TIDM58KN
RNS Number : 5158A
AT & T Inc.
29 May 2019
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
Amendment No. 1
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2019
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-8610
AT&T INC.
Incorporated under the laws of the State of Delaware
I.R.S. Employer Identification Number 43-1301883
208 S. Akard St., Dallas, Texas 75202
Telephone Number: (210) 821-4105
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted
electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T during the preceding 12
months (or for such shorter period that the registrant was required
to submit such files).
Yes [X] No [ ]
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, a
smaller reporting company, or emerging growth company. See
definition of "accelerated filer," "large accelerated filer,"
"smaller reporting company" and "emerging growth company" in Rule
12b-2 of the Exchange Act.
Large accelerated filer [X] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [ ]
Emerging growth company [ ]
If an emerging growth company, indicate by checkmark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange
Act.
Yes [ ] No [ ]
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
Securities registered pursuant to Section 12(b) of the Act
Name of each exchange
Title of each class Trading Symbol(s) on which registered
Common Shares (Par Value T New York Stock Exchange
$1.00 Per Share)
Floating Rate AT&T Inc. T 19B New York Stock Exchange
Global Notes due June 4,
2019
Floating Rate AT&T Inc. T 20C New York Stock Exchange
Global Notes due August
3, 2020
1.875% AT&T Inc. T 20 New York Stock Exchange
Global Notes due December
4, 2020
2.65% AT&T Inc. T 21B New York Stock Exchange
Global Notes due December
17, 2021
1.45% AT&T Inc. T 22B New York Stock Exchange
Global Notes due June 1,
2022
2.50% AT&T Inc. T 23 New York Stock Exchange
Global Notes due March 15,
2023
Floating Rate AT&T Inc. T23 D New York Stock Exchange
Global Notes due September
5, 2023
1.05% AT&T Inc. T 23E New York Stock Exchange
Global Notes due September
5, 2023
1.30% AT&T Inc. T 23A New York Stock Exchange
Global Notes due September
5, 2023
2.75% AT&T Inc. T 23C New York Stock Exchange
Global Notes due May 19,
2023
2.40% AT&T Inc. T 24A New York Stock Exchange
Global Notes due March 15,
2024
3.50% AT&T Inc. T 25 New York Stock Exchange
Global Notes due December
17, 2025
1.80% AT&T Inc. T 26D New York Stock Exchange
Global Notes due September
5, 2026
Title of each class Trading Symbol(s) on which registered
2.90% AT&T Inc. T 26A New York Stock Exchange
Global Notes due December
4, 2026
2.35% AT&T Inc. T 29D New York Stock Exchange
Global Notes due September
5, 2029
4.375% AT&T Inc. T 29B New York Stock Exchange
Global Notes due September
14, 2029
2.60% AT&T Inc. T 29A New York Stock Exchange
Global Notes due December
17, 2029
3.55% AT&T Inc. T 32 New York Stock Exchange
Global Notes due December
17, 2032
5.20% AT&T Inc. T 33 New York Stock Exchange
Global Notes due November
18, 2033
3.375% AT&T Inc. T 34 New York Stock Exchange
Global Notes due March 15,
2034
2.45% AT&T Inc. T 35 New York Stock Exchange
Global Notes due March 15,
2035
3.15% AT&T Inc. T 36A New York Stock Exchange
Global Notes due September
4, 2036
7.00% AT&T Inc. T 40 New York Stock Exchange
Global Notes due April 30,
2040
4.25% AT&T Inc. T 43 New York Stock Exchange
Global Notes due June 1,
2043
4.875% AT&T Inc. T 44 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 TBB
5.625% AT&T Inc. TBC New York Stock Exchange
Global Notes due August
1, 2067
At April 30, 2019, there were 7,298 million common shares
outstanding.
Explanatory Note
AT&T Inc. (AT&T) is filing this Amendment No. 1 to its
Quarterly Report on Form 10-Q filed with the Securities and
Exchange Commission on May 6, 2019 (the Original Filing) to correct
the signature dates and hyperlinks related to Exhibits 31.1, 31.2
and 32 of the Original Filing.
This Amendment is limited in scope to the items identified
above. This Amendment does not reflect events occurring after the
filing of the Original Filing and no revisions are being made to
the Company's financial statements or disclosures pursuant to this
Amendment.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
AT&T INC.
------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
Dollars in millions except per share amounts
(Unaudited)
------------------------------------------------------------------------------------------------------
Three months ended
March 31,
2019 2018
-------------------------------------------------------------- ----------- --------- --- ---------
Operating Revenues
Service $ 40,684 $ 33,646
Equipment 4,143 4,392
-------------------------------------------------------------- ----------- --------- --- ---------
Total operating revenues 44,827 38,038
-------------------------------------------------------------- ----------- --------- --- ---------
Operating Expenses
Cost of revenues
Equipment 4,502 4,848
Broadcast, programming and operations 7,652 5,166
Other cost of revenues (exclusive of depreciation
and
amortization shown separately below) 8,585 7,932
Selling, general and administrative 9,649 7,897
Depreciation and amortization 7,206 5,994
-------------------------------------------------------------- ----------- --------- --- ---------
Total operating expenses 37,594 31,837
-------------------------------------------------------------- ----------- --------- --- ---------
Operating Income 7,233 6,201
-------------------------------------------------------------- ----------- --------- --- ---------
Other Income (Expense)
Interest expense (2,141) (1,771)
Equity in net income (loss) of affiliates (7) 9
Other income (expense) - net 286 1,702
-------------------------------------------------------------- ----------- --------- --- ---------
Total other income (expense) (1,862) (60)
-------------------------------------------------------------- ----------- --------- --- ---------
Income Before Income Taxes 5,371 6,141
Income tax expense 1,023 1,382
Net Income 4,348 4,759
-------------------------------------------------------------- ----------- --------- --- ---------
Less: Net Income Attributable to Noncontrolling Interest (252) (97)
-------------------------------------------------------------- ----------- --------- --- ---------
Net Income Attributable to AT&T $ 4,096 $ 4,662
============================================================== =========== ========= === =========
Basic Earnings Per Share Attributable to AT&T $ 0.56 $ 0.75
Diluted Earnings Per Share Attributable to AT&T $ 0.56 $ 0.75
-------------------------------------------------------------- ----------- --------- --- ---------
Weighted Average Number of Common Shares
Outstanding - Basic (in millions) 7,313 6,161
Weighted Average Number of Common Shares
Outstanding - with Dilution (in millions) 7,342 6,180
============================================================== =========== ========= === =========
See Notes to Consolidated Financial Statements.
AT&T INC.
-------------------------------------------------------------- ----------- --------- --- ---------
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Dollars in millions
(Unaudited)
-------------------------------------------------------------- ----------- --------- --- ---------
Three months ended
March 31,
2019 2018
-------------------------------------------------------------- ---------------------- --------------
Net income $ 4,348 $ 4,759
Other comprehensive income (loss), net of tax:
Foreign currency:
Translation adjustment (includes $0 and $2 attributable
to noncontrolling interest),
net of taxes of $49 and $175 288 108
Securities:
Net unrealized gains (losses), net of taxes of $5
and $(4) 16 (12)
Derivative instruments:
Net unrealized gains, net of taxes of $34 and $180 127 674
Reclassification adjustment included in net income,
net of taxes of $2 and $3 11 12
Defined benefit postretirement plans:
Net prior service (cost) credit arising during period,
net of taxes of $0 and $185 - 567
Amortization of net prior service credit included
in net income, net of taxes of $(113)
and $(105) (346) (323)
-------------------------------------------------------------- ----------- --------- --- ---------
Other comprehensive income (loss) 96 1,026
-------------------------------------------------------------- ----------- --------- --- ---------
Total comprehensive income 4,444 5,785
Less: Total comprehensive income attributable to
noncontrolling
interest (252) (99)
-------------------------------------------------------------- ----------- --------- --- ---------
Total Comprehensive Income Attributable to AT&T $ 4,192 $ 5,686
============================================================== =========== ========= === =========
See Notes to Consolidated Financial Statements.
AT&T INC.
------------------------------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
Dollars in millions except per share amounts
------------------------------------------------------------------------------------------------------
December
March 31, 31,
2019 2018
---------------------------------------------------- --------------------- -------------------------
Assets (Unaudited)
Current Assets
Cash and cash equivalents $ 6,516 $ 5,204
Accounts receivable - net of allowances for doubtful
accounts of $905 and $907 23,863 26,472
Prepaid expenses 1,518 2,047
Other current assets 14,575 17,704
---------------------------------------------------- -------- ----------- --------- --------------
Total current assets 46,472 51,427
---------------------------------------------------- -------- ----------- --------- --------------
Noncurrent Inventories and Theatrical Film and
Television
Production Costs 10,270 7,713
Property, plant and equipment 332,517 330,690
Less: accumulated depreciation and amortization (200,466) (199,217)
---------------------------------------------------- -------- ----------- --------- --------------
Property, Plant and Equipment - Net 132,051 131,473
---------------------------------------------------- -------- ----------- --------- --------------
Goodwill 146,434 146,370
Licenses - Net 97,001 96,144
Trademarks and Trade Names - Net 24,218 24,345
Distribution Networks - Net 16,623 17,069
Other Intangible Assets - Net 24,732 26,269
Investments in and Advances to Equity Affiliates 6,230 6,245
Operating Lease Right-of-Use Assets 20,235 -
Other Assets 24,118 24,809
---------------------------------------------------- -------- ----------- --------- --------------
Total Assets $ 548,384 $ 531,864
==================================================== ======== =========== ========= ==============
Liabilities and Stockholders' Equity
Current Liabilities
Debt maturing within one year $ 11,538 $ 10,255
Accounts payable and accrued liabilities 42,306 43,184
Advanced billings and customer deposits 5,956 5,948
Accrued taxes 1,130 1,179
Dividends payable 3,722 3,854
---------------------------------------------------- -------- ----------- --------- --------------
Total current liabilities 64,652 64,420
---------------------------------------------------- -------- ----------- --------- --------------
Long-Term Debt 163,942 166,250
---------------------------------------------------- -------- ----------- --------- --------------
Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes 59,207 57,859
Postemployment benefit obligation 19,664 19,218
Operating lease liabilities 18,253 -
Other noncurrent liabilities 27,715 30,233
---------------------------------------------------- -------- ----------- --------- --------------
Total deferred credits and other noncurrent
liabilities 124,839 107,310
---------------------------------------------------- -------- ----------- --------- --------------
Stockholders' Equity
Common stock ($1 par value, 14,000,000,000
authorized
at March 31, 2019 and
December 31, 2018: issued 7,620,748,598 at March
31, 2019 and December 31, 2018) 7,621 7,621
Additional paid-in capital 125,174 125,525
Retained earnings 59,424 58,753
Treasury stock (323,523,763 at March 31, 2019 and
339,120,073
at December 31, 2018, at cost) (11,452) (12,059)
Accumulated other comprehensive income 4,345 4,249
Noncontrolling interest 9,839 9,795
---------------------------------------------------- -------- ----------- --------- --------------
Total stockholders' equity 194,951 193,884
---------------------------------------------------- -------- ----------- --------- --------------
Total Liabilities and Stockholders' Equity $ 548,384 $ 531,864
==================================================== ======== =========== ========= ==============
See Notes to Consolidated Financial Statements.
AT&T INC.
------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
Dollars in millions
(Unaudited)
---------------------------------------------------- --------------------- -------------------------
Three months ended
March 31,
2019 2018
---------------------------------------------------- --------------------- -------------------------
Operating Activities
Net income $ 4,348 $ 4,759
Adjustments to reconcile net income to net cash
provided
by operating activities:
Depreciation and amortization 7,206 5,994
Amortization of television and film costs 2,497 -
Undistributed earnings from investments in equity
affiliates 112 (2)
Provision for uncollectible accounts 592 438
Deferred income tax expense 1,069 1,222
Net (gain) loss from investments, net of
impairments (175) 2
Actuarial (gain) loss on pension and
postretirement
benefits 432 (930)
Changes in operating assets and liabilities:
Accounts receivable 1,894 (439)
Other current assets, inventories and theatrical
film and television production costs (2,510) 614
Accounts payable and other accrued liabilities (3,686) (1,962)
Equipment installment receivables and related
sales 652 505
Deferred customer contract acquisition and
fulfillment
costs (375) (826)
Retirement benefit funding - (140)
Other - net (1,004) (288)
---------------------------------------------------- -------- ----------- --------- --------------
Total adjustments 6,704 4,188
---------------------------------------------------- -------- ----------- --------- --------------
Net Cash Provided by Operating Activities 11,052 8,947
---------------------------------------------------- -------- ----------- --------- --------------
Investing Activities
Capital expenditures:
Purchase of property and equipment (5,121) (5,957)
Interest during construction (61) (161)
Acquisitions, net of cash acquired (117) (234)
Dispositions 10 56
(Purchases) sales of securities, net (1) (116)
Advances to and investments in equity affiliates,
net (111) (1,007)
Cash collections of deferred purchase price - 267
---------------------------------------------------- -------- ----------- --------- --------------
Net Cash Used in Investing Activities (5,401) (7,152)
---------------------------------------------------- -------- ----------- --------- --------------
Financing Activities
Net change in short-term borrowings with original
maturities of three months or less (256) -
Issuance of other short-term borrowings 296 -
Repayment of other short-term borrowings (176) -
Issuance of long-term debt 9,182 2,565
Repayment of long-term debt (9,840) (4,911)
Purchase of treasury stock (189) (145)
Issuance of treasury stock 167 11
Dividends paid (3,714) (3,070)
Other 109 2,048
---------------------------------------------------- -------- ----------- --------- --------------
Net Cash Used in Financing Activities (4,421) (3,502)
---------------------------------------------------- -------- ----------- --------- --------------
Net increase (decrease) in cash and cash equivalents
and restricted cash 1,230 (1,707)
Cash and cash equivalents and restricted cash
beginning
of year 5,400 50,932
---------------------------------------------------- -------- ----------- --------- --------------
Cash and Cash Equivalents and Restricted Cash End
of Period $ 6,630 $ 49,225
==================================================== ======== =========== ========= ==============
See Notes to Consolidated Financial Statements.
AT&T INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Dollars and shares in millions except per share amounts
(Unaudited)
------------------------------- ----------- ------ -------- ----------- --------- --------------
March 31, 2019 March 31, 2018
----------------------------- --------------------------------------
Shares Amount Shares Amount
------------------------------- ----------- ---------------- ----------- -------------------------
Common Stock
Balance at beginning of year 7,621 $ 7,621 6,495 $ 6,495
Issuance of stock - - - -
------------------------------- ----------- ------ -------- ----------- --------- --------------
Balance at end of period 7,621 $ 7,621 6,495 $ 6,495
=============================== =========== ====== ======== =========== ========= ==============
Additional Paid-In Capital
Balance at beginning of year $ 125,525 $ 89,563
Issuance of treasury stock (77) (4)
Share-based payments (274) (155)
------------------------------- ----------- ------ -------- ----------- --------- --------------
Balance at end of period $ 125,174 $ 89,404
=============================== =========== ====== ======== =========== ========= ==============
Retained Earnings
Balance at beginning of year $ 58,753 $ 50,500
Net income attributable to AT&T
($0.56
and $0.75
per diluted share) 4,096 4,662
Dividends to stockholders
($0.51 and
$0.50 per share) (3,741) (3,092)
Cumulative effect of accounting
changes 316 2,997
------------------------------- ----------- ------ -------- ----------- --------- --------------
Balance at end of period $ 59,424 $ 55,067
=============================== =========== ====== ======== =========== ========= ==============
Treasury Stock
Balance at beginning of year (339) $ (12,059) (356) $ (12,714)
Repurchase and acquisition of
common
stock (7) (208) (4) (164)
Issuance of treasury stock 22 815 12 446
------------------------------- ----------- ------ -------- ----------- --------- --------------
Balance at end of period (324) $ (11,452) (348) $ (12,432)
=============================== =========== ====== ======== =========== ========= ==============
Accumulated Other Comprehensive
Income
Attributable to AT&T, net of
tax
Balance at beginning of year $ 4,249 $ 7,017
Other comprehensive income
attributable
to AT&T 96 1,024
Amounts reclassified to
retained earnings - (655)
------------------------------- ----------- ------ -------- ----------- --------- --------------
Balance at end of period $ 4,345 $ 7,386
=============================== =========== ====== ======== =========== ========= ==============
Noncontrolling Interest
Balance at beginning of year $ 9,795 $ 1,146
Net income attributable to
noncontrolling
interest 252 97
Interest acquired by
noncontrolling
owners 9 -
Distributions (246) (124)
Translation adjustments
attributable
to noncontrolling
interest, net of taxes - 2
Cumulative effect of accounting
changes 29 35
------------------------------- ----------- ------ -------- ----------- --------- --------------
Balance at end of period $ 9,839 $ 1,156
=============================== =========== ====== ======== =========== ========= ==============
Total Stockholders' Equity at
beginning
of year $ 193,884 $ 142,007
=============================== =========== ====== ======== =========== ========= ==============
Total Stockholders' Equity at
end
of period $ 194,951 $ 147,076
=============================== =========== ====== ======== =========== ========= ==============
See Notes to Consolidated
Financial
Statements.
