipment.
Video Entertainment
Video entertainment revenues are comprised of subscription and
advertising revenues. We offer video entertainment services using
satellite and IP-based technologies (referred to as "linear") as
well as a streaming option that does not require either satellite
or wired IP services (referred to as "over-the-top" or "OTT"). Our
offerings are structured to provide customers with the best video
experience both inside and outside of the home by offering
subscribers attractive programming and state-of-the-art technology.
Due to the rising cost of programming as well as higher costs to
acquire new subscribers in an increasingly competitive industry, it
is even more important to distinguish and elevate our video
entertainment experience for our new and existing customers.
We provide approximately 24 million subscribers with access to
hundreds of channels of digital-quality video entertainment and
audio programming. In addition, our video entertainment subscribers
have the ability to use the internet and/or our mobile applications
from smartphones and tablets to view authorized content, search
program listings and schedule DVR recordings.
We believe it is critical that we continue to extend our brand
leadership as a premium pay-TV provider in the marketplace by
providing the best video experience both at home and on mobile
devices. With annual cash of over $4,000 million historically
generated from the business, including synergies resulting from our
DIRECTV acquisition, we are focused on providing content to
subscribers when and where they want it and believe that our
flexible platform that uses a combination of satellite, IP-based,
and cloud infrastructure with a broadband and wireless connection
is the most efficient way to transport that content. Through this
integrated approach, we are able to optimize the use of storage in
the home as well as in the cloud, while also providing a seamless
service for consumers across screens and locations.
High-Speed Internet
We offer broadband and internet services to 13.7 million
residential subscribers. Our IP-based technology provides
high-speed internet services.
Legacy Voice and Data Services
Revenues from our traditional voice services continue to decline
as customers switch to wireless or VoIP services provided by us,
cable companies or other internet-based providers. We have
responded by offering packages of combined voice and data services,
including broadband and video, and intend to continue this strategy
during 2019.
Business Wireline - Our Business Wireline business unit provides
services to business customers, including multinational
corporations, small and mid-sized businesses, governmental and
wholesale customers. Our Business Wireline business unit revenue
includes the following categories: strategic services, legacy voice
and data services, and other services and equipment.
Strategic Services
Strategic services (previously known as strategic business
services) are our most advanced business solutions. Our strategic
services are made up of Strategic Data, Strategic Voice, Security
and Cloud Solutions. Strategic Data services include our Virtual
Private Networks (VPN), AT&T Dedicated Internet (ADI), and
Ethernet and Broadband Services. These offerings allow our
customers to create and manage their own internal networks and to
access external data networks. Our Strategic Voice services include
both premises-based Voice over IP (VOIP) and cloud-based voice
solutions. Additionally, we provide collaboration services that
utilize our IP infrastructure and allow our customers to utilize
the most advanced technology to improve their productivity. We
continue to reconfigure our wireline network to take advantage of
the latest technologies and services. We have developed AT&T
FlexWare, a service that relies on our SDN and NFV to enhance
business customers' digital agility in a rapidly evolving
environment. We sell Cyber-Security services to our customers
providing state-of-the-art security solutions like Threat
Management, Intrusion Detection and other business security
applications. We also offer Cloud Solutions and Wi-Fi services. Due
to developing technology, our most advanced business solutions are
subject to change periodically. We review and evaluate our
strategic service offerings annually, which may result in an
updated definition and the recast of our historical financial
information to conform to the current period presentation. Any
modifications will be reflected in the first quarter.
Legacy Voice and Data Services
Voice services include services provided to business and
governmental customers, either directly or through wholesale
arrangements with other service providers. Our circuit-based,
traditional data products include switched and dedicated transport
services that allow customers to transmit data at high speeds, as
well as access to the internet using a DSL connection.
Other Services
Other service revenues include Outsourcing, Managed Services,
Professional Services and Equipment. These services are typically
large customer specific contracts where we provide many services
including LAN & WAN management, consulting and other management
services.
Additional information on our Communications segment is
contained in the Annual Report in the "Overview" section beginning
on page 22 and is incorporated herein by reference pursuant to
General Instruction G(2).
WARNERMEDIA
Our WarnerMedia segment is comprised of leading media and
entertainment businesses that principally develop, produce and
distribute feature films, television content, and other content
globally; operate cable networks, premium pay television and OTT
services domestically and internationally; and operate digital
media properties. The WarnerMedia segment includes Time Warner
operations for the period subsequent to our June 14, 2018
acquisition and provided approximately 11% of 2018 segment
operating revenues and 15% of our 2018 total segment contribution.
This segment consists primarily of the Turner, Home Box Office and
Warner Bros. business units.
Turner - The Turner business unit operates television networks
and related properties that offer branded news, entertainment,
sports and kids multi-platform content for consumers around the
world. In the U.S., its networks and related businesses and brands
include TNT; TBS; Adult Swim; truTV; Turner Classic Movies; Turner
Sports; Cartoon Network; Boomerang; and CNN. Turner's digital
properties include Bleacher Report and the CNN digital network.
Digital properties Turner manages or operates for sports leagues
include NBA.com, NBA Mobile, NCAA.com and PGA.com.
Turner licenses programming to affiliates that have contracted
to receive and distribute the programming to subscribers, sells
advertising on its networks and its digital properties owned or
managed for other companies, and licenses its original programming
and brands and characters for consumer products and other business
ventures. Turner revenue includes the following categories:
subscription, advertising and content and other.
Subscription
Turner's programming is primarily distributed by affiliates and
is available to subscribers of the affiliates for viewing live and
on demand on television and on various internet-connected devices
through the affiliates' services and Turner's network apps.
Turner's license agreements with its affiliates are typically
multi-year arrangements that provide for annual service fee
increases and have fee arrangements that are generally related to
the number of subscribers served by the affiliate and the networks
provided to the affiliate by Turner.
Advertising
Advertising arrangements for its networks generally have terms
of one year or less. In the U.S., the advertising revenues depend
on the size and demographics of a network's audience delivered to
an advertiser, the number of units of time sold and the price per
unit. Turner sells some of its advertising inventory in the
"upfront" market in advance each year and other inventory in the
"scatter" market closer to the time a program airs. Outside the
U.S., advertising is generally sold at a fixed rate for the unit of
time sold, determined by the time of day and network.
Turner's digital properties consist of its own assets and those
it manages and/or operates for sports leagues where Turner holds
the related programming rights. The CNN digital network is the
leading digital news destination, based on the number of average
monthly domestic multi-platform unique visitors and videostarts for
the year ended December 31, 2018. Turner's Bleacher Report is the
leading digital sports publisher across Facebook, Instagram and
Twitter (based on data for the year ended December 31, 2018 sourced
from CrowdTangle).
Content and Other
Turner provides services for other business ventures and
licenses certain owned original programming to international
territories and to subscription VOD (referred to as "SVOD")
services. Turner also licenses its brands and characters for
consumer products.
Home Box Office - Our Home Box Office business unit owns and
operates leading multichannel premium pay television services, HBO
and Cinemax. Our Home Box Office business unit revenue includes the
following categories: subscription and content and other.
