Item 8.01 Other Events.
Throughout this document, AT&T Inc. is referred to as "we" or "AT&T." AT&T is a
holding company whose subsidiaries and affiliates operate worldwide in the
telecommunications, media and technology industries.
COVID-19 Update
In March 2020, the World Health Organization designated the coronavirus
(COVID-19) a pandemic and the President of the United States declared a national
emergency. To date, COVID-19 has surfaced in nearly all regions around the world
and resulted in travel restrictions and business slowdowns or shutdowns.
Disruptions caused by COVID-19 and measures taken to prevent its spread or
mitigate its effects both domestically and internationally have impacted our
results of operations. In the first quarter of 2020, we recognized approximately
$430 million, or $0.05 per share, of incremental costs associated with bad debt
reserves, voluntary corporate actions taken primarily to protect and compensate
front-line employees and contractors, and WarnerMedia production shutdown costs.
We expect more than half of these incremental charges will be short-term in
nature.
In addition to these incremental costs, our operations and comparability were
impacted by (1) the cancellation of the NCAA Division I Men's Basketball
Tournament, resulting in lower advertising revenues and associated expenses, (2)
closures of retail stores, contributing to a decline in wireless equipment
sales, with a corresponding reduction in equipment expense and (3) the
imposition of travel restrictions, driving significantly lower wireless roaming
services that do not have a directly correlated expense reduction. The net
impact of these items on profitability was not significant.
All subscriber counts at and for the period ended March 31, 2020, exclude
customers who we have agreed not to terminate service under the FCC's "Keep
Americans Connected Pledge." For reporting purposes, we count these subscribers
as if they had disconnected service.
The economic effects of the pandemic and resulting societal changes are
currently not predictable. We expect that COVID-19 could affect additional areas
of our business in future quarters and that the financial impacts could vary
from those seen in the first quarter. There are a number of uncertainties that
could impact our future results of operations, including the effectiveness of
COVID-19 mitigation measures; the duration of the pandemic; global economic
conditions; changes to our operations; changes in consumer confidence, behaviors
and spending; work from home trends; and the sustainability of supply chains.
Overview
We announced on April 22, 2020 that first-quarter 2020 net income attributable
to common stock totaled $4.6 billion, or $0.63 per diluted share, compared to
$4.1 billion, or $0.56 per diluted share, in the first quarter of 2019.
First-quarter 2020 revenues were $42.8 billion, down 4.6 percent from the first
quarter of 2019, primarily due to declines at WarnerMedia reflecting strong
theatrical carryover revenues in the first quarter of 2019, continued declines
in video subscriptions and legacy services, lower wireless equipment sales
resulting from store closures and declines at Vrio from foreign exchange
impacts. Partially offsetting these declines was growth in wireless service
revenues and strategic and managed business services. Compared with results for
the first quarter of 2019, current quarter operating expenses were $35.3
billion, down 6.1 percent, primarily due to a one-time gain on a spectrum
transaction, lower costs of revenues at our Entertainment Group business unit
and WarnerMedia segment, lower wireless equipment costs resulting from lower
device sales and cost efficiencies. First-quarter operating income was
$7.5 billion compared to $7.2 billion in the comparable 2019 period, and AT&T's
first-quarter operating income margin was 17.5 percent, compared to
16.1 percent.
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First-quarter 2020 cash from operating activities was $8.9 billion, down $2.2
billion when compared to 2019, driven by WarnerMedia profits, including
increased HBO Max investments and higher Warner Bros. production spend; lower
incremental receivable securitization; and working capital pressures,
specifically lower business collections late in the quarter as customers
extended their payment cycles, presumably in response to the economic challenges
of the pandemic. Capital expenditures in the first quarter of 2020 were $5.0
billion, and when including approximately $790 million cash paid for vendor
financing, with no significant FirstNet reimbursements, gross capital investment
was $5.8 billion.
Segment Summary
We analyze our segments based on, among other things, segment contribution,
which consists of operating income, excluding acquisition-related costs and
other significant items, and equity in net income (loss) of affiliates for
investments managed within each segment. Our reportable segments are:
Communications, WarnerMedia, Latin America and Xandr.
Communications
Our Communications segment consists of our Mobility, Entertainment Group and
Business Wireline business units.
First-quarter 2020 operating revenues were $34.2 billion, down 2.6 percent
versus first-quarter 2019, with segment operating contribution of $8.2 billion,
up 2.4 percent versus the year-ago quarter. The Communications segment operating
income margin was 24.0 percent, compared to 22.8 percent in the year-earlier
quarter.
