UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| (Mark One) |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
or
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| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from to
Commission File Number
Incorporated under the laws of the State of
I.R.S. Employer Identification Number
Telephone Number: (
Securities registered pursuant to Section 12(b) of the Act
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| Name of each exchange |
Title of each class | Trading Symbol(s) | on which registered |
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| Name of each exchange |
Title of each class | Trading Symbol(s) | on which registered |
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.
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).
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.
[X] |
| Accelerated Filer | [ ] | |
Non-accelerated filer | [ ] |
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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 [ ]
At October 31, 2019, there were
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
AT&T INC. | |||||||||||
CONSOLIDATED STATEMENTS OF INCOME | |||||||||||
Dollars in millions except per share amounts | |||||||||||
(Unaudited) | |||||||||||
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Operating Revenues |
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Service | $ |
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Equipment |
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Total operating revenues |
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Operating Expenses |
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Cost of revenues |
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Equipment |
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Broadcast, programming and operations |
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Other cost of revenues (exclusive of depreciation and amortization shown separately below) |
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Selling, general and administrative |
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Depreciation and amortization |
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Total operating expenses |
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Operating Income |
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Other Income (Expense) |
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Interest expense |
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Equity in net income (loss) of affiliates |
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Other income (expense) – net |
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Total other income (expense) |
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Income Before Income Taxes |
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Income tax expense |
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Net Income |
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Less: Net Income Attributable to Noncontrolling Interest |
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Net Income Attributable to AT&T | $ |
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Basic Earnings Per Share Attributable to AT&T | $ |
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Diluted Earnings Per Share Attributable to AT&T | $ |
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Weighted Average Number of Common Shares Outstanding – Basic (in millions) |
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Weighted Average Number of Common Shares Outstanding – with Dilution (in millions) |
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See Notes to Consolidated Financial Statements. |
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3
AT&T INC. |
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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME |
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Dollars in millions |
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(Unaudited) |
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| September 30, |
| September 30, | ||||||||
| 2019 |
| 2018 |
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| 2018 | ||||
Net income | $ |
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Other comprehensive income (loss), net of tax: |
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Foreign currency: |
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Translation adjustment (includes $( |
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attributable to noncontrolling interest), net of taxes of |
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$( |
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Securities: |
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Net unrealized gains (losses), net of taxes of $ |
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and $( |
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Derivative instruments: |
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Net unrealized gains (losses), net of taxes of $( |
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$( |
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Reclassification adjustment included in net income, |
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net of taxes of $ |
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Defined benefit postretirement plans: |
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Net prior service (cost) credit arising during period, net of taxes of $ |
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Amortization of net prior service credit included in net |
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income, net of taxes of $( |
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and $( |
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Other comprehensive income (loss) |
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Total comprehensive income |
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Less: Total comprehensive income attributable to |
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noncontrolling interest |
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Total Comprehensive Income Attributable to AT&T | $ |
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See Notes to Consolidated Financial Statements. |
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4
AT&T INC. | |||||
CONSOLIDATED BALANCE SHEETS | |||||
Dollars in millions except per share amounts | |||||
| September 30, |
| December 31, | ||
| 2019 |
| 2018 | ||
Assets | (Unaudited) |
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Current Assets |
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Cash and cash equivalents | $ |
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Accounts receivable - net of allowances for doubtful accounts of $ |
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Prepaid expenses |
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Other current assets |
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Total current assets |
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Noncurrent Inventories and Theatrical Film and Television Production Costs |
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Property, plant and equipment |
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Less: accumulated depreciation and amortization |
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Property, Plant and Equipment – Net |
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Goodwill |
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Licenses – Net |
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Trademarks and Trade Names – Net |
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Distribution Networks – Net |
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Other Intangible Assets – Net |
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Investments in and Advances to Equity Affiliates |
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Operating lease right-of-use assets |
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Other Assets |
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Total Assets | $ |
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Liabilities and Stockholders’ Equity |
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Current Liabilities |
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Debt maturing within one year | $ |
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Accounts payable and accrued liabilities |
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Advanced billings and customer deposits |
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Accrued taxes |
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Dividends payable |
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Total current liabilities |
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Long-Term Debt |
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Deferred Credits and Other Noncurrent Liabilities |
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Deferred income taxes |
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Postemployment benefit obligation |
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Operating lease liabilities |
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Other noncurrent liabilities |
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Total deferred credits and other noncurrent liabilities |
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Stockholders’ Equity |
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Common stock ($ |
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December 31, 2018: issued |
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Additional paid-in capital |
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Retained earnings |
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Treasury stock ( |
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at cost) |
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Accumulated other comprehensive income |