Subscription
In the U.S., HBO and Cinemax programming is available to
subscribers of traditional affiliates for viewing live and on
demand on television and various internet-connected devices. Home
Box Office has entered into arrangements with a number of digital
distributors to provide their subscribers access to the HBO and
Cinemax services and programming on digital platforms and devices.
HBO NOW, a domestic stand-alone OTT service, is provided through
digital distributors, such as Apple, Google, Amazon and Roku, as
well as by some affiliates. At December 31, 2018, Home Box Office
was the most widely distributed domestic multichannel premium pay
television service. At December 31, 2018, after including the
negative effect of a carriage dispute, Home Box Office had
approximately 50 million domestic subscribers, including HBO
NOW.
Home Box Office's domestic license agreements with affiliates
are typically multi-year arrangements that provide for annual
service fee increases and marketing support. The relationship
between subscriber totals and the amount of revenues earned under
Home Box Office's license agreements depends on the specific terms
of the applicable agreement, which may include basic and/or pay
television subscriber thresholds, volume discounts and other
performance-based discounts.
Internationally, Home Box Office uses one or more of the
following distribution models: premium pay and basic tier
television services distributed by traditional affiliates,
licensing of programming to third-party providers, OTT services
distributed by third parties and direct-to-consumer OTT services.
HBO- and Cinemax-branded premium pay, basic tier television and/or
OTT services are distributed in over 70 countries in Latin America,
Europe and Asia. Home Box Office had approximately 90 million
international premium pay, basic tier television service and OTT
service subscribers at December 31, 2018, including subscribers
through Home Box Office's unconsolidated joint ventures. The amount
of its international subscription revenues depends on factors such
as basic and/or pay television subscriber thresholds,
performance-based or volume discounts, negotiated minimum
guarantees or flat-fee arrangements.
Content and Other
Home Box Office licenses its original programming to television
networks and OTT services in over 150 countries, including
arrangements under which it licenses programming to television
networks that are branded as the "Home of HBO" in countries such as
the U.K., Australia, France and Germany and as "HBO Canada" in
Canada. HBO's original programming also is available to customers
in both physical and digital formats in the U.S. and various
international regions through a wide variety of digital storefronts
and traditional retailers.
Warner Bros. - Our Warner Bros. business unit is one of the
largest television and film studios in the world. Its businesses
consist principally of the production, distribution and licensing
of television programming and feature films and the distribution of
home entertainment product in both physical and digital formats, as
well as the production and distribution of games and consumer
product and brand licensing.
At December 31, 2018, Warner Bros.' vast content library
consists of more than 100,000 hours of programming, including over
8,600 feature films and 5,000 television programs comprised of tens
of thousands of individual episodes.
The home entertainment industry has been undergoing significant
changes as it transitions from the distribution of film and
television content via physical formats to digital formats.
Consumer spending on home entertainment product in physical formats
has declined as a result of several factors, including consumers
shifting to OTT service subscriptions and, to a lesser degree,
digital purchases and transactional VOD rentals of content;
changing retailer initiatives and strategies (e.g., reduction in
floor space devoted to home entertainment product in physical
formats); retail store closures; increasing competition for
consumer discretionary time and spending; and piracy. Consumer
spending on film and television content in higher margin digital
formats represents an increasing share of total home entertainment
consumer spending in recent years, but has not offset declines in
consumer spending on home entertainment product in physical
formats.
In response to these dynamics, Warner Bros. has been focusing on
increasing the more profitable electronic sell-through and
transactional digital VOD rentals of its film and television
content and participates in a variety of initiatives that are
designed to make digital ownership more compelling for
consumers.
Our Warner Bros. business unit revenue includes the following
categories: theatrical product, television product, and games and
other.
Theatrical Product
Theatrical product consists of (1) rental fees paid by movie
theaters for the initial exhibition of feature films produced (or
co-produced) and/or distributed by Warner Bros., (2) licensing fees
paid by television networks, premium pay television services and
OTT services for the exhibition of feature films produced or
co-produced by Warner Bros. and (3) revenues from the distribution
of Warner Bros.' and other companies' feature films in physical and
digital formats. Our feature films also support Warner Bros.' key
brands and franchises, which helps generate consumer product and
brand licensing revenues based on Warner Bros.' films and
characters.
Warner Bros. was one of the top film studios in global box
office receipts in 2018 and has been a leading film studio in
domestic box office receipts for the past ten years.
Television Product
Television product consists of (1) fees for the initial
broadcast of Warner Bros.' television programming on U.S. broadcast
and cable television networks and premium pay television and OTT
services, (2) fees for the airing or other distribution of its
television programming after its initial broadcast in secondary
U.S. distribution channels (such as basic cable networks, local
television stations and OTT services), (3) fees for the
international distribution of Warner Bros.' television programming
for free-to-air television, basic tier television services, premium
pay television services and OTT services, and (4) revenues from the
sale of the television programming of Warner Bros. and other
companies in physical and digital formats. Our television
programming also supports Warner Bros.' key brands and franchises,
which helps generate consumer product and brand licensing revenues
based on the programming for years beyond the initial airing of the
programming on television.
Warner Bros. was a leading producer of primetime television
series for the U.S. broadcast networks for the 2018-2019 television
season, producing 35 series. In addition, Warner Bros. licenses its
U.S. programming globally.
Games and Other
Warner Bros. develops, publishes and distributes games,
including mobile and console games. Its games are based on
intellectual property owned or licensed by Warner Bros. (including
DC Entertainment properties, Harry Potter and Mortal Kombat).
Additional information on our WarnerMedia segment is contained
in the Annual Report in the "Overview" section beginning on page 27
and is incorporated herein by reference pursuant to General
Instruction G(2).
LATIN AMERICA
Our Latin America segment provides entertainment services in
Latin America and wireless services in Mexico. The Latin America
segment provided approximately 4% of 2018 segment operating
revenues. Our Latin America services and products are marketed
under the AT&T, DIRECTV, SKY and Unefon brand names. This
segment contains the Vrio and Mexico business units.
Vrio - Video entertainment services are provided to primarily
residential customers using satellite technology. We are a leading
provider of digital television services throughout Latin America,
providing a wide selection of local and international
digital-quality video entertainment and audio programming under the
DIRECTV and SKY brands. We provide one of the most extensive
collections of programming available in the Latin America pay-TV
market, including HD sports video content and the most innovative
interactive technology across the region. In addition, we have the
unique ability to sell superior offerings of our differentiated
products and services on a continent-wide basis with an operational
cost structure that we believe to be lower than that of our
competition.
We have approximately 14 million video subscribers in Latin
America. Our business encompasses pay television services with
satellite operations serving Argentina, Brazil, Chile, Colombia,
Ecuador, Peru, Uruguay, Venezuela and parts of the Caribbean. Our
operations also include our 41% equity method investment in Innova,
S. de R.L. de C.V., or SKY Mexico. Sky Mexico financial results are
accounted for as an equity-method investment.
Mexico - We utilize our regional and national wireless networks
in Mexico to provide consumer and business customers with wireless
data and voice communication services. We divide our revenue into
the following categories: wireless service and wireless
equipment.