Mobility
Mobility revenues for the first quarter of 2020 were $17.4 billion, up 0.2
percent versus the first quarter of 2019, driven by higher service revenues
resulting from prepaid subscriber gains and postpaid phone average revenue per
subscriber (ARPU) growth, partially offset by decreased equipment revenues with
lower handset upgrade rates including impacts from store closures related to
COVID-19. Mobility operating expenses totaled $11.6 billion, down 3.7 percent
versus the first quarter of 2019. The decrease was driven by lower postpaid
upgrade rates, less advertising costs and continued cost efficiencies, partially
offset by higher bad debt. Mobility's operating income margin was 33.3 percent
compared to 30.6 percent in the year-ago quarter.
In our Mobility business unit, during the first quarter of 2020, we reported a
net gain of 3.3 million wireless subscribers. At March 31, 2020, wireless
subscribers totaled 169.2 million (including more than 1.3 million FirstNet
connections) compared to 154.7 million at March 31, 2019.
During the first quarter, total phone net adds were 120,000, with total net adds
by subscriber category as follows:
• Postpaid subscriber net adds were 27,000, with phone net adds of 163,000
offsetting losses from tablets.
• Prepaid subscriber net adds were a loss of 45,000, with phone net losses of
43,000.
• Reseller net losses were 190,000.
• Connected device net adds were 3.5 million, 2.5 million of which were primarily
attributable to wholesale connected cars.
For the quarter ended March 31, 2020, postpaid phone-only ARPU increased 0.7
percent versus the year-earlier quarter.
Postpaid phone-only churn was 0.86 percent, compared to 0.92 percent in the
first quarter of 2019. Total postpaid churn was 1.08 percent, compared to 1.16
percent in the year-ago quarter.
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Entertainment Group
Entertainment Group (Entertainment) revenues for the first quarter of 2020 were
$10.5 billion, down 7.2 percent versus the year-ago quarter, reflecting
continuing declines in video subscribers and legacy services that were partially
offset by higher broadband revenues. Entertainment operating expenses totaled
$9.2 billion, down 6.8 percent versus the first quarter of 2019. The decrease
was largely driven by lower content costs from fewer subscribers and ongoing
cost initiatives, partially offset by higher amortization of fulfillment cost
deferrals. Entertainment operating income margin was 12.7 percent compared to
13.0 percent in the year-earlier quarter.
At March 31, 2020, Entertainment revenue connections included:
• Approximately 19.4 million video connections (including 788,000 AT&T TV Now
subscribers) at March 31, 2020 compared to 23.9 million at March 31, 2019.
During the first quarter of 2020, premium TV video subscribers, which includes
AT&T TV, had a net loss of 897,000. AT&T TV NOW, our over-the-top video
service, subscribers had a net loss of 138,000.
• Approximately 14.0 million broadband connections at March 31, 2020 compared to
14.5 million at March 31, 2019. During the first quarter, IP broadband
subscribers had a net loss of 44,000 (including fiber broadband net adds of
209,000), with 13.6 million subscribers at March 31, 2020.
Business Wireline
Business Wireline (Business) revenues for the first quarter of 2020 were $6.3
billion, down 2.3 percent versus the year-ago quarter, reflecting continued
declines in legacy services, partially offset by growth in strategic and managed
services. Business operating expenses totaled $5.3 billion, flat when compared
to the first quarter of 2019. Business operating income margin was 17.1 percent
compared to 18.9 percent in the year-earlier quarter.
At March 31, 2020, our total switched access lines (Entertainment and Business)
were 8.2 million compared to 9.6 million at March 31, 2019. The number of
U-verse voice connections (which use VoIP technology and therefore are not
included in the access line total) decreased by 156,000 in the quarter, totaling
4.2 million at March 31, 2020, compared to 4.9 million at March 31, 2019.
WarnerMedia
Our WarnerMedia segment consists of our Turner, HBO and Warner Bros. business
units. First-quarter 2020 operating revenues were $7.4 billion, down 12.2
percent versus first-quarter 2019, with segment operating contribution of $1.7
billion, down 25.8 percent versus the year-ago quarter. The WarnerMedia segment
operating income margin was 23.1 percent, compared to 26.8 percent in the
year-earlier quarter.