NOTE 1. PREPARATION OF INTERIM FINANCIAL STATEMENTS
Basis of Presentation Throughout this document, AT&T Inc. is
referred to as "we," "AT&T" or the "Company." The consolidated
financial statements include the accounts of the Company and
subsidiaries and affiliates which we control, including the
operating results of Warner Media, LLC (formerly Time Warner Inc.
and referred to as "Time Warner" or "WarnerMedia"), which was
acquired on June 14, 2018 (see Note 8). AT&T is a holding
company whose subsidiaries and affiliates operate worldwide in the
telecommunications, media and technology industries. You should
read this document in conjunction with the consolidated financial
statements and accompanying notes included in our Annual Report on
Form 10-K for the year ended December 31, 2018. The results for the
interim periods are not necessarily indicative of those for the
full year. These consolidated financial statements include all
adjustments that are necessary to present fairly the results for
the presented interim periods, consisting of normal recurring
accruals and other items.
All significant intercompany transactions are eliminated in the
consolidation process. Investments in subsidiaries and partnerships
which we do not control but have significant influence are
accounted for under the equity method. Earnings from certain
investments accounted for using the equity method are included for
periods ended within up to one quarter of our period end. We also
record our proportionate share of our equity method investees'
other comprehensive income (OCI) items.
The preparation of financial statements in conformity with U.S.
generally accepted accounting principles (GAAP) requires management
to make estimates and assumptions that affect the amounts reported
in the financial statements and accompanying notes, including
estimates of probable losses and expenses. Actual results could
differ from those estimates. Certain prior period amounts have been
conformed to the current period's presentation.
In the tables throughout this document, percentage increases and
decreases that are not considered meaningful are denoted with a
dash.
Adopted Accounting Standards and Other Changes
Leases As of January 1, 2019, we adopted, with modified
retrospective application, Accounting Standards Update (ASU) No.
2016-02, "Leases (Topic 842)," as modified (ASC 842), which
replaces existing leasing rules with a comprehensive lease
measurement and recognition standard and expanded disclosure
requirements (see Note 10). ASC 842 requires lessees to recognize
most leases on their balance sheets as liabilities, with
corresponding "right-of-use" assets. For income statement
recognition purposes, leases are classified as either a finance or
an operating lease without relying upon bright-line tests.
The key change upon adoption of the standard was balance sheet
recognition, given that the recognition of lease expense on our
income statement is similar to our current accounting. Using the
modified retrospective transition method of adoption, we did not
adjust the balance sheet for comparative periods but recorded a
cumulative effect adjustment to retained earnings on January 1,
2019. We elected the package of practical expedients permitted
under the transition guidance within the new standard, which, among
other things, allowed us to carry forward our historical lease
classification. We also elected the practical expedient related to
land easements, allowing us to carry forward our accounting
treatment for land easements on existing agreements that were not
accounted for as leases. We excluded all the leases with original
terms of one year or less. Additionally, we elected to not separate
lease and non-lease components for certain classes of assets in
arrangements where we are the lessee and for certain classes of
assets where we are the lessor. Our accounting for finance leases
did not change from our prior accounting for capital leases.
The adoption of ASC 842 resulted in the recognition of an
operating lease liability of $22,121 and an operating right-of-use
asset of the same amount. Existing prepaid and deferred rent
accruals were recorded as an offset to the right-of-use asset,
resulting in a net asset of $20,960. The cumulative effect of the
adoption to retained earnings was an increase of $316 reflecting
the reclassification of deferred gains related to sale/leaseback
transactions. We do not believe the standard will materially impact
our future income statements or have a notable impact on our
liquidity. The standard will have no impact on our debt-covenant
compliance under our current agreements.
Deferral of Episodic Television and Film Costs In March 2019,
the FASB issued ASU No. 2019-02, "Entertainment-Films-Other
Assets-Film Costs (Subtopic 926-20) and
Entertainment-Broadcasters-Intangibles-Goodwill and Other (Subtopic
920-350): Improvements to Accounting for Costs of Films and License
Agreements for Program Materials" (ASU 2019-02), which we early
adopted as of January 1, 2019, with prospective application. The
standard eliminates certain revenue-related constraints on
capitalization of inventory costs for episodic television that
existed under prior guidance. In addition, the balance sheet
classification requirements that existed in prior guidance for film
production costs and programming inventory were eliminated. As of
January 1, 2019, we reclassified $2,274 of our programming
inventory costs from "Other current assets" to "Other Assets" in
accordance with the guidance. This change in accounting does not
materially impact our income statement.
Spectrum Licenses in Mexico During the first quarter of 2019, in
conjunction with the renewal process of certain spectrum licenses
in Mexico, we reassessed the estimated economic lives and renewal
assumptions for these licenses. As a result, we have changed the
life of these licenses from indefinite to finite-lived. On January
1, 2019, we began amortizing our spectrum licenses in Mexico over
their average remaining economic life of 25 years. This change in
accounting does not materially impact our income statement.
NOTE 2. EARNINGS PER SHARE
A reconciliation of the numerators and denominators of basic and
diluted earnings per share for the three months ended March 31,
2019 and 2018, is shown in the table below:
Three months ended
March 31,
2019 2018
------------------------------------------------------- ------------ --------
Numerators
Numerator for basic earnings per share:
Net Income $ 4,348 $ 4,759
Less: Net income attributable to noncontrolling
interest (252) (97)
------------------------------------------------------- -------- -------
Net Income attributable to AT&T 4,096 4,662
Dilutive potential common shares:
Share-based payment 6 5
------------------------------------------------------- -------- -------
Numerator for diluted earnings per share $ 4,102 $ 4,667
======================================================= ======== =======
Denominators (000,000)
Denominator for basic earnings per share:
Weighted average number of common shares outstanding 7,313 6,161
Dilutive potential common shares:
Share-based payment (in shares) 29 19
------------------------------------------------------- -------- -------
Denominator for diluted earnings per share 7,342 6,180
======================================================= ======== =======
Basic earnings per share attributable to AT&T $ 0.56 $ 0.75
Diluted earnings per share attributable to AT&T $ 0.56 $ 0.75
======================================================= ======== =======
NOTE 3. OTHER COMPREHENSIVE INCOME
Changes in the balances of each component included in
accumulated OCI are presented below. All amounts are net of tax and
exclude noncontrolling interest.
Net
Unrealized
Foreign Gains Net Unrealized Defined Accumulated
Currency (Losses) Gains (Losses) Benefit Other
Translation on on Derivative Postretirement Comprehensive
Adjustment Securities Instruments Plans Income
------------------ --------------- ----------- --- --------------- --- ----------------- --- -----------------
Balance as of
December
31, 2018 $ (3,084) $ (2) $ 818 $ 6,517 $ 4,249
Other comprehensive
income
(loss) before
reclassifications 288 16 127 - 431
Amounts
reclassified
from accumulated
OCI - - 11 (1) (346) (2) (335)
------------------- ----------- ---------- --- ----------- --- ------------- --- -------------
Net other
comprehensive
income (loss) 288 16 138 (346) 96
------------------- ----------- ---------- --- ----------- --- ------------- --- -------------
Balance as of March
31, 2019 $ (2,796) $ 14 $ 956 $ 6,171 $ 4,345
=================== =========== ========== === =========== === ============= === =============
Net
Unrealized
Foreign Gains Net Unrealized Defined Accumulated
Currency (Losses) Gains (Losses) Benefit Other
Translation on on Derivative Postretirement Comprehensive
Adjustment Securities Instruments Plans Income
------------------ --------------- ----------- --- --------------- --- ----------------- --- -----------------
Balance as of
December
31, 2017 $ (2,054) $ 660 $ 1,402 $ 7,009 $ 7,017
Other comprehensive
income
(loss) before
reclassifications 106 (12) 674 567 1,335
Amounts
reclassified
from accumulated
OCI - - 12 (1) (323) (2) (311)
------------------- ----------- ---------- --- ----------- --- ------------- --- -------------
Net other
comprehensive
income (loss) 106 (12) 686 244 1,024
------------------- ----------- ---------- --- ----------- --- ------------- --- -------------
Amounts
reclassified
to retained
earnings - (655) (3) - - (655)
------------------- ----------- ---------- --- ----------- --- ------------- --- -------------
Balance as of March
31, 2018 $ (1,948) $ (7) $ 2,088 $ 7,253 $ 7,386
=================== =========== ========== === =========== === ============= === =============
(Gains) losses are included in Interest expense in the consolidated
(1) statements of income (see Note 7).
The amortization of prior service credits associated with postretirement
(2) benefits are included in Other income (expense) in the
consolidated statements of income (see Note 6).
With the adoption of ASU 2016-01, the unrealized (gains) losses on
(3) our equity investments are reclassified to retained earnings.
NOTE 4. SEGMENT INFORMATION
Our segments are strategic business units that offer products
and services to different customer segments over various technology
platforms and/or in different geographies that are managed
accordingly. We analyze our segments based on segment operating
contribution, which consists of operating income, excluding
acquisition-related costs and other significant items (as discussed
below), and equity in net income (loss) of affiliates for
investments managed within each segment. We have four reportable
segments: (1) Communications, (2) WarnerMedia, (3) Latin America,
and (4) Xandr.
We also evaluate segment and business unit performance based on
EBITDA and/or EBITDA margin, which is defined as operating
contribution excluding equity in net income (loss) of affiliates
and depreciation and amortization. We believe EBITDA to be a
relevant and useful measurement to our investors as it is part of
our internal management reporting and planning processes and it is
an important metric that management uses to evaluate operating
performance. EBITDA does not give effect to cash used for debt
service requirements and thus does not reflect available funds for
distributions, reinvestment or other discretionary uses. EBITDA
margin is EBITDA divided by total revenues.
The Communications segment provides wireless and wireline
telecom, video and broadband services to consumers located in the
U.S. or in U.S. territories and businesses globally. This segment
contains the following business units:
-- Mobility provides nationwide wireless service and equipment.
-- Entertainment Group provides video, including over-the-top
(OTT) services, broadband and voice communications services
primarily to residential customers. This segment also sells
advertising on DIRECTV and U-verse distribution platforms.
-- Business Wireline provides advanced IP-based services, as
well as traditional voice and data services to business
customers.
The WarnerMedia segment develops, produces and distributes
feature films, television, gaming and other content in various
physical and digital formats globally. Historical financial results
from AT&T's Regional Sports Networks (RSNs) and equity
investments (predominantly Game Show Network and Otter Media),
previously included in Entertainment Group, have been reclassified
into the WarnerMedia segment and are combined with the Time Warner
operations for the period subsequent to our acquisition on June 14,
2018. This segment contains the following business units:
-- Turner is comprised of the historic Turner division as well
as the financial results of our RSNs. This business unit primarily
operates multichannel basic television networks and digital
properties. Turner also sells advertising on its networks and
digital properties.
-- Home Box Office consists of premium pay television and OTT
services domestically and premium pay, basic tier television and
OTT services internationally, as well as content licensing and home
entertainment.
-- Warner Bros. consists of the production, distribution and
licensing of television programming and feature films, the
distribution of home entertainment products and the production and
distribution of games.
The Latin America segment provides entertainment and wireless
services outside of the U.S. This segment contains the following
business units:
-- Vrio provides video services primarily to residential
customers using satellite technology in Latin America and the
Caribbean.
-- Mexico provides wireless service and equipment to customers in Mexico.
The Xandr segment provides advertising services and includes
AppNexus, an advertising technology company we acquired in August
2018. Xander services utilize data insights to develop and deliver
targeted advertising across video and digital platforms. Certain
revenues in this segment are also reported by the Communications
segment and are eliminated upon consolidation.
Corporate and Other reconcile our segment results to
consolidated operating income and income before income taxes, and
include:
-- Corporate, which consists of: (1) businesses no longer
integral to our operations or which we no longer actively market,
(2) corporate support functions, (3) impacts of corporate-wide
decisions for which the individual operating segments are not being
evaluated, (4) the reclassification of the amortization of prior
service credits, which we continue to report with segment operating
expenses, to consolidated other income (expense)-net and (5) the
recharacterization of $150 of programming intangible asset
amortization, for released programming acquired in the Time Warner
acquisition, which we continue to report within WarnerMedia segment
operating expense, to consolidated amortization expense.
-- Acquisition-related items which consists of items associated
with the merger and integration of acquired businesses, including
amortization of intangible assets.
-- Certain significant items includes (1) employee separation
charges associated with voluntary and/or strategic offers, (2)
losses resulting from abandonment or impairment of assets and (3)
other items for which the segments are not being evaluated.
-- Eliminations and consolidations, which (1) removes
transactions involving dealings between our segments, including
content licensing between WarnerMedia and Communications, and (2)
includes adjustments for our reporting of the advertising
business.
Interest expense and other income (expense) - net, are managed
only on a total company basis and are, accordingly, reflected only
in consolidated results.
For the three months ended March 31, 2019
----------------------------------------------------------------------------------------------------------------
Equity
in Net
Operations Income
and Depreciation Operating (Loss)
Support and Income of Segment
Revenues Expenses EBITDA Amortization (Loss) Affiliates Contribution
--------------------- -------- ---------- ------ ------------ --------- ---------- ------------
Communications
Mobility $ 17,567 $ 10,181 $ 7,386 $ 2,035 $ 5,351 $ - $ 5,351
Entertainment Group 11,328 8,527 2,801 1,323 1,478 - 1,478
Business Wireline 6,498 4,040 2,458 1,235 1,223 - 1,223
--------------------- -------- ---------- ------ ------------ --------- ---------- ------------
Total Communications 35,393 22,748 12,645 4,593 8,052 - 8,052
--------------------- -------- ---------- ------ ------------ --------- ---------- ------------
WarnerMedia
Turner 3,443 2,136 1,307 60 1,247 25 1,272
Home Box Office 1,510 921 589 22 567 15 582
Warner Bros. 3,518 2,919 599 52 547 6 553
Other (92) 17 (109) 9 (118) 21 (97)
--------------------- -------- ---------- ------ ------------ --------- ---------- ------------
Total WarnerMedia 8,379 5,993 2,386 143 2,243 67 2,310
--------------------- -------- ---------- ------ ------------ --------- ---------- ------------
Latin America
Vrio 1,067 866 201 169 32 - 32
Mexico 651 725 (74) 131 (205) - (205)
--------------------- -------- ---------- ------ ------------ --------- ---------- ------------
Total Latin America 1,718 1,591 127 300 (173) - (173)
--------------------- -------- ---------- ------ ------------ --------- ---------- ------------
Xandr 426 160 266 13 253 - 253
--------------------- -------- ---------- ------ ------------ --------- ---------- ------------
Segment Total 45,916 30,492 15,424 5,049 10,375 $ 67 $ 10,442
===================== ======== ========== ====== ============ ========= ========== ============
Corporate and Other
Corporate 209 513 (304) 169 (473)
Acquisition-related
items (42) 73 (115) 1,988 (2,103)
Certain significant
items - 248 (248) - (248)
Eliminations and
consolidations (1,256) (938) (318) - (318)
--------------------- -------- ---------- ------ ------------ ---------
AT&T Inc. $ 44,827 $ 30,388 $14,439 $ 7,206 $ 7,233
===================== ======== ========== ====== ============ =========
For the three months ended March 31, 2018
----------------------------------------------------------------------------------------------------------------
Equity
in Net
Operations Income
and Depreciation Operating (Loss)
Support and Income of Segment
Revenues Expenses EBITDA Amortization (Loss) Affiliates Contribution
--------------------- -------- ---------- ------ ------------ --------- ---------- ------------
Communications
Mobility $ 17,355 $ 10,102 $ 7,253 $ 2,095 $ 5,158 $ - $ 5,158
Entertainment Group 11,431 8,811 2,620 1,310 1,310 (1) 1,309
Business Wireline 6,747 4,016 2,731 1,170 1,561 (1) 1,560
--------------------- -------- ---------- ------ ------------ --------- ---------- ------------
Total Communications 35,533 22,929 12,604 4,575 8,029 (2) 8,027
--------------------- -------- ---------- ------ ------------ --------- ---------- ------------
WarnerMedia
Turner 112 74 38 1 37 27 64
Home Box Office - - - - - - -
Warner Bros. - - - - - - -
Other - 8 (8) - (8) (17) (25)
--------------------- -------- ---------- ------ ------------ --------- ---------- ------------
Total WarnerMedia 112 82 30 1 29 10 39
--------------------- -------- ---------- ------ ------------ --------- ---------- ------------
Latin America
Vrio 1,354 1,001 353 205 148 - 148
Mexico 671 803 (132) 127 (259) - (259)
--------------------- -------- ---------- ------ ------------ --------- ---------- ------------
Total Latin America 2,025 1,804 221 332 (111) - (111)
--------------------- -------- ---------- ------ ------------ --------- ---------- ------------
Xandr 337 50 287 1 286 - 286
--------------------- -------- ---------- ------ ------------ --------- ---------- ------------
Segment Total 38,007 24,865 13,142 4,909 8,233 $ 8 $ 8,241
===================== ======== ========== ====== ============ ========= ========== ============
Corporate and Other
Corporate 333 735 (402) 23 (425)
Acquisition-related
items - 67 (67) 1,062 (1,129)
Certain significant
items - 180 (180) - (180)
Eliminations and
consolidations (302) (4) (298) - (298)
--------------------- -------- ---------- ------ ------------ ---------
AT&T Inc. $ 38,038 $ 25,843 $12,195 $ 5,994 $ 6,201
===================== ======== ========== ====== ============ =========
The following table is a reconciliation of Segment Contributions
to "Income Before Income Taxes" reported on our consolidated
statements of income.