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Noncontrolling interest |
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Total stockholders’ equity |
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Total Liabilities and Stockholders’ Equity | $ |
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See Notes to Consolidated Financial Statements. |
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5
AT&T INC. | |||||
CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||
Dollars in millions | |||||
(Unaudited) |
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| September 30, | ||||
| 2019 |
| 2018 | ||
Operating Activities |
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Net income | $ |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization |
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Amortization of television and film costs |
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Undistributed earnings from investments in equity affiliates |
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Provision for uncollectible accounts |
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Deferred income tax expense |
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Net (gain) loss from investments, net of impairments |
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Pension and postretirement benefit expense (credit) |
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Actuarial (gain) loss on pension and postretirement benefits |
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Changes in operating assets and liabilities: |
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Receivables |
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Other current assets, inventories and theatrical film and television production costs |
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Accounts payable and other accrued liabilities |
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Equipment installment receivables and related sales |
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Deferred customer contract acquisition and fulfillment costs |
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Postretirement claims and contributions |
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Other - net |
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Total adjustments |
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Net Cash Provided by Operating Activities |
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Investing Activities |
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Capital expenditures: |
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Purchase of property and equipment |
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Interest during construction |
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Acquisitions, net of cash acquired |
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Dispositions |
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(Purchases), sales and settlements of securities and investments, net |
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Advances to and investments in equity affiliates, net |
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Cash collections of deferred purchase price |
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Net Cash Used in Investing Activities |
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Financing Activities |
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Net change in short-term borrowings with original maturities of three months or less |
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Issuance of other short-term borrowings |
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Repayment of other short-term borrowings |
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Issuance of long-term debt |
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Repayment of long-term debt |
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Payment of vendor financing |
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Purchase of treasury stock |
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Issuance of treasury stock |
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Issuance of preferred interests in subsidiary |
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Dividends paid |
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Other |
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Net Cash Used in Financing Activities |
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Net increase (decrease) in cash and cash equivalents and restricted cash |
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Cash and cash equivalents and restricted cash beginning of year |
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Cash and Cash Equivalents and Restricted Cash End of Period | $ |
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See Notes to Consolidated Financial Statements. |
6
AT&T INC. |
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CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY | |||||||||||||||||||
Dollars and shares in millions except per share amounts |
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(Unaudited) |
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| Three months ended |
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| September 30, 2018 |
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| Shares |
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Common Stock |
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Balance at beginning of period |
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Issuance of stock |
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Balance at end of period |
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Additional Paid-In Capital |
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Balance at beginning of period |
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Issuance of common stock |
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Issuance of treasury stock |
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Share-based payments |
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Balance at end of period |
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Retained Earnings |
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Balance at beginning of period |
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Net income attributable to AT&T ($ |
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$ |
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Dividends to stockholders ($ |
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$ |
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Cumulative effect of accounting changes |
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Balance at end of period |
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Treasury Stock |
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Balance at beginning of period | ( |
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Repurchase and acquisition of common stock | ( |
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Issuance of treasury stock |
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Balance at end of period | ( |
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See Notes to Consolidated Financial Statements. |
7
AT&T INC. |
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CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY - continued | |||||||||||||||||||
Dollars and shares in millions except per share amounts |
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(Unaudited) |
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| Three months ended |
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| September 30, 2018 |
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| Shares |
| Amount |
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| Shares |
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Accumulated Other Comprehensive |
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Income Attributable to AT&T, net of tax |
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Balance at beginning of period |
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Other comprehensive income |
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attributable to AT&T |
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Amounts reclassified to retained earnings |
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Balance at end of period |
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Noncontrolling Interest |
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Balance at beginning of period |
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Net income attributable to |
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noncontrolling interest |
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Interest acquired by noncontrolling owners |
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Acquisition of noncontrolling interest |
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Acquisition of interests held by |
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noncontrolling owners |
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| ( |
|
|
|
|
|
|
|
| ( | ||
Distributions |
|
|
| ( |
|
|
|
| ( |
|
|
|
| ( |
|
|
|
| ( |
Translation adjustments attributable to |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
noncontrolling interest, net of taxes |
|
|
| ( |
|
|
|
| ( |
|
|
|
| ( |
|
|
|
| ( |
Cumulative effect of accounting changes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Balance at end of period |
|
| $ |
|
|
| $ |
|
|
| $ |
|
|
| $ | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Stockholders’ Equity at beginning |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of period |
|
| $ |
|
|
| $ |
|
|
| $ |
|
|
| $ | ||||
Total Stockholders’ Equity at end |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of period |
|
| $ |
|
|
| $ |
|
|
| $ |
|
|
| $ | ||||
See Notes to Consolidated Financial Statements. |
8
AT&T INC.