Turner
Turner revenues for the first quarter of 2020 were $3.2 billion, down 8.2
percent versus the first quarter of 2019, driven by lower advertising revenues
primarily from the cancellation of the NCAA Division I Men's Basketball
Tournament. Partially offsetting the advertising revenue decline was increased
subscription revenues, reflecting higher domestic affiliate rates partially
offset by unfavorable foreign exchange rates. Turner operating expenses totaled
$1.8 billion, down 19.0 percent versus the first quarter of 2019, driven by
lower programming and marketing expenses. Turner operating income margin was
43.7 percent compared to 36.2 percent in the year-earlier quarter.
HBO
HBO revenues for the first quarter of 2020 were $1.5 billion, down 0.9 percent
versus the first quarter of 2019, driven by a decrease in content and other
revenues resulting from lower content licensing. Subscription revenues were
essentially flat, reflecting higher digital and international growth, partially
offset by lower domestic linear subscribers. HBO operating expenses totaled $1.1
billion, up 13.9 percent versus the first quarter of 2019, driven by increased
programming expenses related to the upcoming launch of HBO Max, partially offset
by lower marketing expenses. HBO operating income margin was 28.3 percent
compared to 37.5 percent in the year-earlier quarter.
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Warner Bros.
Warner Bros. revenues for the first quarter of 2020 were $3.2 billion, down 7.9
percent versus the first quarter of 2019, driven by unfavorable comparisons to
the prior comparable period, which included, in 2019, carryover revenues from
the theatrical release of Aquaman, in addition to a more favorable mix of home
entertainment releases, and lower initial telecast revenues resulting from
COVID-19 related television production delays. Warner Bros. operating expenses
totaled $3.0 billion, up 0.7 percent versus the first quarter of 2019, due in
part, to higher bad debt reserves. Warner Bros. operating income margin was 7.7
percent compared to 15.5 percent in the year-earlier quarter.
Latin America
Our Latin America segment consists of our Mexico and Vrio business units and is
subject to foreign currency fluctuations. First-quarter 2020 operating revenues
were $1.6 billion, down 7.5 percent versus the prior year. Segment operating
contribution was $(184) million, versus $(173) million in the comparable 2019
period. Both operating revenue and segment contribution declines were driven by
foreign exchange pressures. The Latin America operating income margin was (11.8)
percent, compared to (10.1) percent in the year-earlier quarter.
Mexico
Wireless revenues were $703 million, up 8.0 percent when compared to the first
quarter of 2019. Increased revenues were primarily due to increased service
revenue from prepaid subscriber growth. Operating expenses were $848 million,
down 0.9 percent and Mexico's operating income margin was (20.6) percent,
compared to (31.5) percent in the year-earlier quarter.
We had approximately 19.2 million Mexican wireless subscribers at March 31, 2020
compared to 17.7 million at March 31, 2019. During the first quarter of 2020, we
had prepaid net adds of 108,000 and postpaid net losses of 141,000.
Vrio
Video service revenues were $887 million, down 16.9 percent versus the prior
year. Operating expenses were $930 million, down 10.1 percent. Both operating
revenue and expense declines were driven by foreign exchange pressures. Vrio's
operating income margin was (4.8) percent, compared to 3.0 percent in the
year-earlier quarter.
We had approximately 13.2 million Latin America video connections at March 31,
2020 compared to 13.6 million at March 31, 2019. During the first quarter of
2020, video net losses were 114,000.
Xandr
Our Xandr segment provides advertising services utilizing data insights to
develop higher-value targeted advertising. Certain revenues in this segment are
also reported by the Communications segment and are eliminated upon
consolidation. First-quarter 2020 operating revenues were $489 million, up 14.8
percent versus the prior year. Operating expenses were $190 million, up 9.8
percent due to investment in new technology and the development of our data
advertising platform. Xandr segment operating contribution was $299 million, up
18.2 percent versus first-quarter 2019. The Xandr segment operating income
margin was 61.1 percent, compared to 59.4 percent in the year-earlier quarter.
. . .
Item 9.01 Financial Statements and Exhibits.
The following exhibits are filed as part of this report:
(d) Exhibits
99.1 AT&T Inc. selected financial statements and operating data.
99.2 Discussion and reconciliation of non-GAAP measures.
104 Cover Page Interactive Data File (embedded within the Inline XBRL document)
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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 hereunto duly authorized.
AT&T INC.
Date: April 22, 2020 By: /s/ Debra L. Dial .
Debra L. Dial
Senior Vice President and Controller
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AT&T INC. 