Three months ended
March 31,
2019 2018
--------------------------------------------- --- --------- --------
Communications $ 8,052 $ 8,027
WarnerMedia 2,310 39
Latin America (173) (111)
Xandr 253 286
--------------------------------------------- --- --------- --------
Segment Contribution 10,442 8,241
--------------------------------------------- --- --------- --------
Reconciling Items:
Corporate and Other (473) (425)
Merger and integration items (115) (67)
Amortization of intangibles acquired (1,988) (1,062)
Employee separation charges (248) (51)
Natural disaster items - (104)
Foreign currency devaluation - (25)
Segment equity in net income of affiliates (67) (8)
Eliminations and consolidations (318) (298)
--------------------------------------------- --- --------- --------
AT&T Operating Income 7,233 6,201
--------------------------------------------- --- --------- --------
Interest Expense 2,141 1,771
Equity in net income (loss) of affiliates (7) 9
Other income (expense) - net 286 1,702
--------------------------------------------- --- --------- --------
Income Before Income Taxes $ 5,371 $ 6,141
============================================= === ========= ========
The following table presents intersegment revenues by
segment.
Intersegment Reconciliation
-------------------------------- ---------- -----
Three months ended
March 31,
2019 2018
-------------------------------- -------------- ------
Intersegment revenues
Communications $ - $ -
WarnerMedia 858 31
Latin America - -
Xandr - -
-------------------------------- ---------- -----
Total Intersegment Revenues 858 31
Consolidations 398 271
-------------------------------- ---------- -----
Eliminations and consolidations $ 1,256 $ 302
================================ ========== =====
NOTE 5. REVENUE RECOGNITION
Revenue Categories
The following tables set forth reported revenue by category:
For the three months ended March 31, 2019
------------------------------------------------------------------------------------------------------------------------------------------------
Service Revenues
--------------------------------------------------------------------------------------------------
Legacy
Advanced Voice
Wireless Data & Data Subscription Content Advertising Other Equipment Total
---------------- --- -------- -------- ------ ------------ ------- ----------- ----- --------- -------
Communications
Mobility $ 13,725 $ - $ - $ - $ - $ 67 $ - $ 3,775 $ 17,567
Entertainment
Group - 2,070 683 7,724 - 350 501 - 11,328
Business Wireline - 3,186 2,404 - - - 749 159 6,498
WarnerMedia
Turner - - - 1,965 135 1,261 82 - 3,443
Home Box Office - - - 1,334 173 - 3 - 1,510
Warner Bros. - - - 21 3,332 10 155 - 3,518
Eliminations
and Other - - - 49 (152) 8 3 - (92)
Latin America
Vrio - - - 1,067 - - - - 1,067
Mexico 442 - - - - - - 209 651
Xandr - - - - - 426 - - 426
Corporate and
Other - - - - - - 167 - 167
Eliminations and
consolidations - - - - (837) (350) (69) - (1,256)
--------------------- -------- -------- ------ ------------ ------- ----------- ----- --------- -------
Total Operating
Revenues $ 14,167 $ 5,256 $ 3,087 $ 12,160 $ 2,651 $ 1,772 $ 1,591 $ 4,143 $ 44,827
================ === ======== ======== ====== ============ ======= =========== ===== ========= =======
For the three months ended March 31, 2018
-----------------------------------------------------------------------------------------------------------------------------------------------
Service Revenues
--------------------------------------------------------------------------------------------------
Legacy
Advanced Voice
Wireless Data & Data Subscription Content Advertising Other Equipment Total
---------------- --- -------- -------- ------ ------------ ------- ----------- ----- --------- ------
Communications
Mobility $ 13,362 $ - $ - $ - $ - $ 41 $ - $ 3,952 $ 17,355
Entertainment
Group - 1,878 806 7,891 - 334 519 3 11,431
Business Wireline - 3,043 2,865 - - - 669 170 6,747
WarnerMedia
Turner - - - 98 - 14 - - 112
Home Box
Office - - - - - - - - -
Warner Bros. - - - - - - - - -
Eliminations
and Other - - - - - - - - -
Latin America
Vrio - - - 1,354 - - - - 1,354
Mexico 404 - - - - - - 267 671
Xandr - - - - - 337 - - 337
Corporate and
Other - - - - - - 333 - 333
Eliminations and
consolidations - - - - - (334) 32 - (302)
--------------------- -------- -------- ------ ------------ ------- ----------- ----- --------- ------
Total Operating
Revenues $ 13,766 $ 4,921 $ 3,671 $ 9,343 $ - $ 392 $ 1,553 $ 4,392 $ 38,038
================ === ======== ======== ====== ============ ======= =========== ===== ========= ======
Deferred Customer Contract Acquisition and Fulfillment Costs
Costs to acquire customer contracts, including commissions on
service activations, for our wireless, business wireline and video
entertainment services, are deferred and amortized over the
contract period or expected customer relationship life, which
typically ranges from two to five years. Costs to fulfill customer
contracts are deferred and amortized over periods ranging generally
from four to five years, reflecting the estimated economic lives of
the respective customer relationships, subject to an assessment of
the recoverability of such costs. For contracts with an estimated
amortization period of less than one year, we expense incremental
costs immediately.
Our deferred customer contract acquisition costs and deferred
customer contract fulfillment costs balances were $4,297 and
$11,592 as of March 31, 2019, respectively, of which $2,143 and
$4,214 were included in Other current assets on our consolidated
balance sheets. For the three months ended March 31, 2019, we
amortized $547 and $1,098 of these costs, respectively.
Our deferred customer contract acquisition costs and deferred
customer contract fulfillment costs balances were $3,974 and
$11,540 as of December 31, 2018, respectively, of which $1,901 and
$4,090 were included in Other current assets on our consolidated
balance sheets. For the three months ended March 31, 2018, we
amortized $263 and $1,047 of these costs, respectively.
Contract Assets and Liabilities
A contract asset is recorded when revenue is recognized in
advance of our right to bill and receive consideration (i.e., we
must perform additional services or satisfy another performance
obligation in order to bill and receive consideration). The
contract asset will decrease as services are provided and billed.
When consideration is received in advance of the delivery of goods
or services, a contract liability is recorded. Reductions in the
contract liability will be recorded as we satisfy the performance
obligations.
The following table presents contract assets and liabilities at
March 31, 2019 and December 31, 2018:
December
March 31, 31,
2019 2018
------------------- --------- --------
Contract asset $ 2,198 $ 1,896
Contract liability 6,899 6,856
==================== ========= ========
Our beginning of period contract liability recorded as customer
contract revenue during 2019 was $4,379.
Our consolidated balance sheets at March 31, 2019 and December
31, 2018 included approximately $1,462 and $1,244, respectively,
for the current portion of our contract asset in "Other current
assets" and $5,715 and $5,752, respectively, for the current
portion of our contract liability in "Advanced billings and
customer deposits."
Remaining Performance Obligations
Remaining performance obligations represent services we are
required to provide to customers under bundled or discounted
arrangements, which are satisfied as services are provided over the
contract term. In determining the transaction price allocated, we
do not include non-recurring charges and estimates for usage, nor
do we consider arrangements with an original expected duration of
less than one year, which are primarily prepaid wireless, video and
residential internet agreements.
Remaining performance obligations associated with business
contracts reflect recurring charges billed, adjusted to reflect
estimates for sales incentives and revenue adjustments. Performance
obligations associated with wireless contracts are estimated using
a portfolio approach in which we review all relevant promotional
activities, calculating the remaining performance obligation using
the average service component for the portfolio and the average
device price. As of March 31, 2019, the aggregate amount of the
transaction price allocated to remaining performance obligations
was $39,627 of which we expect to recognize approximately 80% by
the end of 2020, with the balance recognized thereafter.
NOTE 6. PENSION AND POSTRETIREMENT BENEFITS
Many of our employees are covered by one of our noncontributory
pension plans. We also provide certain medical, dental, life
insurance and death benefits to certain retired employees under
various plans and accrue actuarially determined postretirement
benefit costs. Our objective in funding these plans, in combination
with the standards of the Employee Retirement Income Security Act
of 1974, as amended (ERISA), is to accumulate assets sufficient to
provide benefits described in the plans to employees upon their
retirement.
During the quarter, for certain management participants in our
pension plan who terminated employment before April 1, 2019, we
offered the option of more favorable 2018 interest rates and
mortality basis for determining lump-sum distributions. For the
quarter ended March 31, 2019 we recorded special termination
benefits of $93 associated with this offer in "Other income
(expense) - net." During the first quarter, we also committed to a
plan to offer certain terminated vested pension plan participants
the opportunity to receive their benefit in a lump-sum amount.
We recognize actuarial gains and losses on pension and
postretirement plan assets in our consolidated results as a
component of other income (expense) - net at our annual measurement
date of December 31, unless earlier remeasurements are required. We
anticipate total distributions from the pension plan will exceed
the threshold of service and interest costs for 2019, requiring us
to follow settlement accounting. We have remeasured our pension
benefit obligations at March 31, 2019, and will remeasure our
pension benefit obligation at each quarter-end of 2019 as we expect
settlements to occur during each quarter.
As part of our first-quarter 2019 remeasurement, we decreased
the weighted-average discount rate used to measure our pension
benefit obligation from 4.50% to 4.10%. The discount rate in effect
for determining pension service and interest costs after
remeasurement is 4.30% and 3.70%, respectively. The remeasurement
reflects an actual return on plan assets of 5.80% (quarterly rate)
relative to our expected long-term rate of 7.00% (annual rate).
The following table details pension and postretirement benefit
costs included in the accompanying consolidated statements of
income. The service cost component of net periodic pension cost
(benefit) is recorded in operating expenses in the consolidated
statements of income while the remaining components are recorded in
"Other income (expense) - net."
Three months ended
March 31,
2019 2018
-------------------------------------------------------- ------------ --------
Pension cost:
Service cost - benefits earned during the period $ 240 $ 291
Interest cost on projected benefit obligation 549 487
Expected return on assets (851) (760)
Amortization of prior service credit (33) (30)
Actuarial (gain) loss 432 -
-------------------------------------------------------- ---- ------ -------
Net pension (credit) cost $ 337 $ (12)
======================================================== ==== ====== =======
Postretirement cost:
Service cost - benefits earned during the period $ 18 $ 29
Interest cost on accumulated postretirement benefit
obligation 186 191
Expected return on assets (56) (77)
Amortization of prior service credit (426) (397)
Actuarial (gain) loss - (930)
-------------------------------------------------------- ---- ------ -------
Net postretirement (credit) cost $ (278) $(1,184)
======================================================== ==== ====== =======
Combined net pension and postretirement (credit) cost $ 59 $(1,196)
======================================================== ==== ====== =======
We also provide senior- and middle-management employees with
nonqualified, unfunded supplemental retirement and savings plans.
For the first quarter ended 2019 and 2018, net supplemental pension
benefits costs not included in the table above were $25 and
$21.
NOTE 7. FAIR VALUE MEASUREMENTS AND DISCLOSURE
The Fair Value Measurement and Disclosure framework provides a
three-tiered fair value hierarchy based on the reliability of the
inputs used to determine fair value. Level 1 refers to fair values
determined based on quoted prices in active markets for identical
assets. Level 2 refers to fair values estimated using significant
other observable inputs and Level 3 includes fair values estimated
using significant unobservable inputs.
The fair value measurements level of an asset or liability
within the fair value hierarchy is based on the lowest level of any
input that is significant to the fair value measurement. Our
valuation techniques maximize the use of observable inputs and
minimize the use of unobservable inputs.
The valuation methodologies described above may produce a fair
value calculation that may not be indicative of future net
realizable value or reflective of future fair values. We believe
our valuation methods are appropriate and consistent with other
market participants. The use of different methodologies or
assumptions to determine the fair value of certain financial
instruments could result in a different fair value measurement at
the reporting date. There have been no changes in the methodologies
used since December 31, 2018.
Long-Term Debt and Other Financial Instruments
The carrying amounts and estimated fair values of our long-term
debt, including current maturities, and other financial
instruments, are summarized as follows:
March 31, 2019 December 31, 2018
------------------------------------ -----------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------------------------- ----------------- ----------------- ----------------- ----------------
Notes and debentures(1) $ 170,532 $ 179,576 $ 171,529 $ 172,287
Commercial paper 2,957 2,957 3,048 3,048
Bank borrowings 4 4 4 4
Investment securities(2) 3,606 3,606 3,409 3,409
========================== ============= ============= ============= ============
(1) Includes credit agreement borrowings.
(2) Excludes investments accounted for under the equity method.
The carrying amount of debt with an original maturity of less
than one year approximates market value. The fair value
measurements used for notes and debentures are considered Level 2
and are determined using various methods, including quoted prices
for identical or similar securities in both active and inactive
markets.
Following is the fair value leveling for investment securities
that are measured at fair value and derivatives as of March 31,
2019 and December 31, 2018. Derivatives designated as hedging
instruments are reflected as "Other assets," "Other noncurrent
liabilities" and, for a portion of interest rate swaps, "Other
current assets" on our consolidated balance sheets.
March 31, 2019
----------------------------------------
Level 1 Level 2 Level 3 Total
----------------------------------- --------- -------- --------- --------
Equity Securities
Domestic equities $ 1,092 $ - $ - $ 1,092
International equities 263 - - 263
Fixed income equities 208 - - 208
Available-for-Sale Debt Securities - 989 - 989
Asset Derivatives
Interest rate swaps - 2 - 2
Cross-currency swaps - 427 - 427
Foreign exchange contracts - 87 - 87
Liability Derivatives
Interest rate swaps - (13) - (13)
Cross-currency swaps - (2,697) - (2,697)
Foreign exchange contracts - (6) - (6)
==================================== ===== ======= ==== === =======
December 31, 2018
----------------------------------------
Level 1 Level 2 Level 3 Total
----------------------------------- --------- -------- --------- --------
Equity Securities
Domestic equities $ 1,061 $ - $ - $ 1,061
International equities 256 - - 256
Fixed income equities 172 - - 172
Available-for-Sale Debt Securities - 870 - 870
Asset Derivatives
Cross-currency swaps - 472 - 472
Foreign exchange contracts - 87 - 87
Liability Derivatives
Interest rate swaps - (39) - (39)
Cross-currency swaps - (2,563) - (2,563)
Foreign exchange contracts - (2) - (2)
==================================== ===== ======= ==== === =======
Investment Securities
Our investment securities include both equity and debt
securities that are measured at fair value, as well as equity
securities without readily determinable fair values. A substantial
portion of the fair values of our investment securities are
estimated based on quoted market prices. Investments in equity
securities not traded on a national securities exchange are valued
at cost, less any impairment, and adjusted for changes resulting
from observable, orderly transactions for identical or similar
securities. Investments in debt securities not traded on a national
securities exchange are valued using pricing models, quoted prices
of securities with similar characteristics or discounted cash
flows.