SEPTEMBER 30, 2019
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Dollars in millions except per share amounts
NOTE 1. PREPARATION OF INTERIM FINANCIAL STATEMENTS
Basis of Presentation Throughout this document, AT&T Inc. is referred to as “we,” “AT&T” or the “Company.” The consolidated financial statements include the accounts of the Company and subsidiaries and affiliates which we control, including the operating results of Warner Media, LLC (referred to as “Time Warner” or “WarnerMedia”), which was acquired on
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
The key change upon adoption of the standard was balance sheet recognition, given that the recognition of lease expense on our income statement is similar to our historical accounting. Using the modified retrospective transition method of adoption, we did not adjust the balance sheet for comparative periods but recorded a cumulative effect adjustment to retained earnings on January 1, 2019. We elected the package of practical expedients permitted under the transition guidance within the new standard, which, among other things, allowed us to carry forward our historical lease classification. We also elected the practical expedient related to land easements, allowing us to carry forward our accounting treatment for land easements on existing agreements that were not accounted for as leases. We excluded 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 $ 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 $
9
AT&T INC.
SEPTEMBER 30, 2019
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
Recently Issued Accounting Standards
10
AT&T INC.
SEPTEMBER 30, 2019
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
NOTE 2. EARNINGS PER SHARE
A reconciliation of the numerators and denominators of basic and diluted earnings per share for the three months and nine months ended September 30, 2019 and 2018, is shown in the table below:
| Three months ended |
| Nine months ended | ||||||||
| September 30, |
| September 30, | ||||||||
| 2019 |
| 2018 |
| 2019 |
| 2018 | ||||
Numerators |
|
|
|
|
|
|
|
|
|
|
|
Numerator for basic earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
Net Income | $ |
| $ |
| $ |
| $ | ||||
Less: Net income attributable to noncontrolling interest |
| ( |
|
| ( |
|
| ( |
|
| ( |
Net Income attributable to AT&T |
|
|
|
|
|
|
| ||||
Dilutive potential common shares: |
|
|
|
|
|
|
|
|
|
|
|
Share-based payment |
|
|
|
|
|
|
| ||||
Numerator for diluted earnings per share | $ |
| $ |
| $ |
| $ | ||||
Denominators (000,000) |
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding |
|
|
|
|
|
|
| ||||
Dilutive potential common shares: |
|
|
|
|
|
|
|
|
|
|
|
Share-based payment (in shares) |
|
|
|
|
|
|
| ||||
Denominator for diluted earnings per share |
|
|
|
|
|
|
| ||||
Basic earnings per share attributable to AT&T | $ |
| $ |
| $ |
| $ | ||||
Diluted earnings per share attributable to AT&T | $ |
| $ |
| $ |
| $ |
11
AT&T INC.
SEPTEMBER 30, 2019
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
NOTE 3. OTHER COMPREHENSIVE INCOME
Changes in the balances of each component included in accumulated OCI are presented below. All amounts are net of tax and exclude noncontrolling interest.
|
| Foreign Currency Translation Adjustment |
| Net Unrealized Gains (Losses) on Securities |
| Net Unrealized Gains (Losses) on Derivative Instruments |
| Defined Benefit Postretirement Plans |
| Accumulated Other Comprehensive Income | |||||
Balance as of December 31, 2018 | $ | ( |
| $ | ( |
| $ |
| $ |
| $ | ||||
Other comprehensive income (loss) before reclassifications |
| ( |
|
|
|
| ( |
|
|
|
| ( | |||
Amounts reclassified from accumulated OCI |
|
|
|
|
| 1 |
| ( | 2 |
| ( | ||||
Net other comprehensive income (loss) |
| ( |
|
|
|
| ( |
|
| ( |
|
| ( | ||
Balance as of September 30, 2019 | $ | ( |
| $ |
| $ | ( |
| $ |
| $ | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Foreign Currency Translation Adjustment |
| Net Unrealized Gains (Losses) on Securities |
| Net Unrealized Gains (Losses) on Derivative Instruments |
| Defined Benefit Postretirement Plans |
| Accumulated Other Comprehensive Income | |||||
Balance as of December 31, 2017 | $ | ( |
| $ |
| $ |
| $ |
| $ | |||||
Other comprehensive income (loss) before reclassifications |
| ( |
|
| ( |
|
|
|
|
|
| ( | |||
Amounts reclassified from accumulated OCI |
|
|
|
|
| 1 |
| ( | 2 |
| ( | ||||
Net other comprehensive income (loss) |
| ( |
|
| ( |
|
|
|
| ( |
|
| ( | ||
Amounts reclassified to retained earnings |
|
|
| ( | 3 |
|
|
|
|
| ( | ||||
Balance as of September 30, 2018 | $ | ( |
| $ | ( |
| $ |
| $ |
| $ | ||||
1 | |||||||||||||||
2 | The amortization of prior service credits associated with postretirement benefits are included in Other income (expense) in the consolidated statements of income (see Note 6). | ||||||||||||||
3 | With the adoption of ASU 2016-01, "Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Liabilities," the unrealized (gains) losses on our equity investments are reclassified to retained earnings. |
12
AT&T INC.