We offer postpaid and prepaid wireless services in Mexico to
approximately 18 million subscribers under the AT&T and Unefon
brands. Postpaid services allow for (1) no annual service contract
for subscribers who bring their own device or purchase a device on
installment (the device must be paid in full if the customer
chooses to drop their service from AT&T) and (2) service
contracts for periods up to 24 months for subscribers who purchase
their equipment under the traditional device subsidy model. All
plans offer no roaming charges in the United States or Canada,
unlimited minutes and messages to the extended AT&T community
and unlimited data access to social networking. We also offer
prepaid services to customers who prefer to pay in advance.
We sell a wide variety of handsets, including smartphones
manufactured by various suppliers for use with our voice and data
services. We sell through our own company-owned stores, agents and
third-party retail stores.
Additional information on our Latin America segment is contained
in the Annual Report in the "Overview" section beginning on page 29
and is incorporated herein by reference pursuant to General
Instruction G(2).
XANDR
Our Xandr segment relies on using data from our more than 170
million customer relationships (on an anonymous basis), to develop
digital advertising that is more relevant to consumers. The Xandr
segment provided approximately 1% of 2018 segment operating
revenues and 3% of our 2018 total segment contribution. Advertisers
are interested in capitalizing on our broad distribution and
ability to offer more precise marketing to customers through a
digital platform. We also are expanding relationships with other
broadband and video providers to use our digital platform to reach
their audiences. This segment experienced rapid growth in 2018, and
we believe this growth will continue in 2019.
Additional information on our Xandr segment is contained in the
Annual Report in the "Overview" section beginning on page 32 and is
incorporated herein by reference pursuant to General Instruction
G(2).
MAJOR CLASSES OF SERVICE
The following table sets forth the percentage of total
consolidated reported operating revenues by any class of service
that accounted for 10% or more of our consolidated total operating
revenues in any of the last three fiscal years:
Percentage of Total
Consolidated Operating Revenues
2018 2017 2016
----------------------- -------------- ------------ ------------
Communications Segment
Wireless service (1) 32% 36% 36%
Subscription (2, 3) 19 23 22
Advanced data (4) 12 12 11
Equipment 10 9 9
WarnerMedia Segment
Subscription 4 - -
Latin America Segment
Subscription (2) 3 3 3
Wireless service 1 1 1
Equipment 1 - -
----------------------- ------ ------ ----- ----- ----- -----
(1) 2018 excludes $232 million of advertising revenues included
as Wireless service in our Mobility business unit.
(2) Subscription is reported as Video in our Entertainment Group
and Vrio business units.
(3) 2018 excludes $1,595 million of advertising revenues
included as Video in our Entertainment Group business unit.
(4) Advanced data is reported as High-speed internet and
Strategic services in our Entertainment Group and Business Wireline
business units, respectively.
Additional information on our geographical distribution of
revenues is contained in the Annual Report in the "Segment
Information" section beginning on page 72 and is incorporated
herein by reference pursuant to General Instruction G(2).
GOVERNMENT REGULATION
Wireless communications providers must be licensed by the U.S.
Federal Communications Commission (FCC) to provide communications
services at specified spectrum frequencies within defined
geographic areas and must comply with the rules and policies
governing the use of the spectrum as adopted by the FCC. The FCC's
rules have a direct impact on whether the wireless industry has
sufficient spectrum available to support the high-quality,
innovative services our customers demand. Wireless licenses are
issued for a fixed time period, typically ten years, and we must
seek renewal of these licenses. While the FCC has generally renewed
licenses given to operating companies such as us, the FCC has
authority to both revoke a license for cause and to deny a license
renewal if a renewal is not in the public interest. Additionally,
while wireless communications providers' prices and service
offerings are generally not subject to regulation, the federal
government and various states are considering new regulations and
legislation relating to various aspects of wireless services.
The Communications Act of 1934 and other related acts give the
FCC broad authority to regulate the U.S. operations of our
satellite services, which are licensed by the FCC, and some of
WarnerMedia's businesses are also subject to obligations under the
Communications Act and related FCC regulations. In addition, states
representing a majority of our local service access lines have
adopted legislation that enables us to provide IP-based video
service through a single statewide or state-approved franchise (as
opposed to the need to acquire hundreds or even thousands of
municipal-approved franchises) to offer a competitive video
product. We also are supporting efforts to update and improve
regulatory treatment for retail services. Regulatory reform and
passage of legislation is uncertain and depends on many
factors.
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. This 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. AT&T and several
other parties appealed the FCC's order. In June 2016, a divided
panel of the District of Columbia Court of Appeals upheld the FCC's
rules by a 2-1 vote, and petitions for rehearing en banc were
denied in May 2017. Petitions for a writ of Certiorari at the U.S.
Supreme Court remain pending. Meanwhile, 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, including several
state Attorneys General, net neutrality advocacy groups and others,
have appealed the FCC's December 2017 decision. Those appeals,
which initially were consolidated in the U.S. Court of Appeals for
the Ninth Circuit, were transferred at the request of the parties
to the D.C. Circuit. 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 re-impose the repealed requirements. Suits
have recently been filed concerning laws in California and Vermont,
and other lawsuits are possible. We will continue to support
congressional action to codify a set of standard consumer rules for
the internet.
On April 20, 2017, the FCC adopted an order that maintains light
touch pricing regulation of packet-based services like Ethernet and
extends this "light touch" approach to high-speed TDM transport
services and to most of our TDM channel termination services, based
on the application of a competitive market test for such services.
For those services that do not qualify for light touch regulation,
the order allows companies to offer volume and term discounts, as
well as contract tariffs. Several parties appealed the FCC's
decision. In August 2018, the U.S. Court of Appeals for the Eighth
Circuit largely upheld the FCC decision, but found that the FCC had
not provided adequate notice of the possibility that it might apply
light touch regulation to all transport services. The FCC has since
remedied that notice deficiency and has proposed to reinstate its
light touch approach for transport services.
Privacy-related legislation has been considered in a number of
states. The policy environment is complex and rapidly evolving.
Legislative and regulatory action could result in increased costs
of compliance, claims against broadband internet access service
providers, content owners and others, and increased uncertainty in
the value and availability of data. In June 2018, the State of
California enacted comprehensive privacy legislation that gives
California consumers the right to know what personal information is
being collected about them, to know 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. The new law could significantly affect how data
markets operate and will impose implementation costs and
challenges. We will continue to support congressional action to
codify a set of standard consumer rules of the internet, including
a federal privacy framework.
Our ILEC subsidiaries are subject to regulation by state
governments, which have the power to regulate intrastate rates and
services, including local, long-distance and network access
services, provided such state regulation is consistent with federal
law. Some states have eliminated or reduced regulations on our
retail offerings. These subsidiaries are also subject to the
jurisdiction of the FCC with respect to intercarrier compensation,
interconnection, and interstate and international rates and
services, including interstate access charges. Access charges are a
form of intercarrier compensation designed to reimburse our
wireline subsidiaries for the use of their networks by other
carriers.