The components comprising total gains and losses on equity
securities are as follows:
Three months ended
March 31,
2019 2018
---------------------------------------------------------- ---------- ------------
Total gains (losses) recognized on equity securities $ 160 $ (13)
Gains (Losses) recognized on equity securities sold 86 52
---------------------------------------------------------- ------ --------
Unrealized gains (losses) recognized on equity securities
held at end of period 74 (65)
========================================================== ====== ========
At March 31, 2019, available-for-sale debt securities totaling
$989 have maturities as follows - less than one year: $46; one to
three years: $178; three to five years: $98; for five or more
years: $667.
Our cash equivalents (money market securities), short-term
investments (certificate and time deposits) and nonrefundable
customer deposits are recorded at amortized cost, and the
respective carrying amounts approximate fair values. Short-term
investments and nonrefundable customer deposits are recorded in
"Other current assets" and our investment securities are recorded
in "Other Assets" on the consolidated balance sheets.
Derivative Financial Instruments
We enter into derivative transactions to manage certain market
risks, primarily interest rate risk and foreign currency exchange
risk. This includes the use of interest rate swaps, interest rate
locks, foreign exchange forward contracts and combined interest
rate foreign exchange contracts (cross-currency swaps). We do not
use derivatives for trading or speculative purposes. We record
derivatives on our consolidated balance sheets at fair value that
is derived from observable market data, including yield curves and
foreign exchange rates (all of our derivatives are Level 2). Cash
flows associated with derivative instruments are presented in the
same category on the consolidated statements of cash flows as the
item being hedged.
Fair Value Hedging We designate our fixed-to-floating interest
rate swaps as fair value hedges. The purpose of these swaps is to
manage interest rate risk by managing our mix of fixed-rate and
floating-rate debt. These swaps involve the receipt of fixed-rate
amounts for floating interest rate payments over the life of the
swaps without exchange of the underlying principal amount.
We also designate some of our foreign exchange contracts as fair
value hedges. The purpose of these contracts is to hedge currency
risk associated with foreign-currency-denominated operating assets
and liabilities.
Accrued and realized gains or losses from fair value hedges
impact the same category on the consolidated statements of income
as the item being hedged. Unrealized gains on fair value hedges are
recorded at fair market value as assets, and unrealized losses are
recorded at fair market value as liabilities. Changes in the fair
value of derivative instruments designated as fair value hedges are
offset against the change in fair value of the hedged assets or
liabilities through earnings. In the three months ended March 31,
2019 and 2018, no ineffectiveness was measured on fair value
hedges.
Cash Flow Hedging We designate our cross-currency swaps as cash
flow hedges. We have entered into multiple cross-currency swaps to
hedge our exposure to variability in expected future cash flows
that are attributable to foreign currency risk generated from the
issuance of our foreign-denominated debt. These agreements include
initial and final exchanges of principal from fixed foreign
currency denominated amounts to fixed U.S. dollar denominated
amounts, to be exchanged at a specified rate that is usually
determined by the market spot rate upon issuance. They also include
an interest rate swap of a fixed or floating foreign
currency-denominated interest rate to a fixed U.S. dollar
denominated interest rate.
We also designate some of our foreign exchange contracts as cash
flow hedges. The purpose of these contracts is to hedge currency
risk associated with variability in anticipated
foreign-currency-denominated cash flows, such as unremitted or
forecasted royalty and license fees owed to WarnerMedia's domestic
companies for the sale or anticipated sale of U.S. copyrighted
products abroad or cash flows for certain film production costs
denominated in a foreign currency.
Unrealized gains on derivatives designated as cash flow hedges
are recorded at fair value as assets, and unrealized losses are
recorded at fair value as liabilities. For derivative instruments
designated as cash flow hedges, the effective portion is reported
as a component of accumulated OCI until reclassified into the
consolidated statements of income in the same period the hedged
transaction affects earnings. The gain or loss on the ineffective
portion is recognized as "Other income (expense) - net" in the
consolidated statements of income in each period. We evaluate the
effectiveness of our cash flow hedges each quarter. In the three
months ended March 31, 2019 and 2018, no ineffectiveness was
measured on cash flow hedges.
Periodically, we enter into and designate interest rate locks to
partially hedge the risk of changes in interest payments
attributable to increases in the benchmark interest rate during the
period leading up to the probable issuance of fixed-rate debt. We
designate our interest rate locks as cash flow hedges. Gains and
losses when we settle our interest rate locks are amortized into
income over the life of the related debt, except where a material
amount is deemed to be ineffective, which would be immediately
reclassified to "Other income (expense) - net" in the consolidated
statements of income. Over the next 12 months, we expect to
reclassify $63 from accumulated OCI to interest expense due to the
amortization of net losses on historical interest rate locks.
Net Investment Hedging We have designated EUR700 million
aggregate principal amount of debt as a hedge of the variability of
some of the Euro-denominated net investments of WarnerMedia. The
gain or loss on the debt that is designated as, and is effective
as, an economic hedge of the net investment in a foreign operation
is recorded as a currency translation adjustment within accumulated
other comprehensive income, net on the consolidated balance
sheet.
Collateral and Credit-Risk Contingency We have entered into
agreements with our derivative counterparties establishing
collateral thresholds based on respective credit ratings and
netting agreements. At March 31, 2019, we had posted collateral of
$334 (a deposit asset) and held collateral of $166 (a receipt
liability). Under the agreements, if AT&T's credit rating had
been downgraded one rating level by Fitch Ratings, before the final
collateral exchange in March, we would have been required to post
additional collateral of $175. If AT&T's credit rating had been
downgraded four ratings levels by Fitch Ratings, two levels by
S&P, and two levels by Moody's, we would have been required to
post additional collateral of $1,360. If DIRECTV Holdings LLC's
credit rating had been downgraded below BBB- by S&P, we would
have been required to post additional collateral of $258. At
December 31, 2018, we had posted collateral of $1,675 (a deposit
asset) and held collateral of $103 (a receipt liability). We do not
offset the fair value of collateral, whether the right to reclaim
cash collateral (a receivable) or the obligation to return cash
collateral (a payable) exists, against the fair value of the
derivative instruments.
Following are the notional amounts of our outstanding derivative
positions:
December
March 31, 31,
---------------------------
2019 2018
--------------------------- ----------- ----------
Interest rate swaps $ 1,633 $ 3,483
Cross-currency swaps 42,192 42,192
Foreign exchange contracts 1,238 2,094
--------------------------- ------- ------
Total $ 45,063 $ 47,769
=========================== ======= ======
Following are the related hedged items affecting our financial
position and performance:
Effect of Derivatives on the Consolidated Statements
of Income
----------------------------------------------------- -------- -------
Three months ended
March 31,
Fair Value Hedging Relationships 2019 2018
----------------------------------------------------- ------------ --------
Interest rate swaps (Interest expense):
Gain (Loss) on interest rate swaps $ 24 $ (53)
Gain (Loss) on long-term debt (24) 53
===================================================== ======== =======
In addition, the net swap settlements that accrued and settled
in the quarter ended March 31 were offset against interest
expense.
Three months ended
March 31,
Cash Flow Hedging Relationships 2019 2018
--------------------------------------------------- ------------ --------
Cross-currency swaps:
Gain (Loss) recognized in accumulated OCI $ 168 $ 854
Foreign exchange contracts:
Gain (Loss) recognized in accumulated OCI (7) -
Other income (expense) - net reclassified from
accumulated OCI into income 3 -
Interest rate locks:
Interest income (expense) reclassified from
accumulated OCI into income (16) (15)
=================================================== ======== =======
NOTE 8. ACQUISITIONS, DISPOSITIONS AND OTHER ADJUSTMENTS
Acquisitions
Time Warner On June 14, 2018, we completed our acquisition of
Time Warner, a leader in media and entertainment whose major
businesses encompass an array of some of the most respected media
brands. The deal combines Time Warner's vast library of content and
ability to create new premium content for audiences around the
world with our extensive customer relationships and distribution,
one of the world's largest pay-TV subscriber bases and scale in TV,
mobile and broadband distribution. We expect that the transaction
will advance our direct-to-consumer efforts and provide us with the
ability to develop innovative new offerings.
In July 2018, the U.S. Department of Justice (DOJ) appealed the
U.S. District Court's decision permitting the merger. On February
26, 2019, the D.C. Circuit unanimously affirmed our win. AT&T's
representations to the DOJ regarding its operation of Turner
expired on February 28, 2019. The DOJ did not ask the D.C. Circuit
to rehear its appeal before the applicable April 12, 2019 deadline,
and it stated publicly on February 26, 2018 that "[t]he department
has no plans to seek further review" of the D.C. Circuit's
decision. The DOJ's deadline to file a petition for writ of
certiorari with the United States Supreme Court is May 28,
2019.
We paid Time Warner shareholders $36,599 in AT&T stock and
$42,100 in cash. Total consideration, including share-based payment
arrangements and other adjustments totaled $79,358, excluding Time
Warner's net debt at acquisition. The fair values of the assets
acquired and liabilities assumed were preliminarily determined
using the income, cost and market approaches. The fair value
measurements were primarily based on significant inputs that are
not observable in the market and thus represent a Level 3
measurement as defined in ASC 820, "Fair Value Measurement," other
than cash and long-term debt acquired in the acquisition. The
income approach was primarily used to value the intangible assets,
consisting primarily of distribution network, released TV and film
content, in-place advertising network, trade names, and franchises.
The income approach estimates fair value for an asset based on the
present value of cash flow projected to be generated by the asset.
Projected cash flow is discounted at a required rate of return that
reflects the relative risk of achieving the cash flow and the time
value of money. The cost approach, which estimates value by
determining the current cost of replacing an asset with another of
equivalent economic utility, was used, as appropriate, for plant,
property and equipment. The cost to replace a given asset reflects
the estimated reproduction or replacement cost for the property,
less an allowance for loss in value due to depreciation.
The following table summarizes the preliminary estimated fair
values of the Time Warner assets acquired and liabilities assumed
and related deferred income taxes as of the acquisition date:
Assets acquired
Cash $ 1,889
Accounts receivable 9,052
All other current assets 2,913
Noncurrent inventory and theatrical film and television
production costs 5,591
Property, plant and equipment 4,785
Intangible assets subject to amortization
Distribution network 18,040
Released television and film content 10,806
Trademarks and trade names 18,081
Other 10,300
Investments and other assets 9,449
Goodwill 38,569
------------------------------------------------------------------- -------
Total assets acquired 129,475
------------------------------------------------------------------- -------
Liabilities assumed
Current liabilities, excluding current portion of long-term
debt 8,303
Debt maturing within one year 4,471
Long-term debt 18,394
Other noncurrent liabilities 18,948
------------------------------------------------------------------- -------
Total liabilities assumed 50,116
------------------------------------------------------------------- -------
Net assets acquired 79,359
------------------------------------------------------------------- -------
Noncontrolling interest (1)
------------------------------------------------------------------- -------
Aggregate value of consideration paid $ 79,358
=================================================================== =======
These estimates are preliminary in nature and subject to
adjustments, which could be material. Any necessary adjustments
will be finalized within one year from the date of acquisition.
Substantially all the receivables acquired are expected to be
collectible. We have not identified any material unrecorded
pre-acquisition contingencies where the related asset or liability,
or an impairment is probable and the amount can be reasonably
estimated. Goodwill is calculated as the difference between the
acquisition date fair value of the consideration transferred and
the fair value of the net assets acquired, and represents the
future economic benefits that we expect to achieve as a result of
the acquisition. Prior to the finalization of the purchase price
allocation, if information becomes available that would indicate it
is probable that unknown events had occurred and the amounts can be
reasonably estimated, such items will be included in the final
purchase price allocation and may change goodwill. Purchased
goodwill is not expected to be deductible for tax purposes. As we
finalize the valuation of assets acquired and liabilities assumed,
we will determine to which reporting units within the WarnerMedia
segment any changes in goodwill should be recorded.
NOTE 9. SALES OF RECEIVABLES
As described further below, we have agreements with various
third-party financial institutions pertaining to the sale of
certain types of our accounts receivable. The most significant of
these programs are discussed in detail below and generally consist
of (1) receivables arising from equipment installment plans, which
are sold for cash and a deferred purchase price, and (2)
receivables related to licensed programming and advertising. Under
these programs, we transfer receivables to purchasers in exchange
for cash and additional consideration upon settlement of the
receivables, where applicable. Under the terms of our agreements
for these programs, we continue to bill and collect the payments
from our customers on behalf of the financial institutions.
As of March 31, 2019 and December 31, 2018, gross receivables
included on our consolidated balance sheets, related to these
programs, are $6,611 and $5,994, respectively, of which $3,072 and
$3,457 are notes receivable that are included in "Accounts
receivable - net."
The outstanding portfolio of receivables derecognized from our
consolidated balance sheets, but which we continue to service, was
$10,863 and $9,065 at March 31, 2019 and December 31, 2018,
respectively. As of March 31, 2019, total cash proceeds received,
net of remittances (excluding amounts returned as deferred purchase
price), were $8,387.
The following table sets forth a summary of receivables sold
during the three months ended March 31, 2019 and 2018:
Three months ended
March 31,
2019 2018
--------------------------------- ----------------------------------- ----------------------------------
Gross receivables sold $ 4,101 $ 3,010
Net receivables sold(1) 3,909 2,795
Cash proceeds received 3,675 2,395
Deferred purchase price recorded 309 519
Guarantee obligation recorded 138 123
================================== ====== =========================== ===== ===========================
Receivables net of allowance, imputed interest and trade-in right
(1) guarantees.
The sales of receivables did not have a material impact on our
consolidated statements of income or to "Total Assets" reported on
our consolidated balance sheets. We reflect cash receipts on sold
receivables as cash flows from operations in our consolidated
statements of cash flows. Cash receipts on the deferred purchase
price are classified as cash flows from investing activities.
Equipment Installment Receivables
We offer our customers the option to purchase certain wireless
devices in installments over a specified period of time and, in
many cases, once certain conditions are met, they may be eligible
to trade in the original equipment for a new device and have the
remaining unpaid balance paid or settled.
We maintain a program, under which we transfer a portion of
these receivables in exchange for cash and additional consideration
upon settlement of the receivables, referred to as the deferred
purchase price. In the event a customer trades in a device prior to
the end of the installment contract period, we agree to make a
payment to the financial institutions equal to any outstanding
remaining installment receivable balance. Accordingly, we record a
guarantee obligation for this estimated amount at the time the
receivables are transferred.
The deferred purchase price and guarantee obligation are
initially recorded at estimated fair value and subsequently carried
at the lower of cost or net realizable value. The estimation of
their fair values is based on remaining installment payments
expected to be collected and the expected timing and value of
device trade-ins. The estimated value of the device trade-ins
considers prices offered to us by independent third parties that
contemplate changes in value after the launch of a device model.
The fair value measurements used for the deferred purchase price
and the guarantee obligation are considered Level 3 under the Fair
Value Measurement and Disclosure framework (see Note 7).
The following table shows the previously transferred equipment
installment receivables, which we repurchased in exchange for the
associated deferred purchase price and cash during the three months
ended March 31, 2019 and 2018:
Three months ended
March 31,
2019 2018
---------------------------------- ------------------------------------------------- --------------------------
Fair value of repurchased
receivables $ 423 $ -
Carrying value of deferred purchase
price 407 -
----------------------------------- ------------- ---------------------------------- ------------ ------------
Gain (loss) on repurchases(1) $ 16 $ -
=================================== ============= ================================== ============ ============
These gains (losses) are included in "Selling, general and administrative"
(1) in the consolidated statements of income.