SEPTEMBER 30, 2019
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
NOTE 4. SEGMENT INFORMATION
Our segments are strategic business units that offer products and services to different customer segments over various technology platforms and/or in different geographies that are managed accordingly. We analyze our segments based on segment operating contribution, which consists of operating income, excluding acquisition-related costs and other significant items (as discussed below), and equity in net income (loss) of affiliates for investments managed within each segment. We have
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.
We have recast our segment results for all prior periods to exclude our wireless and wireline operations in Puerto Rico and the U.S. Virgin Islands from our Mobility and Business Wireline business units of the Communications segment, instead reporting them with Corporate and Other. (See Note 8)
The Communications segment provides wireless and wireline telecom, video and broadband services to consumers located in the U.S. and businesses globally. This segment contains the following business units:
Mobility provides nationwide wireless service and equipment.
Entertainment Group provides video, including over-the-top (OTT) services, broadband and voice communications services primarily to residential customers. This segment also sells advertising on 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
Turner primarily operates multichannel basic television networks and digital properties. Turner also sells advertising on its networks and digital properties.
Home Box Office consists of premium pay television and OTT services domestically and premium pay, basic tier television and OTT services internationally, as well as content licensing and home entertainment.
Warner Bros. consists of the production, distribution and licensing of television programming and feature films, the distribution of home entertainment products and the production and distribution of games.
The Latin America segment provides entertainment and wireless services outside of the U.S. This segment contains the following business units:
Mexico provides wireless service and equipment to customers in Mexico.
Vrio provides video services primarily to residential customers using satellite technology in Latin America and the Caribbean.
The Xandr segment provides advertising services and includes AppNexus, an advertising technology company we acquired in . Xandr services utilize data insights to develop and deliver targeted advertising across video and digital platforms. Certain revenues in this segment are also reported by the Communications segment and are eliminated upon consolidation.
13
AT&T INC.
SEPTEMBER 30, 2019
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
Corporate and Other reconcile our segment results to consolidated operating income and income before income taxes, and include:
Corporate, which consists of: (1) businesses no longer integral to our operations or which we no longer actively market, (2) corporate support functions, (3) impacts of corporate-wide decisions for which the individual operating segments are not being evaluated, (4) the reclassification of the amortization of prior service credits, which we continue to report with segment operating expenses, to consolidated other income (expense) – net and (5) the recharacterization of programming intangible asset amortization, for released programming acquired in the Time Warner acquisition, which we continue to report within WarnerMedia segment operating expense, to consolidated amortization expense. The programming and intangible asset amortization reclass was $
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 network 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.
14
AT&T INC.
SEPTEMBER 30, 2019
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
For the three months ended September 30, 2019 | ||||||||||||||||||||
|
| Revenues |
|
| Operations and Support Expenses |
|
| EBITDA |
|
| Depreciation and Amortization |
|
| Operating Income (Loss) |
|
| Equity in Net Income (Loss) of Affiliates |
|
| Segment Contribution |
Communications |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobility | $ |
| $ |
| $ |
| $ |
| $ |
| $ |
| $ | |||||||
Entertainment Group |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Business Wireline |
|
|
|
|
|
|
|
|
|
|
| ( |
|
| ||||||
Total Communications |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
WarnerMedia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Turner |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Home Box Office |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Warner Bros. |
|
|
|
|
|
|
|
|
|
|
| ( |
|
| ||||||
Eliminations and other |
| ( |
|
| ( |
|
| ( |
|
|
|
| ( |
|
|
|
| ( | ||
Total WarnerMedia |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Latin America |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vrio |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Mexico |
|
|
|
|
| ( |
|
|
|
| ( |
|
|
|
| ( | ||||
Total Latin America |
|
|
|
|
|
|
|
|
| ( |
|
|
|
| ( | |||||
Xandr |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Segment Total |
|
|
|
|
|
|
|
|
|
| $ |
| $ | |||||||
Corporate and Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate |
|
|
|
|
| ( |
|
|
|
| ( |
|
|
|
|
|
| |||
Acquisition-related items |
|
|
|
|
| ( |
|
|
|
| ( |
|
|
|
|
|
| |||
Certain significant items |
|
|
|
|
| ( |
|
|
|
| ( |
|
|
|
|
|
| |||
Eliminations and consolidations |
| ( |
|
| ( |
|
| ( |
|
|
|
| ( |
|
|
|
|
|
| |
AT&T Inc. | $ |
| $ |
| $ |
| $ |
| $ |
|
|
|
|
|
|
15
AT&T INC.