WarnerMedia creates, owns and distributes intellectual property,
including copyrights, trademarks and licenses of intellectual
property. To protect its intellectual property, WarnerMedia relies
on a combination of laws and license agreements. Outside the U.S.,
laws and regulations relating to intellectual property protection
and the effective enforcement of these laws and regulations vary
greatly from country to country. The European Union Commission is
pursuing legislative and regulatory initiatives that could impair
Warner Bros.' current country-by-country licensing approach in the
European Union. Piracy, particularly of digital content, continues
to threaten revenues from WarnerMedia's products and services, as
well as revenues from our pay TV business, and we work to limit
that threat through a combination of approaches, including
technological and legislative solutions. Outside the U.S., various
laws and regulations, as well as trade agreements with the U.S.,
also apply to the distribution or licensing of feature films for
exhibition in theaters and on broadcast and cable networks. For
example, in certain countries, including China, laws and
regulations limit the number of foreign films exhibited in such
countries in a calendar year.
Our subsidiaries operating outside the United States are subject
to the jurisdiction of national and supranational regulatory
authorities in the market where service is provided.
Additional information relating to regulation of our
subsidiaries is contained in the Annual Report under the headings
"Operating Environment Overview" beginning on page 37 and
"Regulatory Developments" beginning on page 39 and is incorporated
herein by reference pursuant to General Instruction G(2).
IMPORTANCE, DURATION AND EFFECT OF LICENSES
Certain of our subsidiaries own or have licenses to various
patents, copyrights, trademarks and other intellectual property
necessary to conduct business. Many of our subsidiaries also hold
government-issued licenses or franchises to provide wireline,
satellite or wireless services. Additional information relating to
regulation affecting those rights is contained in the Annual Report
under the heading "Operating Environment Overview," beginning on
page 37, and is incorporated herein by reference pursuant to
General Instruction G(2). We actively pursue patents, trademarks
and service marks to protect our intellectual property within the
United States and abroad. We maintain a significant global
portfolio of patents, trademarks and service mark registrations. We
have also entered into agreements that permit other companies, in
exchange for fees and rights, and subject to appropriate safeguards
and restrictions, to utilize certain of our patents, trademarks and
service marks. As we transition our network from a switch-based
network to an IP, software-based network, we have increasingly
entered into licensing agreements with software developers.
We periodically receive offers from third parties to obtain
licenses for patents and other intellectual rights in exchange for
royalties or other payments. We also receive notices asserting that
our products or services sold to customers or software-based
network functions infringe on their patents and other intellectual
property rights. These claims, whether against us directly, such as
network functions or against third-party suppliers of products or
services that we, in turn, sell to our customers, such as wireless
handsets, could require us to pay damages, royalties, stop offering
the relevant products or services and/or cease network functions or
other activities. While the outcome of any litigation is uncertain,
we do not believe that the resolution of any of these infringement
claims or the expiration or non-renewal of any of our intellectual
property rights would have a material adverse effect on our results
of operations.
MAJOR CUSTOMERS
No customer accounted for 10% or more of our consolidated
revenues in 2018, 2017 or 2016.
COMPETITION
Information relating to competition in each of our operating
segments is contained in the Annual Report under the heading
"Competition" beginning on page 41, and is incorporated herein by
reference pursuant to General Instruction G(2).
RESEARCH AND DEVELOPMENT
AT&T scientists and engineers conduct research in a variety
of areas, including IP networking, advanced network design and
architecture, network and cyber security, network operations
support systems, satellite technology, video platform development
and data analytics. The majority of the development activities are
performed to create new services and to invent tools and systems to
manage secure and reliable networks for us and our customers.
Research and development expenses were $1,194 million in 2018,
$1,503 million in 2017, and $1,649 million in 2016.
EMPLOYEES
As of January 31, 2019, we employed approximately 268,000
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 now covering approximately 8,300 traditional
wireline employees in our Midwest region expired in April 2018 and
employees are working under the terms of the prior contract,
including benefits, while negotiations continue. In addition, a
contract now covering approximately 3,300 traditional wireline
employees in our legacy AT&T Corp. business also expired in
April 2018. Those employees are working under the terms of their
prior contract, including benefits, while negotiations continue.
Other contracts covering approximately 26,000 employees are
scheduled to expire during 2019.
At December 31, 2018, we had approximately 548,000 retirees and
dependents that were eligible to receive retiree benefits.
RECENT DEVELOPMENTS
A putative stockholder class action lawsuit has been filed in
connection with statements made in the registration statement and
prospectus on Form S-4 (S-4), filed by AT&T with the SEC in
connection with our acquisition of Time Warner Inc. The action,
Hoffman v. Stephenson et al. (the "Hoffman Complaint"), filed on
February 7, 2019 in the Supreme Court of the State of New York,
County of New York, alleges violations of Sections 11, 12(a)(2) and
15 of the Securities Act of 1933, as amended, by AT&T and
certain of AT&T's current officers and directors based on
alleged misrepresentations and omissions in the S-4 relating to
trends in its then Entertainment Group segment and in particular
with respect to the number of subscribers to our DIRECTV NOW
service. The plaintiff in the Hoffman Complaint seeks damages,
attorneys' fees and costs, rescission, disgorgement and other and
further relief. We believe the claims in the Hoffman Complaint are
without merit and will vigorously defend our legal position in
court.
ITEM 1A. RISK FACTORS
Information required by this Item is included in the Annual
Report under the heading "Risk Factors" on pages 54 through 58
which is incorporated herein by reference pursuant to General
Instruction G(2).
CAUTIONARY LANGUAGE CONCERNING FORWARD-LOOKING STATEMENTS
Information set forth in this report contains forward-looking
statements that are subject to risks and uncertainties, and actual
results could differ materially. Many of these factors are
discussed in more detail in the "Risk Factors" section. We claim
the protection of the safe harbor for forward-looking statements
provided by the Private Securities Litigation Reform Act of
1995.
The following factors could cause our future results to differ
materially from those expressed in the forward-looking
statements:
-- 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.
-- Changes in available technology and the effects of such
changes, including product substitutions and deployment costs.
-- 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) 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; IP licensing, and
wireless and satellite license awards and renewals.
-- The final outcome of state and federal legislative efforts
involving topics that are important to our business, including
deregulation of IP-based services, relief from Carrier of Last
Resort obligations and elimination of state commission review of
the withdrawal of services, internet regulation and privacy
issues.
-- 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 absorb revenue losses caused by increasing
competition, including offerings that use alternative technologies
or delivery methods (e.g., cable, wireless, VoIP and over-the-top
video service), subscriber reluctance to purchase new wireless
handsets, and our ability to maintain capital expenditures.
-- The extent of competition including from governmental
networks and other providers and the resulting pressure on customer
totals and segment operating margins.
-- Our ability to develop attractive and profitable
product/service offerings to offset increasing competition and
increasing fragmentation of customer viewing habits.
-- 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 (e.g., VoIP
and data usage).
-- The continued development and delivery of attractive and
profitable video and broadband offerings; 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 continued ability to maintain margins, attract and offer
a diverse portfolio of video, wireless service and devices and
device financing plans.
-- 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, 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 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.
-- The U.S. Department of Justice prevailing on its appeal of
the court decision permitting our acquisition of Time Warner
Inc.