At March 31, 2019 and December 31, 2018, our deferred purchase
price receivable was $2,240 and $2,370, respectively, of which
$1,418 and $1,448 are included in "Other current assets" on our
consolidated balance sheets, with the remainder in "Other Assets."
The guarantee obligation at March 31, 2019 and December 31, 2018
was $430 and $439, respectively, of which $160 and $196 are
included in "Accounts payable and accrued liabilities" on our
consolidated balance sheets, with the remainder in "Other
noncurrent liabilities." Our maximum exposure to loss as a result
of selling these equipment installment receivables is limited to
the total amount of our deferred purchase price and guarantee
obligation.
Programing and Advertising Receivables
In March 2019, we entered into a revolving agreement to transfer
certain receivables from our WarnerMedia business to various
financial institutions in exchange for cash. These receivables
originate from the sale of licensed programing and advertising.
Upon sale, we reclassify the allowance against these receivables to
a guarantee liability. We have fully guaranteed the repayment of
the transferred receivables and have also pledged, as collateral
under this agreement, additional receivables in the amount of
$1,402. Our maximum exposure to loss related to selling these
receivables is limited to the outstanding $1,400 of sold
receivables.
NOTE 10. LEASES
We have operating and finance leases for certain facilities and
equipment used in operations. Our leases have remaining lease terms
of 1 year to 13 years. Some of our real estate operating leases
contain renewal options that may be exercised, and some of our
leases include options to terminate the leases within one year.
We have recognized a right-of-use asset for both operating and
finance leases, and an operating lease liability that represents
the present value of our obligation to make payments over the lease
term. The present value of the lease payments is calculated using
the incremental borrowing rate for operating and finance leases,
which was determined using a portfolio approach based on the rate
of interest that we would have to pay to borrow an amount equal to
the lease payments on a collateralized basis over a similar term.
We use the unsecured borrowing rate and risk-adjust that rate to
approximate a collateralized rate in the currency of the lease,
which will be updated on a quarterly basis for measurement of new
lease liabilities.
The components of lease expense were as follows:
Three months
ended
March 31, 2019
-------------------------------------- ----------------
Operating lease cost $ 1,242
====================================== === ===========
Finance lease cost:
Amortization of right-of-use assets $ 66
Interest on lease obligation 42
-------------------------------------- --- -----------
Total finance lease cost $ 108
====================================== === ===========
Supplemental balance sheet information related to leases is as
follows:
At March 31, 2019
Operating Leases
Operating lease right-of-use assets $ 20,235
Accounts payable and accrued liabilities $ 3,072
Operating lease obligation 18,253
-------------------------------------------- ------- ---
Total operating lease obligation $ 21,325
============================================ ======= ===
Finance Leases
Property, plant and equipment, at cost $ 3,377
Accumulated depreciation and amortization (1,173)
-------------------------------------------- ------- ---
Property, plant and equipment, net $ 2,204
============================================ ======= ===
Current portion of long-term debt $ 135
Long-term debt 1,852
-------------------------------------------- ------- ---
Total finance lease obligation $ 1,987
============================================ ======= ===
Weighted-Average Remaining Lease Term
Operating leases 7.9 yrs
Finance leases 10.9 yrs
Weighted-Average Discount Rate
Operating leases 4.7%
Finance leases 8.6%
============================================ =======
Future minimum maturities of lease liabilities are as
follows:
At March 31, 2019 Operating Finance
Leases Leases
---------------------- ----------- --------
Remainder of 2019 $ 3,201 $ 246
2020 3,981 290
2021 3,533 279
2022 3,231 263
2023 2,893 254
Thereafter 9,633 1,828
---------------------- ------- -------
Total lease payments 26,472 3,160
---------------------- ------- -------
Less imputed interest (5,147) (1,173)
---------------------- ------- -------
Total $ 21,325 $ 1,987
====================== ======= =======
NOTE 11. ADDITIONAL FINANCIAL INFORMATION
Cash and Cash Flows
We typically maintain our restricted cash balances for purchases
and sales of certain investment securities and funding of certain
deferred compensation benefit payments.
March 31, December 31,
--------------- ---------------
Cash and Cash Equivalents and
Restricted Cash 2019 2018 2018 2017
----------------------------------- ----- ------ ----- ------
Cash and cash equivalents $6,516 $48,872 $5,204 $50,498
Restricted cash in Other current
assets 20 8 61 6
Restricted cash in Other Assets 94 345 135 428
------------------------------------ ----- ------ ----- ------
Cash and cash equivalents and
restricted cash $6,630 $49,225 $5,400 $50,932
==================================== ===== ====== ===== ======
Three months ended
March 31,
-------------------------------------------------- ----------------------
Cash Paid for Amounts Included in the Measurement 2019 2018
of Lease Liabilities:
-------------------------------------------------- ------------ --------
Operating cash flows from operating leases $ 1,332 $ 1,207
-------------------------------------------------- -------- -------
Three months ended
March 31,
-------------------------------------------- ----------------------
Cash Paid (Received) During the Period for: 2019 2018
-------------------------------------------- ------ ---------
Interest $ 2,507 $ 2,408
Income taxes, net of refunds (379) (1,089)
============================================= ====== =========
OVERVIEW
AT&T Inc. is referred to as "we," "AT&T" or the
"Company" throughout this document, and the names of the particular
subsidiaries and affiliates providing the services generally have
been omitted. AT&T is a holding company whose subsidiaries and
affiliates operate worldwide in the telecommunications, media and
technology industries. You should read this discussion in
conjunction with the consolidated financial statements and
accompanying notes (Notes). We completed the acquisition of Time
Warner Inc. (Time Warner) on June 14, 2018, and have included its
results after that date. In accordance with U.S. generally accepted
accounting principles (GAAP), operating results from Time Warner
prior to the acquisition are excluded.
We have four reportable segments: (1) Communications, (2)
WarnerMedia, (3) Latin America and (4) Xandr. Our segment results
presented in Note 4 and discussed below follow our internal
management reporting. We analyze our segments based on segment
operating contribution, which consists of operating income,
excluding acquisition-related costs and other significant items,
and equity in net income (loss) of affiliates for investments
managed within each segment. Percentage increases and decreases
that are not considered meaningful are denoted with a dash.
First Quarter
--------------------------
Percent
2019 2018 Change
--------------------------------- -------- ------- -------
Operating Revenues
Communications $ 35,393 $35,533 (0.4)%
WarnerMedia 8,379 112 -
Latin America 1,718 2,025 (15.2)
Xandr 426 337 26.4
Corporate and other 167 333 (49.8)
Eliminations and consolidation (1,256) (302) -
--------------------------------- ------- ------
AT&T Operating Revenues 44,827 38,038 17.8
================================= ======= ======
Operating Contribution
Communications 8,052 8,027 0.3
WarnerMedia 2,310 39 -
Latin America (173) (111) (55.9)
Xandr 253 286 (11.5)
--------------------------------- ------- ------
Segment Operating Contribution $ 10,442 $ 8,241 26.7%
================================= ======= ====== =======
The Communications segment provides services to businesses and
consumers located in the U.S. or in U.S. territories and businesses
globally. Our business strategies reflect bundled product offerings
that cut across product lines and utilize shared assets. This
segment contains the following business units:
-- Mobility provides nationwide wireless service and equipment.
-- Entertainment Group provides video, including over-the-top
(OTT) services, broadband and voice communications services
primarily to residential customers. This segment also sells
advertising on DIRECTV and U-verse distribution platforms.
-- Business Wireline provides advanced IP-based services, as
well as traditional voice and data services to business
customers.
The WarnerMedia segment develops, produces and distributes
feature films, television, gaming and other content over various
physical and digital formats. This segment contains the following
business units:
-- Turner is comprised of the historic Turner division as well
as the financial results of our AT&T's Regional Sports Networks
(RSNs). This business unit primarily operates multichannel basic
television networks and digital properties. Turner also sells
advertising on its networks and digital properties.
-- Home Box Office consists of premium pay television and OTT
services domestically and premium pay, basic tier television and
OTT services internationally, as well as content licensing and home
entertainment.
-- Warner Bros. consists of the production, distribution and
licensing of television programming and feature films, the
distribution of home entertainment products and the production and
distribution of games.
The Latin America segment provides entertainment and wireless
services outside of the U.S. This segment contains the following
business units:
-- Vrio provides video services primarily to residential
customers using satellite technology in Latin America and the
Caribbean.
-- Mexico provides wireless service and equipment to customers in Mexico.
The Xandr segment provides advertising services and includes our
recently acquired AppNexus. These services utilize data insights to
develop and deliver targeted advertising across video and digital
platforms.
RESULTS OF OPERATIONS
Consolidated Results Our financial results are summarized in the
following discussions. Additional analysis is discussed in our
"Segment Results" section. Percentage increases and decreases that
are not considered meaningful are denoted with a dash. Certain
prior period amounts have been reclassified to conform to the
current period's presentation.
First Quarter
-------------------------
Percent
2019 2018 Change
-------------------------------- ------- ------- -------
Operating Revenues
Service $40,684 $33,646 20.9%
Equipment 4,143 4,392 (5.7)
-------------------------------- ------ ------
Total Operating Revenues 44,827 38,038 17.8
-------------------------------- ------ ------
Operating expenses
Operations and support 30,388 25,843 17.6
Depreciation and amortization 7,206 5,994 20.2
-------------------------------- ------ ------
Total Operating Expenses 37,594 31,837 18.1
-------------------------------- ------ ------
Operating Income 7,233 6,201 16.6
-------------------------------- ------ ------
Interest expense 2,141 1,771 20.9
Equity in net income (loss)
of affiliates (7) 9 -
Other income (expense) - net 286 1,702 (83.2)
-------------------------------- ------ ------
Income Before Income Taxes 5,371 6,141 (12.5)
Net Income 4,348 4,759 (8.6)
Net Income Attributable to AT&T $ 4,096 $ 4,662 (12.1)%
================================ ====== ====== =======
Operating revenues increased in the first quarter of 2019. The
increase was primarily due to our 2018 acquisition of Time Warner.
Partially offsetting these increases in revenues were declines in
our Latin America segment and Communications segment, driven by
lower legacy services, video and wireless equipment revenues.
Revenues were also negatively impacted by foreign exchange
pressure.
Operations and support expenses increased in the first quarter
of 2019. The increase was primarily due to our 2018 acquisition of
Time Warner, partially offset by lower equipment costs in our
Communications and Latin America segments and lower expenses due to
our continued focus on cost management.
Depreciation and amortization expense increased in the first
quarter of 2019. Depreciation expense increased $285, or 5.8%,
primarily due to the Time Warner acquisition as well as ongoing
capital spending for network upgrades and expansion.
Amortization expense increased $927 in 2019 primarily due to the
amortization of intangibles associated with WarnerMedia.
Operating income increased in the first quarter of 2019. Our
operating income margin in the first quarter decreased from 16.3%
in 2018 to 16.1% in 2019.
Interest expense increased in the first quarter of 2019. The
increase was primarily due to higher debt balances related to our
acquisition of Time Warner, including interest expense on Time
Warner notes.
Equity in net income of affiliates decreased in the first
quarter of 2019, primarily due to basis amortization of Time Warner
investments, which were acquired in the second quarter of 2018.
Other income (expense) - net decreased in the first quarter of
2019. The decrease was primarily due to actuarial losses of $432 in
2019 compared to an actuarial gain of $930 in the comparable prior
year. First-quarter 2019 also includes $45 of debt redemption
expenses.
Income taxes decreased in the first quarter of 2019. Our
effective tax rate was 19.0% for the first quarter of 2019, versus
22.5% for the comparable year prior. The decrease in income tax
expense was primarily due to lower income before income taxes and
the impacts of tax settlements in the first quarter of 2019. The
decrease in our effective tax rate was primarily due to the impacts
of tax settlements.
COMMUNICATIONS SEGMENT First Quarter
-------------------------
Percent
2019 2018 Change
------------------------------------- ------- ------- -------
Segment Operating Revenues
Mobility $17,567 $17,355 1.2%
Entertainment Group 11,328 11,431 (0.9)
Business Wireline 6,498 6,747 (3.7)
------------------------------------- ------ ------
Total Segment Operating Revenues 35,393 35,533 (0.4)
===================================== ====== ======
Segment Operating Contribution
Mobility 5,351 5,158 3.7
Entertainment Group 1,478 1,309 12.9
Business Wireline 1,223 1,560 (21.6)
------------------------------------- ------ ------
Total Segment Operating Contribution $ 8,052 $ 8,027 0.3%
===================================== ====== ====== =======
Selected Subscribers and Connections
------------------------------------- ------- ------
First Quarter
(000s) 2019 2018
------------------------------------- ------- ------
Total domestic broadband connections 15,737 15,775
Network access lines in service 9,576 11,288
U-verse VoIP connections 4,935 5,585
===================================== ======= ======
Operating revenues decreased in the first quarter of 2019,
driven by declines in our Entertainment Group and Business Wireline
business units, partially offset by increases in our Mobility
business unit. The decreases reflect continued declines in legacy
voice and data products, decreased equipment revenues from lower
postpaid smartphone sales and the shift to over-the-top (OTT) video
offerings, largely offset by higher wireless service and advanced
data revenues.
Operating contribution increased in the first quarter of 2019,
reflecting improvement in our Mobility and Entertainment Group
business units, partially offset by declines in our Business
Wireline business unit. Our Communications segment operating income
margin in the first quarter increased from 22.6% in 2018 to 22.8%
in 2019.
Communications Business Unit Discussion
Mobility Results
------------------------------------------ ------ ------ -----
First Quarter
---------------------------
Percent
2019 2018 Change
------------------------------------------ ------- -------
Operating revenues
Service $13,792 $13,403 2.9%
Equipment 3,775 3,952 (4.5)
------------------------------------------ ------ ------
Total Operating Revenues 17,567 17,355 1.2
------------------------------------------ ------ ------
Operating expenses
Operations and support 10,181 10,102 0.8
Depreciation and amortization 2,035 2,095 (2.9)
------------------------------------------ ------ ------
Total Operating Expenses 12,216 12,197 0.2
------------------------------------------ ------ ------
Operating Income 5,351 5,158 3.7
Equity in Net Income (Loss) of Affiliates - - -
------------------------------------------ ------ ------
Operating Contribution $ 5,351 $ 5,158 3.7%
========================================== ====== ====== =====
The following tables highlight other key measures of performance
for Mobility:
First Quarter Percent
(in 000s) 2019 2018 Change
----------------------------------------------------- --------- -------- -----------
Wireless Subscribers
Postpaid smartphones 60,597 60,002 1.0%
Postpaid feature phones and data-centric
devices 15,953 17,429 (8.5)
----------------------------------------------------- --------- --------
Postpaid 76,550 77,431 (1.1)
Prepaid 17,180 15,671 9.6
Reseller 7,574 9,002 (15.9)
Connected devices(1) 54,428 41,728 30.4
----------------------------------------------------- --------- --------
Total Wireless Subscribers 155,732 143,832 8.3
===================================================== ========= ========
Wireless Net Additions(2)
Postpaid (204) 49 -
Prepaid 96 241 (60.2)
Reseller (253) (388) 34.8
Connected devices(1) 3,088 2,728 13.2
----------------------------------------------------- --------- --------
Wireless Net Subscriber Additions 2,727 2,630 3.7
===================================================== ========= ========
Postpaid Phone Subscribers 63,438 63,657 (0.3)
Postpaid Phone Net Additions 80 (60) -%
===================================================== ========= ======== =======
Postpaid Churn(3) 1.17 1.06 11 BP
Postpaid Phone-Only Churn (3) 0.93 0.84 9 BP
===================================================== ========= ======== =======
(1) Includes data-centric devices such as session-based tablets, monitoring
devices and primarily wholesale automobile systems. Excludes
postpaid tablets.
(2) Excludes acquisition-related additions
during the period.
(3) Calculated by dividing the aggregate number of wireless subscribers
who canceled service during a month divided by the total number
of wireless subscribers at the beginning of that month. The churn
rate for the period is equal to the average of the churn rate for
each month of that period.
Service revenue increased in the first quarter largely due to
higher average revenue per subscriber (ARPU) and growth in Cricket
and AT&T PREPAID(SM) subscribers.