SEPTEMBER 30, 2019
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
For the three months ended September 30, 2018 | ||||||||||||||||||||
|
| Revenues |
|
| Operations and Support Expenses |
|
| EBITDA |
|
| Depreciation and Amortization |
|
| Operating Income (Loss) |
|
| Equity in Net Income (Loss) of Affiliates |
|
| Segment Contribution |
Communications |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobility | $ |
| $ |
| $ |
| $ |
| $ |
| $ |
| $ | |||||||
Entertainment Group |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Business Wireline |
|
|
|
|
|
|
|
|
|
|
| ( |
|
| ||||||
Total Communications |
|
|
|
|
|
|
|
|
|
|
| ( |
|
| ||||||
WarnerMedia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Turner |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Home Box Office |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Warner Bros. |
|
|
|
|
|
|
|
|
|
|
| ( |
|
| ||||||
Eliminations and other |
| ( |
|
| ( |
|
| ( |
|
|
|
| ( |
|
| ( |
|
| ( | |
Total WarnerMedia |
|
|
|
|
|
|
|
|
|
|
| ( |
|
| ||||||
Latin America |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vrio |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Mexico |
|
|
|
|
| ( |
|
|
|
| ( |
|
|
|
| ( | ||||
Total Latin America |
|
|
|
|
|
|
|
|
| ( |
|
|
|
| ( | |||||
Xandr |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Segment Total |
|
|
|
|
|
|
|
|
|
| $ | ( |
| $ | ||||||
Corporate and Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate |
|
|
|
|
|
|
|
|
| ( |
|
|
|
|
|
| ||||
Acquisition-related items |
|
|
|
|
| ( |
|
|
|
| ( |
|
|
|
|
|
| |||
Certain significant items |
|
|
|
|
| ( |
|
|
|
| ( |
|
|
|
|
|
| |||
Eliminations and consolidations |
| ( |
|
| ( |
|
| ( |
|
| ( |
|
| ( |
|
|
|
|
|
|
AT&T Inc. | $ |
| $ |
| $ |
| $ |
| $ |
|
|
|
|
|
|
16
AT&T INC.
SEPTEMBER 30, 2019
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
For the nine months ended September 30, 2019 | ||||||||||||||||||||
|
| Revenues |
|
| Operations and Support Expenses |
|
| EBITDA |
|
| Depreciation and Amortization |
|
| Operating Income (Loss) |
|
| Equity in Net Income (Loss) of Affiliates |
|
| Segment Contribution |
Communications |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobility | $ |
| $ |
| $ |
| $ |
| $ |
| $ | ( |
| $ | ||||||
Entertainment Group |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Business Wireline |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Total Communications |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
WarnerMedia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Turner |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Home Box Office |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Warner Bros. |
|
|
|
|
|
|
|
|
|
|
| ( |
|
| ||||||
Eliminations and other |
| ( |
|
| ( |
|
| ( |
|
|
|
| ( |
|
|
|
| ( | ||
Total WarnerMedia |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Latin America |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vrio |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Mexico |
|
|
|
|
| ( |
|
|
|
| ( |
|
|
|
| ( | ||||
Total Latin America |
|
|
|
|
|
|
|
|
| ( |
|
|
|
| ( | |||||
Xandr |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Segment Total |
|
|
|
|
|
|
|
|
|
| $ |
| $ | |||||||
Corporate and Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate |
|
|
|
|
| ( |
|
|
|
| ( |
|
|
|
|
|
| |||
Acquisition-related items |
| ( |
|
|
|
| ( |
|
|
|
| ( |
|
|
|
|
|
| ||
Certain significant items |
|
|
|
|
| ( |
|
|
|
| ( |
|
|
|
|
|
| |||
Eliminations and consolidations |
| ( |
|
| ( |
|
| ( |
|
| ( |
|
| ( |
|
|
|
|
|
|
AT&T Inc. | $ |
| $ |
| $ |
| $ |
| $ |
|
|
|
|
|
|
17
AT&T INC.