-- 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 2. PROPERTIES
Our properties do not lend themselves to description by
character and location of principal units. At December 31, 2018, of
our total property, plant and equipment, central office equipment
represented 29%; outside plant (including cable, wiring and other
non-central office network equipment) represented approximately
22%; satellites represented 1%; other equipment, comprised
principally of wireless network equipment attached to towers,
furniture and office equipment and vehicles and other work
equipment, represented 28%; land, building and wireless
communications towers represented 12%; and other miscellaneous
property represented 8%.
For our Communications segment, substantially all of the
installations of central office equipment are located in buildings
and on land we own. Many garages, administrative and business
offices, wireless towers, telephone centers and retail stores are
leased. Property on which communication towers are located may be
either owned or leased.
For our WarnerMedia segment, we own or leases offices; studios;
technical, production and warehouse spaces; communications
facilities and other properties in numerous locations globally.
ITEM 3. LEGAL PROCEEDINGS
We are a party to numerous lawsuits, regulatory proceedings and
other matters arising in the ordinary course of business. As of the
date of this report, we do not believe any pending legal
proceedings to which we or our subsidiaries are subject are
required to be disclosed as material legal proceedings pursuant to
this item.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
(As of February 1, 2019)
Name Age Position Held Since
Chairman of the Board, Chief Executive
Officer
Randall L. Stephenson 58 and President 6/2007
William A. Blase Senior Executive Vice President -
Jr. 63 Human Resources 6/2007
John M. Donovan 58 Chief Executive Officer, AT&T Communications, 8/2017
LLC
Senior Executive Vice President and
David S. Huntley 60 Chief Compliance Officer 12/2014
Chief Executive Officer-AT&T Latin
Lori M. Lee 53 America and Global Marketing Officer 8/2017
Chief Executive Officer-Xandr, AT&T
Brian D. Lesser 44 Services, Inc. 9/2017
David R. McAtee Senior Executive Vice President and
II 50 General Counsel 10/2015
Chief Executive Officer, Warner Media,
John T. Stankey 56 LLC 6/2018
Senior Executive Vice President and
John J. Stephens 59 Chief Financial Officer 6/2011
All of the above executive officers have held high-level
managerial positions with AT&T or its subsidiaries for more
than the past five years, except for Mr. Lesser who was previously
CEO of GroupM in North America from November 2015 to September 2017
and CEO of Xaxis from January 2011 to November 2015. Executive
officers are not appointed to a fixed term of office.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES
(a) Our common stock is listed on the New York Stock Exchange.
The number of stockholders of record as of December 31, 2018 and
2017 was 937,230 and 968,119. The number of stockholders of record
as of February 12, 2019, was 933,461. We declared dividends, on a
quarterly basis, totaling $2.01 per share in 2018 and $1.97 per
share in 2017.
Other information required by this Item is included in the
Annual Report under the headings "Quarterly Financial Information"
on page 87, "Selected Financial and Operating Data" on page 14, and
"Stock Trading Information" on the back cover, which are
incorporated herein by reference pursuant to General Instruction
G(2).
(c) Our Board of Directors approved authorizations in both March
2013 and 2014 to repurchase up to 300 million shares of our common
stock. For the year ended December 31, 2018, we repurchased 13
million shares for distribution through our employee benefit plans,
totaling $419 million under the March 2013 authorization. For the
year ended December 31, 2017, we repurchased 7 million shares
totaling $279 million under the March 2013 authorization. Excluding
the impact of acquisitions, the emphasis of our 2019 financing
activities will be the refinancing and/or repayment of debt and the
payment of dividends, subject to approval by our Board of
Directors. We plan to fund our financing uses of cash through a
combination of cash from operations, debt issuances and asset
sales. The timing and mix of any debt issuance will be guided by
credit market conditions and interest rate trends.
To implement these authorizations, we used open market
repurchase programs, relying on Rule 10b5-1 of the Securities
Exchange Act of 1934 where feasible.
We will continue to fund any share repurchases through a
combination of cash from operations, borrowings dependent on market
conditions, or cash from the disposition of certain non-strategic
investments.
A summary of our repurchases of common stock during the fourth
quarter of 2018 is as follows:
ISSUER PURCHASES OF EQUITY SECURITIES
(d)
(a) (b) (c)
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) Paid Per Share Announced Plans Under The Plans
Period Purchased(1,2,3) (or Unit) or Programs(1) or Programs
---------------------- ---------------------- ----------------- -------------------- -----------------
October 1, 2018
-
October 31, 2018 528,852 $ 30.88 - 375,662,000
November 1, 2018
-
November 30, 2018 112,236 30.67 - 375,662,000
December 1, 2018
-
December 31, 2018 1,055,525 28.80 - 375,662,000
---------------------- ---------------------- ------------- -------------------- -----------------
Total 1,696,613 $ 29.57 -
====================== ====================== ============= ==================== =================
In March 2014, our Board of Directors approved an authorization to
(1) repurchase up to 300 million shares of our common
stock. In March 2013, our Board of Directors approved an authorization
to repurchase up to 300 million shares of our
common stock. The authorizations have no expiration date.
Of the shares purchased, 1,031,328 shares were acquired through the
(2) withholding of taxes on the vesting of restricted stock or
through the payment in stock of taxes on the exercise price of options.
Of the shares repurchased or transferred, 665,285 shares were transferred
(3) from the AT&T maintained Voluntary Employee Benefit Association (VEBA)
trusts.
ITEM 6. SELECTED FINANCIAL DATA
Information required by this Item is included in the Annual
Report under the heading "Selected Financial and Operating Data" on
page 14, which is incorporated herein by reference pursuant to
General Instruction G(2).
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Information required by this Item is included in the Annual
Report on pages 15 through 48, which is incorporated herein by
reference pursuant to General Instruction G(2).
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Information required by this Item is included in the Annual
Report under the heading "Market Risk" on page 40, which is
incorporated herein by reference pursuant to General Instruction
G(2).
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information required by this Item is included in the Annual
Report on pages 49 through 87, which is incorporated herein by
reference pursuant to General Instruction G(2).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING
AND FINANCIAL DISCLOSURE
During our two most recent fiscal years, there has been no
change in the independent accountant engaged as the principal
accountant to audit our financial statements, and the independent
accountant has not expressed reliance on other independent
accountants in its reports during such time period.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure 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 SEC'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 December 31, 2018. 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 December 31, 2018.
Internal Control Over Financial Reporting
(a) Management's Annual Report on Internal Control over
Financial Reporting
The management of AT&T is responsible for establishing and
maintaining adequate internal control over financial reporting.
AT&T's internal control system was designed to provide
reasonable assurance as to the integrity and reliability of the
published financial statements. AT&T management assessed the
effectiveness of the company's internal control over financial
reporting as of December 31, 2018. In making this assessment, it
used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in Internal Control
- Integrated Framework (2013 framework). We have excluded from the
scope of our assessment of internal control over financial
reporting the operations and related assets of Warner Media, LLC
(formerly Time Warner Inc. and referred to as "Warner Media") which
we acquired in 2018. At December 31, 2018 and for the period from
acquisition through December 31, 2018, total assets and operating
revenues subject to Warner Media's internal control over financial
reporting represented 24.1% and 9.7% of AT&T's consolidated
total assets and total revenues as of and for the year ended
December 31, 2018. Based on its assessment, AT&T management
believes that, as of December 31, 2018, the Company's internal
control over financial reporting is effective based on those
criteria.