ARPU
ARPU increased in the first quarter primarily due to price
actions that were not in effect in the comparative prior year.
Churn
The effective management of subscriber churn is critical to our
ability to maximize revenue growth and to maintain and improve
margins. Postpaid churn and postpaid phone-only churn was higher in
the first quarter due to continued competitive pricing in the
industry.
Equipment revenue decreased in the first quarter driven by lower
postpaid smartphone sales, resulting from the continuing trend of
customers choosing to upgrade devices less frequently or bring
their own.
Operations and support expenses increased in the first quarter
primarily due to higher commission deferral amortization, partially
offset by lower postpaid smartphone volumes and increased
operational efficiencies.
Depreciation expense decreased in the first quarter primarily
due to fully depreciated assets, partially offset by ongoing
capital spending for network upgrades and expansion.
Operating income increased in the first quarter. Our Mobility
operating income margin in the first quarter increased from 29.7%
in 2018 to 30.5% in 2019. Our Mobility EBITDA margin in the first
quarter increased from 41.8% in 2018 to 42.0% in 2019. EBITDA is
defined as operating contribution excluding equity in net income
(loss) of affiliates and depreciation and amortization.
Subscriber Relationships
As the wireless industry has matured, future wireless growth
will increasingly depend on our ability to offer innovative
services, plans and devices and to provide these services in
bundled product offerings with our video and broadband services.
Subscribers that purchase two or more services from us have
significantly lower churn than subscribers that purchase only one
service. To support higher mobile video and data usage, our
priority is to best utilize a wireless network that has sufficient
spectrum and capacity to support these innovations on as broad a
geographic basis as possible.
To attract and retain subscribers in a mature and highly
competitive market, we have launched a wide variety of plans.
Virtually all of our postpaid smartphone subscribers are on plans
that provide for service on multiple devices at reduced rates, and
such subscribers tend to have higher retention and lower churn
rates. Such offerings are intended to encourage existing
subscribers to upgrade their current services and/or add connected
devices, attract subscribers from other providers and/or minimize
subscriber churn.
Connected Devices
Connected devices include data-centric devices such as
session-based tablets, monitoring devices and primarily wholesale
automobile systems. The number of connected device subscriber
relationships increased during the first quarter of 2019, driven by
the addition of approximately 2.0 million wholesale connected cars
through agreements with various carmakers and strong growth in
other Internet of Things (IoT) connections. We believe that these
connected car agreements give us the opportunity to create future
retail relationships with the car owners.
Entertainment Group Results
------------------------------------------ ------ --- ------ ------
First Quarter
----------------------------
Percent
2019 2018 Change
------------------------------------------ ------- ----------- ----------
Operating revenues
Video entertainment $ 8,074 $ 8,225 (1.8)%
High-speed internet 2,070 1,878 10.2
Legacy voice and data services 683 806 (15.3)
Other service and equipment 501 522 (4.0)
------------------------------------------ ------ --- ------
Total Operating Revenues 11,328 11,431 (0.9)
------------------------------------------ ------ --- ------
Operating expenses
Operations and support 8,527 8,811 (3.2)
Depreciation and amortization 1,323 1,310 1.0
------------------------------------------ ------ --- ------
Total Operating Expenses 9,850 10,121 (2.7)
------------------------------------------ ------ --- ------
Operating Income 1,478 1,310 12.8
Equity in Net Income (Loss) of Affiliates - (1) -
------------------------------------------ ------ --- ------
Operating Contribution $ 1,478 $ 1,309 12.9%
========================================== ====== === ====== ======
The following tables highlight other key measures of performance
for the Entertainment Group business unit:
First Quarter
-----------
(in 000s) 2019 2018 Percent Change
-------------------------------------------------------- ------- ------- ----------------
Video Connections
Premium TV(1) 22,359 23,902 (6.5)%
DIRECTV NOW(2) 1,508 1,467 2.8
-------------------------------------------------------- ------- -------
Total Video Connections 23,867 25,369 (5.9)
======================================================== ======= =======
Broadband Connections
IP(1) 13,822 13,616 1.5
DSL 632 816 (22.5)
-------------------------------------------------------- ------- -------
Total Broadband Connections 14,454 14,432 0.2
======================================================== ======= =======
Retail Consumer Switched Access Lines 3,787 4,535 (16.5)
U-verse Consumer VoIP Connections 4,393 5,105 (13.9)
-------------------------------------------------------- ------- -------
Total Retail Consumer Voice Connections 8,180 9,640 (15.1)
======================================================== ======= =======
Video Net Additions
Premium TV(1,3) (544) (187) -
DIRECTV NOW(2) (83) 312 -
-------------------------------------------------------- ------- -------
Net Video Additions (627) 125 -
======================================================== ======= =======
Broadband Net Additions
IP(1) 93 154 (39.6)
DSL (48) (72) 33.3
-------------------------------------------------------- ------- -------
Net Broadband Additions 45 82 (45.1)
======================================================== ======= =======
Fiber Broadband Connections (included in
IP) 3,060 1,955 56.5
Fiber Broadband Net Additions (included in
IP) 297 226 31.4%
======================================================== ======= ======= ===========
2019 includes the impact of aligning our subscriber billing practice
(1) with the industry and AT&T Mobility to extend customer business
disconnection period to the end of the billing cycle, resulting in
an increase of 117 net video and 38 net broadband subscribers at March
31, 2019.
Consistent with industry practice, DIRECTV NOW includes connections
(2) that are on a free-trial.
Includes disconnections for customers that
(3) migrated to DIRECTV NOW.
Video entertainment revenues are comprised of subscription and
advertising revenues. Revenues decreased in the first quarter of
2019, largely driven by a 6.5% decline in premium TV subscribers.
Our customers continue to shift, consistent with the rest of the
industry, from a premium linear service to our more economically
priced OTT video service which has pressured our video revenues.
OTT net additions declined in the first quarter due to price
changes and promotions. Churn rose for subscribers with premium TV
only service, partially reflecting price increases.
High-speed internet revenues increased in the first quarter of
2019. In addition to the shift of subscribers to our higher-speed
fiber services, our bundling strategy is helping to lower churn
with subscribers who bundle broadband with another AT&T
service, having about half the churn of broadband-only
subscribers.
Legacy voice and data service revenues decreased in the first
quarter of 2019, reflecting the continued migration of customers to
our more advanced IP-based offerings or to competitors.
Operations and support expenses decreased in the first quarter
of 2019. Contributing to the decreases were lower marketing costs
and volumes, our ongoing focus on cost efficiencies, a one-time
settlement of a carriage dispute and the impact of a prior update
to the estimated economic life for our entertainment group
customers.
Depreciation expense increased in the first quarter of 2019,
primarily due to our ongoing capital spending for network upgrades
and expansion.
Operating income increased in the first quarter of 2019. Our
Entertainment Group operating income margin in the first quarter
increased from 11.5% in 2018 to 13.0% in 2019. Our Entertainment
Group EBITDA margin in the first quarter increased from 22.9% in
2018 to 24.7% in 2019.
Business Wireline Results
------------------------------------------ ----- ----- ------
First Quarter
----------------------
Percent
2019 2018 Change
------------------------------------------
Operating revenues
Strategic and managed services $3,792 $3,595 5.5%
Legacy voice and data services 2,404 2,865 (16.1)
Other service and equipment 302 287 5.2
Total Operating Revenues 6,498 6,747 (3.7)
------------------------------------------ ----- -----
Operating expenses
Operations and support 4,040 4,016 0.6
Depreciation and amortization 1,235 1,170 5.6
------------------------------------------ ----- -----
Total Operating Expenses 5,275 5,186 1.7
Operating Income 1,223 1,561 (21.7)
Equity in Net Income (Loss) of Affiliates - (1) -
-----
Operating Contribution $1,223 $1,560 (21.6)%
Strategic and managed services revenues increased in the first
quarter of 2019. Our strategic services are made up of (1) data
services, including our VPN, dedicated internet ethernet and
broadband, (2) voice service, including VoIP and cloud-based voice
solutions, (3) security and cloud solutions, and (4) managed,
professional and outsourcing services. Revenue increases were
primarily attributable to growth in our security and cloud
solutions and managed services.
Legacy voice and data service revenues decreased in the first
quarter of 2019, primarily due to lower demand as customers
continue to shift to our more advanced IP-based offerings or our
competitors.
Other service and equipment revenues increased in the first
quarter of 2019, driven by revenues from intellectual property.
Other service revenues include project-based revenue, which is
nonrecurring in nature, as well as revenues from customer premises
equipment.
Operations and support expenses increased in the first quarter
of 2019, primarily due to higher fulfillment deferral amortization.
Partially offsetting the increase is our continued efforts to shift
to a software-based network and automate and digitize our customer
support activities.
Depreciation expense increased in the first quarter, primarily
due to increases in capital spending for network upgrades and
expansion.
Operating income decreased in the first quarter of 2019. Our
Business Wireline operating income margin in the first quarter
decreased from 23.1% in 2018 to 18.8% in 2019. Our Business
Wireline EBITDA margin in the first quarter decreased from 40.5% in
2018 to 37.8% in 2019.
WARNERMEDIA SEGMENT First Quarter
Percent
2019 2018 Change
Segment Operating Revenues
Turner $3,443 $ 112 -%
Home Box Office 1,510 - -
Warner Bros. 3,518 - -
Eliminations & Other (92) - -
----- ----
Total Segment Operating Revenues 8,379 112 -
Segment Operating Contribution
Turner 1,272 64 -
Home Box Office 582 - -
Warner Bros. 553 - -
Eliminations & Other (97) (25) -
----- ----
Total Segment Operating Contribution $2,310 $ 39 -%
Our WarnerMedia segment consists of our Turner, Home Box Office
and Warner Bros. business units. The order of presentation reflects
the consistency of revenue streams, rather than overall magnitude
as that is subject to timing and frequency of studio releases.
WarnerMedia also includes our financial results for RSNs, which
comprise the prior period results reported in this segment.
The WarnerMedia segment does not include results from Time
Warner operations for the periods prior to our June 14, 2018
acquisition. Otter Media is included as an equity method investment
for periods prior to our August 7, 2018 acquisition of the
remaining interest and is in the segment operating results
following the acquisition. Consistent with our past practice, many
of the fair value adjustments from the application of purchase
accounting required under GAAP have not been allocated to the
segment, instead they are reported as acquisition-related items in
the reconciliation to consolidated results.
Operating revenues were $8,379 in the first quarter of 2019.
Operating contribution was $2,310 for the first quarter of 2019.
Our WarnerMedia segment operating income margin was 26.8%.
WarnerMedia Business Unit Discussion
Turner Results
First Quarter
Percent
2019 2018 Change
----------------------------------- ------ ---- ---------
Operating revenues
Subscription $1,965 $ 98 -%
Advertising 1,261 14 -
Content and other 217 - -
----------------------------------- ----- ---
Total Operating Revenues 3,443 112 -
----------------------------------- ----- ---
Operating expenses
Operations and support 2,136 74 -
Depreciation and amortization 60 1 -
----------------------------------- ----- ---
Total Operating Expenses 2,196 75 -
----------------------------------- ----- ---
Operating Income 1,247 37 -
Equity in Net Income of Affiliates 25 27 (7.4)
----------------------------------- ----- ---
Operating Contribution $1,272 $ 64 -%
Turner includes the WarnerMedia businesses managed by Turner as
well as our financial results for RSNs, which comprise the prior
period results reported in this business unit.
Operating revenues for Turner are generated primarily from
licensing programming to distribution affiliates and from selling
advertising on its networks and digital properties. Revenues for
the first quarter included $1,965 of subscription, $1,261 of
advertising and $217 of content and other revenue.
Operations and support expenses totaled $2,136 for the first
quarter of 2019.
Operating income was $1,247 in the first quarter of 2019. Our
Turner operating income margin was 36.2% in the first quarter of
2019. Our Turner EBITDA margin was 38.0% in the first quarter of
2019.
Home Box Office Results
----------------------------------- ------ --- ----
First Quarter
-----------------------------
Percent
2019 2018 Change
---------- ------
Operating revenues
Subscription $ 1,334 $ - -%
Content and other 176 - -
Total Operating Revenues 1,510 - -
----------------------------------- ------
Operating expenses
Operations and support 921 - -
Depreciation and amortization 22 - -
----------------------------------- ------
Total Operating Expenses 943 - -
----------------------------------- ------
Operating Income 567 - -
Equity in Net Income of Affiliates 15 - -
----------------------------------- ------
Operating Contribution $ 582 $ - -%
Operating revenues for Home Box Office are generated from the
exploitation of original and licensed programming through
distribution outlets. Revenues for the first quarter included
$1,334 of subscription and $176 of content and other revenue.
Operations and support expenses totaled $921 for the first
quarter of 2019.
Operating income was $567 in the first quarter of 2019. Our Home
Box Office operating income margin was 37.5% in the first quarter
of 2019. Our Home Box Office EBITDA margin was 39.0% in the first
quarter of 2019.
Warner Bros. Results
First Quarter
Percent
2019 2018 Change
----------------------------------- ------ -------
Operating revenues
Theatrical product $1,506 $ - -%
Television product 1,613 - -
Games and other 399 - -
-----------------------------------
Total Operating Revenues 3,518 - -
-----------------------------------
Operating expenses
Operations and support 2,919 - -
Depreciation and amortization 52 - -
-----------------------------------
Total Operating Expenses 2,971 - -
-----------------------------------
Operating Income 547 - -
Equity in Net Income of Affiliates 6 - -
-----------------------------------
Operating Contribution $ 553 $ - -%
Operating revenues for Warner Bros. primarily relate to
theatrical product (which is content made available for initial
exhibition in theaters) and television product (which is content
made available for initial airing on television or OTT services).
For the first quarter, total operating revenues were $3,518 and
included $1,506 from theatrical product, $1,613 from television
product and $399 from games and other.
Operations and support expenses totaled $2,919 for the first
quarter of 2019.
Operating income was $547 in the first quarter of 2019. Our
Warner Bros. operating income margin was 15.5% in the first quarter
of 2019. Our Warner Bros. EBITDA margin was 17.0% in the first
quarter of 2019.
LATIN AMERICA SEGMENT First Quarter
Percent
2019 2018 Change
Segment Operating Revenues
Vrio $1,067 $1,354 (21.2)%
Mexico 651 671 (3.0)
----- -----
Total Segment Operating Revenues 1,718 2,025 (15.2)
Segment Operating Contribution
Vrio 32 148 (78.4)
Mexico (205) (259) 20.8
Total Segment Operating Contribution $(173) $(111) (55.9)%
Operating Results
Our Latin America operations conduct business in their local
currency and operating results are converted to U.S. dollars using
official exchange rates, subjecting results to foreign currency
fluctuations.
Operating revenues decreased in the first quarter of 2019 driven
by lower revenues for Vrio, primarily resulting from foreign
exchange pressure.
Operating contribution decreased in the first quarter of 2019,
reflecting foreign exchange pressure. Our Latin America segment
operating income margin in the first quarter was (10.1)% in 2019
and (5.5)% in 2018.
Latin America Business Unit Discussion
Vrio Results
----- ------
First Quarter
Percent
2019 2018 Change
------ ------ ----------
Operating revenues $1,067 $1,354 (21.2)%
Operating expenses
Operations and support 866 1,001 (13.5)
Depreciation and amortization 169 205 (17.6)
Total Operating Expenses 1,035 1,206 (14.2)
Operating Income 32 148 (78.4)
Operating Contribution $ 32 $ 148 (78.4)%
The following tables highlight other key measures of performance
for Vrio:
First Quarter
Percent
(in 000s) 2019 2018 Change
-------------------------- ------------------------- ----------------------
Vrio Video Subscribers(1,2) 13,584 13,573 0.1%
========================== ========================= ============ =======
Vrio Video Net Subscriber
Additions(3) (32) (15) -%
Excludes subscribers of our equity investment in SKY Mexico, in which
(1) we own a 41.3% stake. SKY Mexico had 7.6 million
subscribers at December 31, 2018 and 7.9 million subscribers at March
31, 2018.
2019 excludes the impact of 222 subscriber disconnections resulting
(2) from conforming our video credit policy across the region, which is
reflected in beginning of period subscribers.