SEPTEMBER 30, 2019
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
For the nine months ended September 30, 2018 | ||||||||||||||||||||
|
| Revenues |
|
| Operations and Support Expenses |
|
| EBITDA |
|
| Depreciation and Amortization |
|
| Operating Income (Loss) |
|
| Equity in Net Income (Loss) of Affiliates |
|
| Segment Contribution |
Communications |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobility | $ |
| $ |
| $ |
| $ |
| $ |
| $ |
| $ | |||||||
Entertainment Group |
|
|
|
|
|
|
|
|
|
|
| ( |
|
| ||||||
Business Wireline |
|
|
|
|
|
|
|
|
|
|
| ( |
|
| ||||||
Total Communications |
|
|
|
|
|
|
|
|
|
|
| ( |
|
| ||||||
WarnerMedia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Turner |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Home Box Office |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Warner Bros. |
|
|
|
|
|
|
|
|
|
|
| ( |
|
| ||||||
Eliminations and other |
| ( |
|
| ( |
|
| ( |
|
|
|
| ( |
|
| ( |
|
| ( | |
Total WarnerMedia |
|
|
|
|
|
|
|
|
|
|
| ( |
|
| ||||||
Latin America |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vrio |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Mexico |
|
|
|
|
| ( |
|
|
|
| ( |
|
|
|
| ( | ||||
Total Latin America |
|
|
|
|
|
|
|
|
| ( |
|
|
|
| ( | |||||
Xandr |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Segment Total |
|
|
|
|
|
|
|
|
|
| $ | ( |
| $ | ||||||
Corporate and Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate |
|
|
|
|
| ( |
|
|
|
| ( |
|
|
|
|
|
| |||
Acquisition-related items |
|
|
|
|
| ( |
|
|
|
| ( |
|
|
|
|
|
| |||
Certain significant items |
|
|
|
|
| ( |
|
|
|
| ( |
|
|
|
|
|
| |||
Eliminations and consolidations |
| ( |
|
| ( |
|
| ( |
|
| ( |
|
| ( |
|
|
|
|
|
|
AT&T Inc. | $ |
| $ |
| $ |
| $ |
| $ |
|
|
|
|
|
|
18
AT&T INC.
SEPTEMBER 30, 2019
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
|
| Three months ended September 30, |
|
| Nine months ended September 30, | ||||||
|
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
Communications | $ |
| $ |
| $ |
| $ | ||||
WarnerMedia |
|
|
|
|
|
|
| ||||
Latin America |
| ( |
|
| ( |
|
| ( |
|
| ( |
Xandr |
|
|
|
|
|
|
| ||||
Segment Contribution |
|
|
|
|
|
|
| ||||
Reconciling Items: |
|
|
|
|
|
|
|
|
|
|
|
Corporate and Other |
| ( |
|
| ( |
|
| ( |
|
| ( |
Merger and integration items |
| ( |
|
| ( |
|
| ( |
|
| ( |
Amortization of intangibles acquired |
| ( |
|
| ( |
|
| ( |
|
| ( |
Employee separation charges |
| ( |
|
| ( |
|
| ( |
|
| ( |
Natural disaster items |
|
|
|
|
|
|
| ( | |||
Segment equity in net income of affiliates |
| ( |
|
|
|
| ( |
|
| ||
Eliminations and consolidations |
| ( |
|
| ( |
|
| ( |
|
| ( |
AT&T Operating Income |
|
|
|
|
|
|
| ||||
Interest Expense |
| ( |
|
| ( |
|
| ( |
|
| ( |
Equity in net income (loss) of affiliates |
|
|
| ( |
|
|
|
| ( | ||
Other income (expense) - net |
| ( |
|
|
|
| ( |
|
| ||
Income Before Income Taxes | $ |
| $ |
| $ |
| $ |
Intersegment Revenue Reconciliation |
|
|
|
|
|
|
|
|
|
|
| Three months ended September 30, | Nine months ended September 30, | ||||||||
| 2019 |
| 2018 | 2019 |
|
| 2018 | |||
Intersegment revenues |
|
|
|
|
|
|
|
|
|
|
Communications | $ |
| $ | $ |
| $ | ||||
WarnerMedia |
|
|
|
|
|
| ||||
Latin America |
|
|
|
|
|
| ||||
Xandr |
|
|
|
|
|
| ||||
Total Intersegment Revenues |
|
|
|
|
|
| ||||
Consolidations |
|
|
|
|
|
| ||||
Eliminations and consolidations | $ |
| $ | $ |
| $ |
19
AT&T INC.