(b) Attestation Report of the Independent Registered Public
Accounting Firm
The independent registered public accounting firm that audited
the financial statements included in the Annual Report containing
the disclosure required by this Item, Ernst & Young LLP, has
issued an attestation report on the Company's internal control over
financial reporting. The attestation report issued by Ernst &
Young LLP is included in the Annual Report on page 89, which is
incorporated herein by reference pursuant to General Instruction
G(2).
ITEM 9B. Other Information
There is no information that was required to be disclosed in a
report on Form 8-K during the fourth quarter of 2018 but was not
reported.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE
Information regarding executive officers required by Item 401 of
Regulation S-K is furnished in a separate disclosure at the end of
Part I of this report since the registrant did not furnish such
information in its definitive proxy statement prepared in
accordance with Schedule 14A. Information regarding directors
required by Item 401 of Regulation S-K is incorporated herein by
reference pursuant to General Instruction G(3) from the
registrant's definitive proxy statement, dated on or about March
11, 2019 (Proxy Statement) under the heading "Management Proposal
Item No. 1. Election of Directors."
Information required by Item 405 of Regulation S-K is
incorporated herein by reference pursuant to General Instruction
G(3) from the registrant's Proxy Statement under the heading
"Section 16(a) Beneficial Ownership Reporting Compliance."
The registrant has a separately-designated standing audit
committee established in accordance with Section 3(a)(58)(A) of the
Securities Exchange Act of 1934. The members of the committee are
Messrs. Di Piazza, Jr. and McCallister, and Mses. Taylor and Tyson.
The additional information required by Item 407(d)(5) of Regulation
S-K is incorporated herein by reference pursuant to General
Instruction G(3) from the registrant's Proxy Statement under the
heading "Audit Committee."
The registrant has adopted a code of ethics entitled "Code of
Ethics" that applies to the registrant's principal executive
officer, principal financial officer, principal accounting officer,
or controller or persons performing similar functions. The
additional information required by Item 406 of Regulation S-K is
provided in this report under the heading "General" under Part I,
Item 1. Business.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this Item is incorporated herein by
reference pursuant to General Instruction G(3) from the
registrant's Proxy Statement under the headings "Director
Compensation," "CEO Pay Ratio," and the pages beginning with the
heading "Compensation Discussion and Analysis" and ending with, and
including, the pages under the heading "Potential Payments upon
Change in Control.".
Information required by Item 407(e)(5) of Regulation S-K is
included in the registrant's Proxy Statement under the heading
"Compensation Committee Report" and is incorporated herein by
reference pursuant to General Instruction G(3) and shall be deemed
furnished in this Annual Report on Form 10-K and will not be deemed
incorporated by reference into any filing under the Securities Act
of 1933 or the Securities Exchange Act of 1934.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Information required by Item 403 of Regulation S-K is included
in the registrant's Proxy Statement under the heading "Common Stock
Ownership," which is incorporated herein by reference pursuant to
General Instruction G(3).
Equity Compensation Plan Information
The following table provides information as of December 31,
2018, concerning shares of AT&T common stock authorized for
issuance under AT&T's existing equity compensation plans.
Equity Compensation Plan Information
Number of securities
remaining available
for
Number of securities Weighted average future issuance
to exercise under
be issued upon price of equity compensation
exercise of outstanding plans
outstanding options, options, (excluding securities
warrants and warrants reflected in column
rights and rights (a))
Plan Category (a) (b) (c)
------------------------------- ---------------------- -------------------------------------
Equity compensation
plans
approved by security
holders 40,468,244 (1) $ 26.28 312,109,777 (2)
------------------------------- ---------------------- -------------------------------------
Equity compensation
plans
not approved by
security
holders 0 0 0
------------------------------- ---------------------- -------------------------------------
Total 40,468,244 (3) $ 26.28 312,109,777 (2)
------------------------------- ---------------------- -------------------------------------
(1) Includes the issuance of stock in connection with the following
stockholder approved plans: (a) 3,188,886 stock options under
the Stock Purchase and Deferral Plan (SPDP), (b) 1,861,950 phantom
stock units under the Stock Savings Plan (SSP), 12,658,357 phantom
stock units under the SPDP, 3,216,681 restricted stock units under
the 2011 Incentive Plan, 1,604,712 restricted stock units under
the 2016 Incentive Plan and 30,014 restricted stock units under
the 2018 Incentive Plan, (c) 4,886,946 target number of stock-settled
performance shares under the 2011 Incentive Plan, 10,047,502 target
number of stock-settled performance shares under the 2016 Incentive
Plan, and 31,185 target number of stock-settled performance shares
under the 2018 Incentive Plan. At payout, the target number of
performance shares may be reduced to zero or increased by up to
150%. Each phantom stock unit and performance share is settleable
in stock on a 1-to-1 basis. The weighted-average exercise price
in the table does not include outstanding performance shares or
phantom stock units.
The SSP was approved by stockholders in 1994 and then was amended
by the Board of Directors in 2000 to increase the number of shares
available for purchase under the plan (including shares from the
Company match and reinvested dividend equivalents). Stockholder
approval was not required for the amendment. To the extent applicable,
the amount shown for approved plans in column (a), in addition
to the above amounts, includes 2,160,838 phantom stock units (computed
on a first-in-first-out basis) that were approved by the Board
in 2000. Under the SSP, shares could be purchased with payroll
deductions and reinvested dividend equivalents by mid-level and
above managers and limited Company partial matching contributions.
No new contributions may be made to the plan.
(2) Includes 41,538,764 shares that may be issued under the SPDP,
249,157,068 shares that may be issued under the 2018 Incentive
Plan, and up to 2,889,674 shares that may be purchased through
reinvestment of dividends on phantom shares held in the SSP.
(3) Does not include certain stock options issued by companies acquired
by AT&T that were converted into options to acquire AT&T stock.
As of December 31, 2018, there were 26,970,020 shares of AT&T
common stock subject to the converted options, having a weighted-average
exercise price of $18.96. Also, does not include 8,214,489 outstanding
phantom stock units that were issued by companies acquired by
AT&T that are convertible into stock on a 1-to-1 basis, along
with an estimated 114,352 shares that may be purchased with reinvested
dividend equivalents paid on the outstanding phantom stock units.
No further phantom stock units, other than reinvested dividends,
may be issued under the assumed plans. The weighted-average exercise
price in the table does not include outstanding performance shares
or phantom stock units.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENCE
Information required by Item 404 of Regulation S-K is included
in the registrant's Proxy Statement under the heading "Related
Person Transactions," which is incorporated herein by reference
pursuant to General Instruction G(3). Information required by Item
407(a) of Regulation S-K is included in the registrant's Proxy
Statement under the heading "Director Independence," which is
incorporated herein by reference pursuant to General Instruction
G(3).
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information required by this Item is included in the
registrant's Proxy Statement under the heading "Principal
Accountant Fees and Services," which is incorporated herein by
reference pursuant to General Instruction G(3).