Excludes SKY Mexico net subscriber losses of 199 and 92 for the quarter
(3) ended December 31, 2018 and March 31, 2018, respectively.
Operating revenues decreased in the first quarter of 2019,
primarily due to foreign exchange pressures.
Operations and support expenses decreased in the first quarter
of 2019, primarily due to changes in foreign currency exchange
rates. Approximately 17% of Vrio expenses are U.S. dollar based,
with the remainder in the local currency.
Depreciation expense decreased in the first quarter of 2019,
primarily due to changes in foreign currency exchange rates.
Operating income decreased in the first quarter of 2019. Our
Vrio operating income margin in the first quarter decreased from
10.9% in 2018 to 3.0% in 2019. Our Vrio EBITDA margin in the first
quarter decreased from 26.1% in 2018 to 18.8% in 2019.
Mexico Results
----- ----- ------
First Quarter
Percent
2019 2018 Change
Operating revenues
Service $ 442 $ 404 9.4%
Equipment 209 267 (21.7)
----- -----
Total Operating Revenues 651 671 (3.0)
----- -----
Operating expenses
Operations and support 725 803 (9.7)
Depreciation and amortization 131 127 3.1
----- -----
Total Operating Expenses 856 930 (8.0)
----- -----
Operating Income (Loss) (205) (259) 20.8
Operating Contribution $(205) $(259) 20.8%
The following tables highlight other key measures of performance
for Mexico:
First Quarter
Percent
(in 000s) 2019 2018 Change
Mexico Wireless
Subscribers(1)
Postpaid 5,642 5,607 0.6%
Prepaid 11,779 9,857 19.5
Reseller 301 178 69.1
Total Mexico Wireless
Subscribers 17,722 15,642 13.3%
Mexico Wireless Net
Additions
Postpaid (69) 109 -%
Prepaid 114 459 (75.2)
Reseller 48 (25) -
Mexico Wireless
Net Subscriber Additions 93 543 (82.9)%
2019 excludes the impact of 692 subscriber disconnections resulting
(1) from the churn of customers related to sales by certain third-party
distributors and the sunset of 2G services in Mexico, which are reflected
in beginning of period subscribers.
Service revenues increased in the first quarter of 2019,
primarily due to growth in our subscriber base.
Equipment revenues decreased in the first quarter of 2019,
primarily due to higher demand in the prior year for our initial
offering of equipment installment programs partially offset by
growth in our subscriber base.
Operations and support expenses decreased in the first quarter
of 2019, primarily driven by equipment sales and inventory
reserves. These decreases were partially offset by higher bad debt
expenses. Approximately 7% of Mexico expenses are U.S. dollar
based, with the remainder in the local currency.
Depreciation and amortization expense increased in the first
quarter of 2019 primarily due to the amortization of spectrum
licenses and higher in-service assets, partly offset by changes in
the useful lives of certain assets.
Operating income increased in the first quarter of 2019. Our
Mexico operating income margin in the first quarter increased from
(38.6)% in 2018 to (31.5)% in 2019. Our Mexico EBITDA margin in the
first quarter increased from (19.7)% in 2018 to (11.4)% in
2019.
XANDR SEGMENT
First Quarter
Percent
2019 2018 Change
Operating revenues $426 $337 26.4%
Operating expenses
Operations and support 160 50 -
Depreciation and amortization 13 1 -
Total Operating Expenses 173 51 -
Operating Income 253 286 (11.5)
Equity in Net Income of Affiliates - - -
Operating Contribution $253 $286 (11.5)%
Operating revenues increased in the first quarter of 2019,
primarily due to our acquisition of AppNexus in August 2018.
Operations and support expenses increased in the first quarter
of 2019, primarily due to our acquisition of AppNexus and our
ongoing development of the platform supporting Xandr's
business.
Operating income decreased in the first quarter of 2019. Our
Xandr segment operating income margin in the first quarter
decreased from 84.9% in 2018 to 59.4% in 2019.
SUPPLEMENTAL TOTAL ADVERTISING REVENUE INFORMATION
As a supplemental presentation to our Xandr segment operating
results, we are providing a view of total advertising revenues
generated by AT&T. This combined view presents the entire
portfolio of advertising revenues reported across all operating
segments and represents a significant strategic initiative and
growth opportunity for AT&T. See revenue categories tables in
Note 5 for a reconciliation.
Total Advertising Revenues
----- ----- -----
First Quarter
Percent
2019 2018 Change
------ ------ ---------
Operating Revenues
WarnerMedia $1,279 $ 14 -%
Communications 417 375 11.2
Xandr 426 337 26.4
Eliminations (350) (334) (4.8)
----- -----
Total Advertising Revenues $1,772 $ 392 -%
===== ===== =====
SUPPLEMENTAL COMMUNICATIONS OPERATING INFORMATION
As a supplemental presentation to our Communications segment
operating results, we are providing a view of our AT&T Business
Solutions results which includes both wireless and wireline
operations. This combined view presents a complete profile of the
entire business customer relationship, and underscores the
importance of mobile solutions to serving our business customers.
See "Discussion and Reconciliation of Non-GAAP Measure" for a
reconciliation of these supplemental measures to the most directly
comparable financial measures calculated and presented in
accordance with GAAP.
Business Solutions Results
----------------------------------- ----- ----- ------
First Quarter
Percent
2019 2018 Change
-----------------------------------
Operating revenues
Wireless service $1,913 $1,791 6.8%
Strategic and managed services 3,792 3,595 5.5
Legacy voice and data services 2,404 2,865 (16.1)
Other service and equipment 302 287 5.2
Wireless equipment 596 578 3.1
Total Operating Revenues 9,007 9,116 (1.2)
Operating expenses
Operations and support 5,640 5,594 0.8
Depreciation and amortization 1,541 1,458 5.7
-----------------------------------
Total Operating Expenses 7,181 7,052 1.8
Operating Income 1,826 2,064 (11.5)
Equity in Net Income of Affiliates - (1) -
Operating Contribution $1,826 $2,063 (11.5)%
OTHER BUSINESS MATTERS
Time Warner In June 2018, we completed our acquisition of Time
Warner, a leader in media and entertainment whose major businesses
encompass an array of some of the most respected media brands. In
July 2018, the U.S. Department of Justice (DOJ) appealed the U.S.
District Court's decision permitting the merger. On February 26,
2019, the D.C. Circuit unanimously affirmed our win. AT&T's
representations to the DOJ regarding its operation of Turner
expired on February 28, 2019. The DOJ did not ask the D.C. Circuit
to rehear its appeal before the applicable April 12, 2019 deadline,
and it stated publicly on February 26, 2018 that "[t]he department
has no plans to seek further review" of the D.C. Circuit's
decision. The DOJ's deadline to file a petition for writ of
certiorari with the United States Supreme Court is May 28,
2019.
Labor Contracts As of March 31, 2019, we employed approximately
262,000 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 8,000 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 3,000 traditional wireline
employees in our legacy AT&T Corp. business also expired in
April 2018. Those employees are working under the terms of their
prior contract, including benefits, while negotiations
continue.
COMPETITIVE AND REGULATORY ENVIRONMENT
Overview AT&T subsidiaries operating within the United
States are subject to federal and state regulatory authorities.
AT&T subsidiaries operating outside the United States are
subject to the jurisdiction of national and supranational
regulatory authorities in the markets where service is
provided.
In the Telecommunications Act of 1996 (Telecom Act), Congress
established a national policy framework intended to bring the
benefits of competition and investment in advanced
telecommunications facilities and services to all Americans by
opening all telecommunications markets to competition and reducing
or eliminating regulatory burdens that harm consumer welfare. Since
the Telecom Act was passed, the Federal Communications Commission
(FCC) and some state regulatory commissions have maintained or
expanded certain regulatory requirements that were imposed decades
ago on our traditional wireline subsidiaries when they operated as
legal monopolies. The new leadership at the FCC is charting a more
predictable and balanced regulatory course that will encourage
long-term investment and benefit consumers. Based on its public
statements, we expect the FCC to continue to eliminate antiquated,
unnecessary regulations and streamline processes. In addition, we
are pursuing, at both the state and federal levels, additional
legislative and regulatory measures to reduce regulatory burdens
that are no longer appropriate in a competitive telecommunications
market and that inhibit our ability to compete more effectively and
offer services wanted and needed by our customers, including
initiatives to transition services from traditional networks to all
IP-based networks. At the same time, we also seek to ensure that
legacy regulations are not further extended to broadband or
wireless services, which are subject to vigorous competition.
We have organized the following discussion by reportable
segment.
Communications Segment
Internet In February 2015, the FCC released an order classifying
both fixed and mobile consumer broadband internet access services
as telecommunications services, subject to Title II of the
Communications Act. The Order, which represented a departure from
longstanding bipartisan precedent, significantly expanded the FCC's
authority to regulate broadband internet access services, as well
as internet interconnection arrangements. In December 2017, the FCC
reversed its 2015 decision by reclassifying fixed and mobile
consumer broadband services as information services and repealing
most of the rules that were adopted in 2015. In lieu of broad
conduct prohibitions, the order requires internet service providers
to disclose information about their network practices and terms of
service, including whether they block or throttle internet traffic
or offer paid prioritization. Several parties appealed the FCC's
December 2017 decision and the D.C. Circuit heard oral argument on
the appeals on February 1, 2019. Although the FCC order expressly
preempted inconsistent state or local measures, a number of states
are considering or have adopted legislation that would reimpose the
very rules the FCC repealed, and in some cases, establish
additional requirements that go beyond the FCC's February 2015
order. Additionally, some state governors have issued executive
orders that effectively reimpose the repealed requirements. Suits
have recently been filed concerning laws in California and Vermont,
and other lawsuits are possible. The California and Vermont suits
have been stayed pursuant to agreements by those states not to
enforce their laws pending resolution of appeals of the FCC's
December 2017 order. We will continue to support congressional
action to codify a set of standard consumer rules for the
internet.
In October 2016, a sharply divided FCC adopted new rules
governing the use of customer information by providers of broadband
internet access service. Those rules were more restrictive in
certain respects than those governing other participants in the
internet economy, including so-called "edge" providers such as
Google and Facebook. In April 2017, the president signed a
resolution passed by Congress repealing the new rules under the
Congressional Review Act.
Privacy-related legislation has been considered in a number of
states. Legislative and regulatory action could result in increased
costs of compliance, claims against broadband internet access
service providers and others, and increased uncertainty in the
value and availability of data. On June 28, 2018, the state of
California enacted comprehensive privacy legislation that effective
as of January 1, 2020, gives California consumers the right to know
what personal information is being collected about them, and
whether and to whom it is sold or disclosed, and to access and
request deletion of this information. Subject to certain
exceptions, it also gives consumers the right to opt-out of the
sale of personal information. The law applies the same rules to all
companies that collect consumer information.
Wireless The industry-wide deployment of 5G technology, which is
needed to satisfy extensive demand for video and internet access,
will involve significant deployment of "small cell" equipment and
therefore increase the need for local permitting processes that
allow for the placement of small cell equipment on reasonable
timelines and terms. Federal regulations also can delay and impede
broadband services, including small cell equipment. In March,
August and September 2018, the FCC adopted orders to streamline the
wireless infrastructure review process in order to facilitate
deployment of next-generation wireless facilities. Those orders
have been appealed and the various appeals remain pending in the DC
Circuit and 9(th) Circuit Court of Appeals. In addition, to date,
21 states have adopted legislation to facilitate small cell
deployment.
In December 2018, we introduced the nation's first commercial
mobile 5G service. We currently have mobile 5G in parts of 19 U.S.
cities and will have launched mobile 5G service in at least 22
major cities by the end of the year. We expect to have mobile 5G
service nationwide to more than 200 million people by early
2020.
LIQUIDITY AND CAPITAL RESOURCES
We had $6,516 in cash and cash equivalents available at March
31, 2019. Cash and cash equivalents included cash of $2,786 and
money market funds and other cash equivalents of $3,730.
Approximately $2,443 of our cash and cash equivalents were held by
our foreign entities in accounts predominantly outside of the U.S.
and may be subject to restrictions on repatriation.
Cash and cash equivalents increased $1,312 since December 31,
2018. In the first three months of 2019, cash inflows were
primarily provided by the cash receipts from operations, including
cash from our sale and transfer of certain wireless equipment
installment and other customer receivables to third parties,
issuance of commercial paper and long-term debt and collateral
received from banks and other participants in our derivative
arrangements. These inflows were offset by cash used to meet the
needs of the business, including, but not limited to, payment of
operating expenses, debt repayments, funding capital expenditures
and vendor financing payments, and dividends to stockholders.
Cash Provided by or Used in Operating Activities
During the first three months of 2019, cash provided by
operating activities was $11,052, compared to $8,947 for the first
three months of 2018. Higher operating cash flows in 2019 were
primarily due to contributions from WarnerMedia, including our new
securitization program (see Note 9), and higher cash flows from
working capital initiatives, partly offset by lower net tax
refunds.
We actively manage the timing of our supplier payments for
non-capital items to optimize the use of our cash. Among other
things, we seek to have payments made on 90-day or greater terms,
while providing the suppliers with access to bank facilities that
permit earlier payments at their cost. In addition, for payments to
a key supplier, we have arrangements that allow us to extend
payment terms up to 90 days at an additional cost to us (referred
to as supplier financing). The net impact of supplier financing
reduced cash from operating activities by $904 and $344 for the
three months ended March 31, 2019 and 2018, respectively. All
supplier financing payments are due within one year.
Cash Used in or Provided by Investing Activities
For the first three months of 2019, cash used in investing
activities totaled $5,401, and consisted primarily of $5,182 for
capital expenditures, including interest during construction ($936
lower than the prior-year comparable period).
For capital improvements, we have negotiated favorable vendor
payment terms of 120 days or more (referred to as vendor financing)
with some of our vendors, which are excluded from capital
expenditures and reported as financing activities. For the first
three months of 2019, these vendor financing payments were $820,
and when combined with $5,182 of capital expenditures, total
capital investment was $6,002 ($288 lower than the prior-year
comparable period). In the first quarter of 2019, we placed $733 of
equipment in service under vendor financing arrangements. Total
vendor financing payables included in our March 31, 2019
consolidated balance sheets were $2,403, with $1,883 due within one
year (in "Accounts payable and accrued liabilities") and the
remainder predominately due within two to three years (in "Other
noncurrent liabilities").
The vast majority of our capital expenditures are spent on our
networks, including product development and related support
systems. During the first quarter, approximately $300 of assets
related to the FirstNet build were placed into service.
The amount of capital expenditures is influenced by demand for
services and products, capacity needs and network enhancements. We
are also focused on ensuring DIRECTV merger commitments are met. As
of March 31, 2019, we market our fiber-to-the-premises network to
more than 12 million customer locations and are on track to meet
our FCC commitment of 12.5 million locations by mid-2019.
Cash Provided by or Used in Financing Activities
For the first three months of 2019, cash used in financing
activities totaled $4,421 and included net proceeds of $9,182,
which consisted primarily of the following issuances:
-- January draw of $2,850 on an 11-month syndicated term loan agreement.
-- January borrowings of $725 supported by government agencies
to support network equipment purchases.
-- January draw of $750 on a private financing agreement.
-- February issuance of $3,000 of 4.350% global notes due 2029.
-- February issuance of $2,000 of 4.850% global notes due 2039.
During the first three months of 2019, repayment of long-term
debt totaled $9,840, consisting of the following:
-- The final $2,625 of amounts outstanding under our Acquisition Term Loan (defined below).
-- $750 of January borrowings under a private financing agreement.
-- $1,850 of 2.300% notes due 2019.
-- $400 of floating rate notes due 2019.
-- $890 of 5.200% notes due 2020.
-- $1,120 of 5.000% notes due 2021.
-- $1,000 of 4.700% Warner Media, LLC notes due 2021.
-- $1,000 of 4.750% Warner Media, LLC notes due 2021.
-- $38 of 4.600% DIRECTV Holdings LLC and DIRECTV Financing Co., Inc. notes due 2021.
-- $40 of 5.000% DIRECTV Holdings LLC and DIRECTV Financing Co., Inc. notes due 2021.
Our weighted average interest rate of our entire long-term debt
portfolio, including the impact of derivatives, was approximately
4.4% as of March 31, 2019 and December 31, 2018. We had $170,532 of
total notes and debentures outstanding at March 31, 2019, which
included Euro, British pound sterling, Swiss franc, Brazilian real,
Mexican peso, Canadian dollar and Australian dollar denominated
debt that totaled approximately $41,061.