SEPTEMBER 30, 2019
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
Revenue Categories | ||||||||||||||||||||||||||
The following tables set forth reported revenue by category and by business unit: | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended September 30, 2019 | ||||||||||||||||||||||||||
| Service Revenues |
|
|
|
|
|
| |||||||||||||||||||
|
| Wireless |
|
| Advanced Data |
|
| Legacy Voice & Data |
|
| Subscription |
|
| Content |
|
| Advertising |
|
| Other |
|
| Equipment |
|
| Total |
Communications |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobility | $ |
| $ |
| $ |
| $ |
| $ |
| $ |
| $ |
| $ |
| $ | |||||||||
Entertainment Group |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Business Wireline |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
WarnerMedia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Turner |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Home Box Office |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Warner Bros. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Eliminations and Other |
|
|
|
|
|
|
|
|
| ( |
|
|
|
| ( |
|
|
|
| ( | ||||||
Latin America |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vrio |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Mexico |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Xandr |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Corporate and Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Eliminations and consolidations |
|
|
|
|
|
|
|
|
| ( |
|
| ( |
|
| ( |
|
|
|
| ( | |||||
Total Operating Revenues | $ |
| $ |
| $ |
| $ |
| $ |
| $ |
| $ |
| $ |
| $ |
20
AT&T INC.
SEPTEMBER 30, 2019
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
For the three months ended September 30, 2018 | ||||||||||||||||||||||||||
| Service Revenues |
|
|
|
|
|
| |||||||||||||||||||
|
| Wireless |
|
| Advanced Data |
|
| Legacy Voice & Data |
|
| Subscription |
|
| Content |
|
| Advertising |
|
| Other |
|
| Equipment |
|
| Total |
Communications |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobility | $ |
| $ |
| $ |
| $ |
| $ |
| $ |
| $ |
| $ |
| $ | |||||||||
Entertainment Group |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Business Wireline |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
WarnerMedia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Turner |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Home Box Office |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Warner Bros. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Eliminations and Other |
|
|
|
|
|
|
|
|
| ( |
|
|
|
|
|
|
|
| ( | |||||||
Latin America |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vrio |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Mexico |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Xandr |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Corporate and Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Eliminations and consolidations |
|
|
|
|
|
|
|
|
| ( |
|
| ( |
|
| ( |
|
|
|
| ( | |||||
Total Operating Revenues | $ |
| $ |
| $ |
| $ |
| $ |
| $ |
| $ |
| $ |
| $ |
21
AT&T INC.
SEPTEMBER 30, 2019
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
For the nine months ended September 30, 2019 | ||||||||||||||||||||||||||
| Service Revenues |
|
|
|
|
|
| |||||||||||||||||||
|
| Wireless |
|
| Advanced Data |
|
| Legacy Voice & Data |
|
| Subscription |
|
| Content |
|
| Advertising |
|
| Other |
|
| Equipment |
|
| Total |
Communications |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobility | $ |
| $ |
| $ |
| $ |
| $ |
| $ |
| $ |
| $ |
| $ | |||||||||
Entertainment Group |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Business Wireline |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
WarnerMedia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Turner |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Home Box Office |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Warner Bros. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Eliminations and Other |
|
|
|
|
|
|
|
|
| ( |
|
|
|
|
|
|
|
| ( | |||||||
Latin America |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vrio |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Mexico |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Xandr |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Corporate and Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Eliminations and consolidations |
|
|
|
|
|
|
|
|
| ( |
|
| ( |
|
| ( |
|
|
|
| ( | |||||
Total Operating Revenues | $ |
| $ |
| $ |
| $ |
| $ |
| $ |
| $ |
| $ |
| $ |
22
AT&T INC.
SEPTEMBER 30, 2019
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
For the nine months ended September 30, 2018 | ||||||||||||||||||||||||||
| Service Revenues |
|
|
|
|
|
| |||||||||||||||||||
|
| Wireless |
|
| Advanced Data |
|
| Legacy Voice & Data |
|
| Subscription |
|
| Content |
|
| Advertising |
|
| Other |
|
| Equipment |
|
| Total |
Communications |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobility | $ |
| $ |
| $ |
| $ |
| $ |
| $ |
| $ |
| $ |
| $ | |||||||||
Entertainment Group |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Business Wireline |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
WarnerMedia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Turner |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Home Box Office |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Warner Bros. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Eliminations and Other |
|
|
|
|
|
|
|
|
| ( |
|
|
|
|
|
|
|
| ( | |||||||
Latin America |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vrio |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Mexico |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Xandr |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Corporate and Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Eliminations and consolidations |
|
|
|
|
|
|
|
|
| ( |
|
| ( |
|
|
|
|
|
| ( | ||||||
Total Operating Revenues | $ |
| $ |
| $ |
| $ |
| $ |
| $ |
| $ |
| $ |
| $ |
23
AT&T INC.
SEPTEMBER 30, 2019
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
Deferred Customer Contract Acquisition and Fulfillment Costs
Costs to acquire and fulfill customer contracts, including commissions on service activations, for our wireless, business wireline and video entertainment services, are deferred and amortized over the contract period or expected customer relationship life, which typically ranges from to .