Part IV
ITEM 15. EXHIBITS and FINANCIAL STATEMENT SCHEDULES
(a) Documents filed as a part of the report:
Page
(1) Report of Independent Registered Public Accounting
Firm.................................................. *
Financial Statements covered by Report of Independent Registered
Public Accounting Firm:
Consolidated Statements of
Income....................................................................................
*
Consolidated Statements of Comprehensive
Income....................................................... *
Consolidated Balance
Sheets...............................................................................................
*
Consolidated Statements of Cash
Flows............................................................................ *
Consolidated Statements of Changes in Stockholders'
Equity....................................... *
Notes to Consolidated Financial
Statements..................................................................... *
* Incorporated herein by reference to the appropriate portions
of the registrant's Annual Report to Stockholders for the fiscal
year ended December 31, 2018. (See Part II.)
Page
(2) Financial Statement Schedules:
II - Valuation and Qualifying
Accounts.............................................................................. 27
Financial statement schedules other than those listed above have
been omitted because the required information is contained in the
financial statements and notes thereto, or because such schedules
are not required or applicable.
(3) Exhibits:
Exhibits identified in parentheses below, on file with the SEC,
are incorporated herein by reference as exhibits hereto. Unless
otherwise indicated, all exhibits so incorporated are from File No.
1-8610.
Exhibit Number
2 Agreement and Plan of Merger, dated as of October
22, 2016, among AT&T Inc., Time Warner Inc. and West
Merger Sub, Inc. (Exhibit 10.1 to Form 8-K filed on
October 24, 2016)
3-a Restated Certificate of Incorporation, filed with
the Secretary of State of Delaware on December 13,
2013 (Exhibit 3.1 to Form 8-K filed on December 16,
2013)
3-b Bylaws (Exhibit 3 to Form 8-K filed on December 18,
2015)
4-a No instrument which defines the rights of holders
of long-term debt of the registrant and all of its
consolidated subsidiaries is filed herewith pursuant
to Regulation S-K, Item 601(b)(4)(iii)(A), except
for the instruments referred to in 4-b, 4-c, 4-d,
4-e, 4-f below. Pursuant to this regulation, the registrant
hereby agrees to furnish a copy of any such instrument
not filed herewith to the SEC upon request.
4-b Guaranty of certain obligations of Pacific Bell Telephone
Co. and Southwestern Bell Telephone Co. (Exhibit 4-c
to Form 10-K for the period ending December 31, 2011)
4-c Guaranty of certain obligations of Ameritech Capital
Funding Corp., Indiana Bell Telephone Co. Inc., Michigan
Bell Telephone Co., Pacific Bell Telephone Co., Southwestern
Bell Telephone Company, Illinois Bell Telephone Company,
The Ohio Bell Telephone Company, The Southern New
England Telephone Company, Southern New England Telecommunications
Corporation, and Wisconsin Bell, Inc. (Exhibit 4-d
to Form 10-K for the period ending December 31, 2011)
4-d Guarantee of certain obligations of AT&T Corp. (Exhibit
4-e to Form 10-K for the period ending December 31,
2011)
4-e Indenture, dated as of May 15, 2013, between AT&T
Inc. and The Bank of New York Mellon Trust Company,
N.A., as Trustee (Exhibit 4.1 to Form 8-K filed on
May 15, 2013)
4-f Indenture dated as of November 1, 1994 between SBC
Communications Inc. and The Bank of New York, as Trustee
(Exhibit 4-h to Form 10-K for the period ending December
31, 2013)
10-a 2018 Incentive Plan (Exhibit 10-a to Form 10-K for
the period ending December 31, 2017)
10-b 2016 Incentive Plan (Exhibit 10-a to Form 10-Q for
the period ending March 31, 2016)
10-b(i) Resolution Regarding John Donovan (Exhibit
10-a to Form 10-Q for the period ending
September 30, 2017)
10-b(ii) Resolution Regarding John Stankey (Exhibit
10-b to Form 10-Q for the period ending
September 30, 2017)
10-b(iii) Resolution Regarding John Stephens (Exhibit
10-c to Form 10-Q for the period ending
September 30, 2017)
10-c 2011 Incentive Plan (Exhibit 10-a to Form 10-Q for
the period ending September 30, 2015)
10-d Short Term Incentive Plan (Exhibit 10.1 to Form 8-K
filed on February 2, 2018)
10-e Supplemental Life Insurance Plan (Exhibit 10-e to
Form 10-Q for the period ending September 30, 2015)
10-f Supplemental Retirement Income Plan (Exhibit 10-e
to Form 10-K for the period ending December 31, 2013)
10-g 2005 Supplemental Employee Retirement Plan (Exhibit
10.1 to Form 8-K filed on October 4, 2017)
10-h Salary and Incentive Award Deferral Plan (Exhibit
10-k to Form 10-K for the period ending December 31,
2011)
10-i Stock Savings Plan (Exhibit 10-l to Form 10-K for
the period ending December 31, 2011)
10-j Stock Purchase and Deferral Plan (Exhibit 10-a to
Form 10-Q for the period ending September 30, 2018)
10-k Cash Deferral Plan (Exhibit 10-b to Form 10-Q for
the period ending September 30, 2018)
10-l Master Trust Agreement for AT&T Inc. Deferred Compensation
Plans and Other Executive Benefit Plans and subsequent
amendments dated August 1, 1995 and November 1, 1999
(Exhibit 10-dd to Form 10-K for the period ending
December 31, 2009)
10-m Officer Disability Plan (Exhibit 10-i to Form 10-Q
for the period ending June 30, 2009)
10-n AT&T Inc. Health Plan (Exhibit 10-a to Form 10-Q for
the period ending June 30, 2018)
10-o Pension Benefit Makeup Plan No.1 (Exhibit 10-n to
Form 10-K for the period ending December 31, 2016)
10-p AT&T Inc. Equity Retention and Hedging Policy (Exhibit
10.2 to Form 8-K filed on December 16, 2011)
10-q Administrative Plan (Exhibit 10-p to Form 10-K for
the period ending December 31, 2016)
10-r AT&T Inc. Non-Employee Director Stock and Deferral
Plan
10-s AT&T Inc. Non-Employee Director Stock Purchase Plan
(Exhibit 10-t to Form 10-K for the period ending December
31, 2013)
10-t AT&T Inc. Board of Directors Communications Concession
Program (Exhibit 10-aa to Form 10-K for the period
ending December 31, 2012)
10-u Form of Indemnity Agreement, effective July 1, 1986,
between Southwestern Bell Corporation (now AT&T Inc.)