At March 31, 2019, we had $11,538 of debt maturing within one
year, including $2,957 of commercial paper borrowings and $8,441 of
long-term debt issuances. Debt maturing within one year includes
the following notes that may be put back to us by the holders:
-- $1,000 of annual put reset securities issued by BellSouth
that may be put back to us each April until maturity in 2021.
-- An accreting zero-coupon note that may be redeemed each May
until maturity in 2022. If the remainder of the zero-coupon note
(issued for principal of $500 in 2007 and partially exchanged in
the 2017 debt exchange offers) is held to maturity, the redemption
amount will be $592.
At March 31, 2019, we had approximately 376 million shares
remaining from share repurchase authorizations approved by the
Board of Directors in 2013 and 2014.
We paid dividends of $3,714 during the first three months of
2019, compared with $3,070 for the first three months of 2018,
primarily reflecting the increase in the number of shares
outstanding related to our acquisition of Time Warner as well as an
increase in our quarterly dividend approved by our Board of
Directors in December 2018. Dividends declared by our Board of
Directors totaled $0.51 per share in the first three months of 2019
and $0.50 per share for the first three months of 2018. Our
dividend policy considers the expectations and requirements of
stockholders, capital funding requirements of AT&T and
long-term growth opportunities. It is our intent to provide the
financial flexibility to allow our Board of Directors to consider
dividend growth and to recommend an increase in dividends to be
paid in future periods. All dividends remain subject to declaration
by our Board of Directors.
Credit Facilities
The following summary of our various credit and loan agreements
does not purport to be complete and is qualified in its entirety by
reference to each agreement filed as exhibits to our Annual Report
on Form 10-K.
We use credit facilities as a tool in managing our liquidity
status. In December 2018, we amended our five-year revolving credit
agreement (the "Amended and Restated Credit Agreement") and
concurrently entered into a new five-year agreement (the "Five Year
Credit Agreement") such that we now have two $7,500 revolving
credit agreements totaling $15,000. The Amended and Restated Credit
Agreement terminates on December 11, 2021 and the Five Year Credit
Agreement terminates on December 11, 2023. No amounts were
outstanding under either agreement as of March 31, 2019.
In September 2017, we entered into a $2,250 syndicated term loan
credit agreement containing (i) a three-year $750 term loan
facility, (ii) a four-year $750 term loan facility and (iii) a
five-year $750 term loan facility, with certain investment and
commercial banks and The Bank of Nova Scotia, as administrative
agent. We drew on all three facilities during the first quarter of
2018, with $2,250 in advances outstanding as of March 31, 2019.
On November 20, 2018, we entered into and drew on a 4.5 year
$3,550 term loan credit agreement (the "November 2018 Term Loan")
with Bank of America, N.A., as agent. We used the proceeds to
finance the repayment, in part, of loans outstanding under the
Acquisition Term Loan. As of March 31, 2019, $3,550 was outstanding
under this agreement.
On January 31, 2019, we entered into and drew on an 11-month
$2,850 syndicated term loan credit agreement (the "Citibank Term
Loan"), with certain investment and commercial banks and Citibank,
N.A., as administrative agent. As of March 31, 2019, $2,850 was
outstanding under this agreement.
In anticipation of the Time Warner acquisition, we entered into
a $16,175 term loan agreement ("Acquisition Term Loan") containing
(i) a 2.5 year $8,087.5 facility (the "Tranche A Facility") and
(ii) a 4.5 year $8,087.5 facility (the "Tranche B Facility") with a
commitment termination date of December 31, 2018. As of December
31, 2018, $2,625 was outstanding of Tranche A advances. We paid
$2,625 of the Tranche A advances on February 20, 2019, and
terminated the facility.
We also utilize other external financing sources, which include
various credit arrangements supported by government agencies to
support network equipment purchases, as well as a commercial paper
program.
Each of our credit and loan agreements contains covenants that
are customary for an issuer with an investment grade senior debt
credit rating as well as a net debt-to-EBITDA financial ratio
covenant requiring AT&T to maintain, as of the last day of each
fiscal quarter, a ratio of not more than 3.5-to-1. As of March 31,
2019, we were in compliance with the covenants for our credit
facilities.
Collateral Arrangements
During the quarter, we amended collateral arrangements with
certain counterparties to require cash collateral posting by
AT&T only when deposit amounts exceed certain thresholds. Under
these arrangements, counterparties are still required to post
collateral. During the first three months of 2019, we received
$1,404 of cash collateral, on a net basis, primarily driven by the
amended arrangements. Cash postings under these arrangements vary
with changes in credit ratings and netting agreements. (See Note
7)
Other
Our total capital consists of debt (long-term debt and debt
maturing within one year) and stockholders' equity. Our capital
structure does not include debt issued by our equity method
investments. At March 31, 2019, our debt ratio was 47.4%, compared
to 52.6% at March 31, 2018 and 47.7% at December 31, 2018. Our net
debt ratio was 45.6% at March 31, 2019, compared to 36.8% at March
31, 2018 and 46.2% at December 31, 2018. The debt ratio is affected
by the same factors that affect total capital, and reflects our
recent debt issuances and repayments.
During the first three months of 2019, we received $4,460 from
the monetization of various assets, primarily from the sale of
certain equipment installment and other customer receivables. We
plan to continue to explore similar opportunities. To that end, in
April 2019, we received $1,430 cash for the sale of our minority
stake in Hulu. We also entered into an agreement to sell
WarnerMedia's headquarters (Hudson Yards) for approximately $2,200
under a sale/leaseback agreement, which is expected to close late
in the second quarter. Proceeds from both transactions will be used
to reduce debt levels.
DISCUSSION AND RECONCILIATION OF NON-GAAP MEASURE
We believe the following measure is relevant and useful
information to investors as it is used by management as a method of
comparing performance with that of many of our competitors. This
supplemental measure should be considered in addition to, but not
as a substitute of, our consolidated and segment financial
information.
Business Solutions Reconciliation
We provide a supplemental discussion of our Business Solutions
operations that is calculated by combining our Mobility and
Business Wireline business units, and then adjusting to remove
non-business operations. The following table presents a
reconciliation of our supplemental Business Solutions results.
First Quarter
March 31, 2019 March 31, 2018
Business Business Business Business
Mobility Wireline Adjustments(1) Solutions Mobility Wireline Adjustments(1) Solutions
Operating
Revenues
Wireless
service $ 13,792 $ - $ (11,879) $ 1,913 $ 13,403 $ - $ (11,612) $ 1,791
Strategic and
managed
services - 3,792 - 3,792 - 3,595 - 3,595
Legacy voice
and data
services - 2,404 - 2,404 - 2,865 - 2,865
Other service
and
equipment - 302 - 302 - 287 - 287
Wireless
equipment 3,775 - (3,179) 596 3,952 - (3,374) 578
Total Operating
Revenues 17,567 6,498 (15,058) 9,007 17,355 6,747 (14,986) 9,116
Operating
Expenses
Operations
and support 10,181 4,040 (8,581) 5,640 10,102 4,016 (8,524) 5,594
EBITDA 7,386 2,458 (6,477) 3,367 7,253 2,731 (6,462) 3,522
Depreciation
and
amortization 2,035 1,235 (1,729) 1,541 2,095 1,170 (1,807) 1,458
Total Operating
Expense 12,216 5,275 (10,310) 7,181 12,197 5,186 (10,331) 7,052
Operating
Income 5,351 1,223 (4,748) 1,826 5,158 1,561 (4,655) 2,064
Equity in net
income
(loss)
of affiliates - - - - - (1) - (1)
Operating
Contribution $ 5,351 $ 1,223 $ (4,748) $ 1,826 $ 5,158 $ 1,560 $ (4,655) $ 2,063
(1) Non-business wireless reported in the Communications segment under the Mobility business
unit.
At March 31, 2019, we had interest rate swaps with a notional
value of $1,633 and a fair value of $(11).
We have fixed-to-fixed and floating-to-fixed cross-currency
swaps on foreign currency-denominated debt instruments with a U.S.
dollar notional value of $42,192 to hedge our exposure to changes
in foreign currency exchange rates. These derivatives have been
designated at inception and qualify as cash flow hedges with a net
fair value of $(2,270) at March 31, 2019.
We have foreign exchange contracts with a U.S. dollar notional
value of $1,238 to provide currency at a fixed rate to hedge a
portion of the exchange risk involved in foreign
currency-denominated transactions. These foreign exchange contracts
include fair value hedges, cash flow hedges and economic
(nonqualifying) hedges with a total net fair value of $81 at March
31, 2019.
We have designated EUR700 million aggregate principal amount of
debt as a hedge of the variability of some of the Euro-denominated
net investments of WarnerMedia. The gain or loss on the debt that
is designated as, and is effective as, an economic hedge of the net
investment in a foreign operation is recorded as a currency
translation adjustment within accumulated other comprehensive
income, net on the consolidated balance sheet.
Item 4. Controls and Procedures
The registrant maintains disclosure controls and procedures that
are designed to ensure that information required to be disclosed by
the registrant is recorded, processed, summarized, accumulated and
communicated to its management, including its principal executive
and principal financial officers, to allow timely decisions
regarding required disclosure, and reported within the time periods
specified in the Securities and Exchange Commission's rules and
forms. The chief executive officer and chief financial officer have
performed an evaluation of the effectiveness of the design and
operation of the registrant's disclosure controls and procedures as
of March 31, 2019. Based on that evaluation, the chief executive
officer and chief financial officer concluded that the registrant's
disclosure controls and procedures were effective as of March 31,
2019.
Information set forth in this report contains forward-looking
statements that are subject to risks and uncertainties, and actual
results could differ materially. Many of these factors are
discussed in more detail in the "Risk Factors" section. We claim
the protection of the safe harbor for forward-looking statements
provided by the Private Securities Litigation Reform Act of
1995.
The following factors could cause our future results to differ
materially from those expressed in the forward-looking
statements:
-- Adverse economic and/or capital access changes in the markets
served by us or in countries in which we have significant
investments, including the impact on customer demand and our
ability and our suppliers' ability to access financial markets at
favorable rates and terms.
-- 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) and legislative efforts involving issues that
are important to our business, including, without limitation,
special access and business data services; pending Notices of
Apparent Liability; the transition from legacy technologies to
IP-based infrastructure, including the withdrawal of legacy
TDM-based services; universal service; broadband deployment;
wireless equipment siting regulations; E911 services; competition
policy; privacy; net neutrality; multichannel video programming
distributor services and equipment; content licensing and copyright
protection; availability of new spectrum, on fair and balanced
terms; and wireless and satellite license awards and renewals.
-- Enactment of additional state, local, federal and/or foreign
regulatory and tax laws and regulations, or changes to existing
standards and actions by tax agencies and judicial authorities
including the resolution of disputes with any taxing jurisdictions,
pertaining to our subsidiaries and foreign investments, including
laws and regulations that reduce our incentive to invest in our
networks, resulting in lower revenue growth and/or higher operating
costs.
-- Potential changes to the electromagnetic spectrum currently
used for broadcast television and satellite distribution being
considered by the FCC could negatively impact WarnerMedia's ability
to deliver linear network feeds of its domestic cable networks to
its affiliates, and in some cases, WarnerMedia's ability to produce
high-value news and entertainment programming on location.
-- U.S. and foreign laws and regulations regarding intellectual
property rights protection and privacy, personal data protection
and user consent are complex and rapidly evolving and could result
in impact to our business plans, increased costs, or claims against
us that may harm our reputation.
-- Our ability to respond to revenue and margin pressures from
increasing competition, including services that use alternative
technologies and/or government-owned or subsidized networks.
-- The ability of our competitors to offer product/service
offerings at lower prices due to lower cost structures and
regulatory and legislative actions adverse to us, including
non-regulation of comparable alternative technologies (e.g., VoIP
and data usage).
-- The continued development and delivery of attractive and
profitable wireless, video and broadband offerings and devices; the
extent to which regulatory and build-out requirements apply to our
offerings; our ability to match speeds offered by our competitors
and the availability, cost and/or reliability of the various
technologies and/or content required to provide such offerings.
-- Our ability to generate advertising revenue from attractive
video content, especially from WarnerMedia, in the face of
unpredictable and rapidly evolving public viewing habits.
-- The availability and cost and our ability to adequately fund
additional wireless spectrum and network upgrades; and regulations
and conditions relating to spectrum use, licensing, obtaining
additional spectrum, technical standards and deployment and usage,
including network management rules.
-- Our ability to manage growth in wireless data services,
including network quality and acquisition of adequate spectrum at
reasonable costs and terms.
-- The outcome of pending, threatened or potential litigation
(which includes arbitrations), including, without limitation,
patent and product safety claims by or against third parties.
-- The impact from major equipment or software failures on our
networks, including satellites operated by DIRECTV; the effect of
security breaches related to the network or customer information;
our inability to obtain handsets, equipment/software or have
handsets, equipment/software serviced in a timely and
cost-effective manner from suppliers; and in the case of satellites
launched, timely provisioning of services from vendors; or severe
weather conditions including flooding and hurricanes, natural
disasters including earthquakes and forest fires, pandemics, energy
shortages, wars or terrorist attacks.
-- The issuance by the Financial Accounting Standards Board or
other accounting oversight bodies of new accounting standards or
changes to existing standards.
-- Our ability to successfully integrate our WarnerMedia
operations, including the ability to manage various businesses in
widely dispersed business locations and with decentralized
management.
-- Our ability to take advantage of the desire of advertisers to
change traditional video advertising models.
-- Our increased exposure to foreign economies, including
foreign exchange fluctuations as well as regulatory and political
uncertainty.
-- Changes in our corporate strategies, such as changing
network-related requirements or acquisitions and dispositions,
which may require significant amounts of cash or stock, to respond
to competition and regulatory, legislative and technological
developments.
-- The uncertainty surrounding further congressional action to
address spending reductions, which may result in a significant
decrease in government spending and reluctance of businesses and
consumers to spend in general.
Readers are cautioned that other factors discussed in this
report, although not enumerated here, also could materially affect
our future earnings.
Item 1A. Risk Factors
We discuss in our Annual Report on Form 10-K various risks that
may materially affect our business. We use this section to update
this discussion to reflect material developments since our Form
10-K was filed. For the first quarter 2019, there were no such
material developments.
Item 2. Unregistered Sales of Equity Securities and
Use of Proceeds
(c) A summary of our repurchases of common stock during the first quarter
of 2019 is as follows:
(a) (b) (c) (d)
Maximum Number
(or Approximate
Total Number Dollar Value)
of Shares (or of Shares (or
Total Number Units) Purchased Units) That May
of Shares (or Average Price as Part of Publicly Yet Be Purchased
Units) Purchased Paid Per Share Announced Plans Under The Plans
Period (1, 2, 3) (or Unit) or Programs(1) or Programs
January 1, 2019
-
January 31, 2019 710,607 $ 30.46 - 375,662,000
February 1, 2019
-
February 28, 2019 3,021,234 30.29 - 375,662,000
March 1, 2019
-
March 31, 2019 3,113,701 30.52 - 375,662,000
Total 6,845,542 $ 30.41 -
===
In March 2014, our Board of Directors approved an additional authorization
(1) to repurchase up to 300 million shares of our common
stock. In March 2013, our Board of Directors authorized the repurchase
of up to an additional 300 million shares of our common stock.
The authorizations have no expiration date.
Of the shares repurchased, 6,237,118 shares were acquired through
(2) the withholding of taxes on the vesting of restricted stock
and performance shares or on the exercise price of options.
Of the shares repurchased, 608,424 shares were acquired through reimbursements
(3) from AT&T maintained Voluntary Employee Benefit
Association (VEBA) trusts.
Item 6. Exhibits
The following exhibits are filed or incorporated
by reference as a part of this report:
Exhibit
Number Exhibit Description
31 Rule 13a-14(a)/15d-14(a) Certifications
31.1 Certification of Principal Executive
Officer
31.2 Certification of Principal Financial
Officer
32 Section 1350 Certifications
101 XBRL Instance Document
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
AT&T Inc.
May 6, 2019 /s/ John J. Stephens
John J. Stephens
Senior Executive Vice President
and Chief Financial Officer
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
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