and its directors and officers. (Exhibit 10-bb to
Form 10-K for the period ending December 31, 2011)
10-v AT&T Executive Physical Program (Exhibit 10-ff to
Form 10-K for the period ending December 31, 2016)
10-w Equalization Agreement for John Stankey (Exhibit 10.1
to Form 8-K filed on August 20, 2015)
10-x Agreement between Robert Quinn and AT&T Inc. (Exhibit
10-b to Form 10-Q for the period ending June 30, 2018)
10-y Attorney Fee Payment Agreement for John Stankey (Exhibit
10.1 to Form 8-K filed on July 3, 2018)
10-z $12,000,000,000 Amended and Restated Credit Agreement,
dated December 11, 2015,
among AT&T, certain lenders named therein and Citibank,
N.A., as administrative agent. (Exhibit 10 to Form
8-K filed on December 15, 2015)
10-z(i) $7,500,000,000 Amended and Restated Credit
Agreement, dated as of December 11, 2018,
among AT&T Inc., certain lenders named therein
and Citibank, N.A., as agent. (Exhibit 10.1
to Form 8-K filed on December 13, 2018)
10-aa $7,500,000,000 Five Year Credit Agreement, dated as
of December 11, 2018, among AT&T Inc., certain lenders
named therein and Citibank, N.A., as agent (Exhibit
10.2 to Form 8-K filed on December 13, 2018)
10-bb $10,000,000,000 Term Loan Credit Agreement, dated
as of November 15, 2016, among AT&T Inc., the lenders
named therein and JPMorgan Chase Bank, N.A., as Agent
(Exhibit 10.1 to Form 8-K filed on November 15, 2016)
10-bb(i) Letter Amendment, dated as of February 2,
2018, among AT&T Inc., the lenders named
therein and JPMorgan Chase Bank, N.A., as
Agent. (Exhibit 10.1 to Form 8-K filed on
February 5, 2018)
10-cc $2,250,000,000 Term Loan Credit Agreement, dated as
of September 29, 2017, among AT&T Inc., certain lenders
named therein and The Bank of Nova Scotia, as Administrative
Agent (Exhibit 10-f to Form 10-Q for the period ending
September 30, 2017)
10-dd $3,550,000,000 Term Loan Credit Agreement, dated as
of November 20, 2018, among AT&T Inc., certain lenders
named therein and Bank of America, N.A., as agent
(Exhibit 10.1 to Form 8-K filed on November 21, 2018)
10-ee Amended and Restated Contribution Agreement
10-ff Fourth Amended and Restated Limited Liability Company
Agreement of Mobility II LLC
10-gg First Amendment to the Fourth Amended and Restated
Limited Liability Company Agreement of Mobility II
LLC
10-hh Second Amendment to the Fourth Amended and Restated
Limited Liability Company Agreement of Mobility II
LLC
10-ii Amended and Restated Registration Rights Agreement
by and among AT&T Inc. and The SBC Master Pension
Trust and Brock Fiduciary Services LLC
12 Computation of Ratios of Earnings to Fixed Charges
13 Portions of AT&T's Annual Report to Stockholders for
the fiscal year ended December 31, 2018. Only the
information incorporated by reference into this Form
10-K is included in the exhibit.
21 Subsidiaries of AT&T Inc.
23 Consent of Ernst & Young LLP
24 Powers of Attorney
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 Certification
99 Supplemental Interim Financial Information
101 XBRL Instance Document
We will furnish to stockholders upon request, and without
charge, a copy of the Annual Report to Stockholders and the Proxy
Statement, portions of which are incorporated by reference in the
Form 10-K. We will furnish any other exhibit at cost.
Schedule II - Sheet 1
AT&T INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Allowance for Doubtful Accounts
Dollars in Millions
COL. A COL. B COL. C COL. D COL.
E
----------- ----- ---------- ----------------------------------------- ----------- ---- -------
Additions
-----------------------------------------
(1) (2) (3)
Charged Charged
Balance to Costs to Other Balance
at Beginning and Expenses Accounts Acquisitions Deductions at End of
of Period (a) (b) (c) (d) Period
----------- ----------------- -------------- ---------- ------------- ----------- -------------
Year 2018 $ 663 1,791 - 179 1,726 $ 907
Year 2017 $ 661 1,642 - - 1,640 $ 663
Year 2016 $ 704 1,474 - - 1,517 $ 661
(a) Includes amounts previously written off which were credited
directly to this account when recovered. Excludes direct charges
and credits to expense for nontrade receivables in the consolidated
statements of income.
(b) Includes amounts related to long-distance carrier receivables which were billed by AT&T.
(c) Acquisition of Time Warner in 2018.
(d) Amounts written off as uncollectible, or related to divested entities.
Schedule II - Sheet 2
AT&T INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Allowance for Deferred Tax Assets
Dollars in Millions
COL. A COL. B COL. C COL. D COL.
E
----------- ----- ---------- ----------------------------------------- ----------- --- --------
Additions
-----------------------------------------
(1) (2) (3)
Charged
Balance Charged to Other Balance
at Beginning to Costs Accounts Acquisitions Deductions at End of
of Period and Expenses (a) (b) (c) Period
----------- ----------------- -------------- ---------- ------------- ----------- -------------
Year 2018 $ 4,640 (210) (53) 211 - $ 4,588
Year 2017 $ 2,283 2,376 (19) - - $ 4,640
Year 2016 $ 2,141 81 61 - - $ 2,283
(a) Includes current year reclassifications from other balance sheet accounts.
(b) Acquisition of Time Warner in 2018.
(c) Reductions to valuation allowances related to deferred tax assets.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on the 20(th) day of February, 2019.
AT&T INC.
/s/ John J. Stephens
John J. Stephens
Senior Executive Vice
President
and Chief Financial
Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the date
indicated.
Principal Executive Officer:
Randall Stephenson*
Chairman of the Board, Chief Executive Officer
and President
Principal Financial and Accounting Officer:
John J. Stephens
Senior Executive Vice President
and Chief Financial Officer
/s/ John J. Stephens
John J. Stephens, as
attorney-in-fact
and on his own behalf
as Principal
Financial Officer and
Principal
Accounting Officer
February 20, 2019
Directors:
------------------------
Randall L. Stephenson* Michael B. McCallister*
Samuel A. Di Piazza, Jr.* Beth E. Mooney*
Richard W. Fisher* Joyce M. Roché*
Scott T. Ford* Matthew K. Rose*
Glenn H. Hutchins* Cynthia B. Taylor*
William E. Kennard* Laura D'Andrea Tyson*
Geoffrey Y. Yang*
* by power of attorney
EXHIBIT
12
AT&T INC.
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
Dollars in Millions
Year Ended December 31,
--------------------------------------------------
2018 2017 2016 2015 2014
------- -------- -------- -------- -------
Earnings:
Income from continuing operations
before income taxes $24,873 $ 15,139 $ 19,812 $ 20,692 $ 10,355
Equity in net (income) loss of
affiliates
included above 48 128 (98) (79) (175)
Fixed charges 10,197 8,854 7,296 6,592 5,295
Distributed income of equity affiliates 243 46 61 30 148
Interest capitalized (493) (903) (892) (797) (234)
------ ------- ------- ------- -------
Earnings, as adjusted $34,868 $ 23,264 $ 26,179 $ 26,438 $ 15,389
====== ======= ======= ======= =======
Fixed Charges:
Interest expense $ 7,957 $ 6,300 $ 4,910 $ 4,120 $ 3,613
Interest capitalized 493 903 892 797 234
Portion of rental expense representative
of interest factor 1,747 1,651 1,494 1,675 1,448
------ ------- ------- ------- -------
Fixed Charges $10,197 $ 8,854 $ 7,296 $ 6,592 $ 5,295
====== ======= ======= ======= =======
Ratio of Earnings to Fixed Charges 3.42 2.63 3.59 4.01 2.91
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
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