The following table presents the deferred customer contract acquisition costs and deferred customer contract fulfillment costs included on our consolidated balance sheets:
|
| September 30, |
|
| December 31, |
Consolidated Balance Sheets |
| 2019 |
|
| 2018 |
Deferred Acquisition Costs |
|
|
|
|
|
Other current assets | $ |
| $ | ||
Other Assets |
|
|
| ||
Total deferred customer contract acquisition costs |
|
|
| ||
|
|
|
|
|
|
Deferred Fulfillment Costs |
|
|
|
|
|
Other current assets |
|
|
| ||
Other Assets |
|
|
| ||
Total deferred customer contract fulfillment costs | $ |
| $ |
|
| September 30, |
|
| September 30, |
Consolidated Statements of Income |
| 2019 |
|
| 2018 |
Deferred acquisition cost amortization | $ |
| $ | ||
Deferred fulfillment cost amortization |
|
|
|
Contract Assets and Liabilities
A contract asset is recorded when revenue is recognized in advance of our right to bill and receive consideration. The contract asset will decrease as services are provided and billed. For example, when installment sales include promotional discounts (e.g., “buy one get one free”) the difference between revenue recognized and consideration received is recorded as a contract asset to be amortized over the contract term.
When consideration is received in advance of the delivery of goods or services, a contract liability is recorded for deferred revenue. Reductions in the contract liability will be recorded as we satisfy the performance obligations.
The following table presents contract assets and liabilities on our consolidated balance sheets:
|
|
| September 30, |
|
| December 31, |
Consolidated Balance Sheets |
|
| 2019 |
|
| 2018 |
|
|
|
|
|
|
|
Contract asset |
| $ |
| $ | ||
Contract liability |
|
|
|
|
Our December 31, 2018 contract liability recorded as customer contract revenue during 2019 was $
24
AT&T INC.
SEPTEMBER 30, 2019
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
Our consolidated balance sheets at September 30, 2019 and December 31, 2018 included approximately $
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 September 30, 2019, the aggregate amount of the transaction price allocated to remaining performance obligations was $
NOTE 6. PENSION AND POSTRETIREMENT BENEFITS
Many of our employees are covered by one of our noncontributory pension plans. We also provide certain medical, dental, life insurance and death benefits to certain retired employees under various plans and accrue actuarially determined postretirement benefit costs. Our objective in funding these plans, in combination with the standards of the Employee Retirement Income Security Act of 1974, as amended (ERISA), is to accumulate assets sufficient to provide benefits described in the plans to employees upon their retirement.
In first quarter of 2019, for certain management participants in our pension plan who terminated employment before April 1, 2019, we offered the option of more favorable 2018 interest rates and mortality basis for determining lump-sum distributions. During the first nine months of 2019, we have recorded special termination benefits of $
As part of our quarterly 2019 remeasurements, we decreased the weighted-average discount rate used to measure our pension benefit obligation from
25
AT&T INC.
SEPTEMBER 30, 2019
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
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 |
| Nine months ended | ||||||||
| September 30, |
| September 30, | ||||||||
| 2019 |
| 2018 |
| 2019 |
| 2018 | ||||
Pension cost: |
|
|
|
|
|
|
|
|
|
|
|
Service cost – benefits earned during the period | $ |
| $ |
| $ |
| $ | ||||
Interest cost on projected benefit obligation |
|
|
|
|
|
|
| ||||
Expected return on assets |
| ( |
|
| ( |
|
| ( |
|
| ( |
Amortization of prior service credit |
| ( |
|
| ( |
|
| ( |
|
| ( |
Actuarial (gain) loss |
|
|
|
|
|
|
| ( | |||
Net pension (credit) cost | $ |
| $ |
| $ |
| $ | ( | |||
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement cost: |
|
|
|
|
|
|
|
|
|
|
|
Service cost – benefits earned during the period | $ |
| $ |
| $ |
| $ | ||||
Interest cost on accumulated postretirement benefit obligation |
|
|
|
|
|
|
| ||||
Expected return on assets |
| ( |
|
| ( |
|
| ( |
|
| ( |
Amortization of prior service credit |
| ( |
|
| ( |
|
| ( |
|
| ( |
Actuarial (gain) loss |
|
|
|
|
|
|
| ( | |||
Net postretirement (credit) cost | $ | ( |
| $ | ( |
| $ | ( |
| $ | ( |
|
|
|
|
|
|
|
|
|
|
|
|
Combined net pension and postretirement (credit) cost | $ |
| $ | ( |
| $ |
| $ | ( |
NOTE 7. FAIR VALUE MEASUREMENTS AND DISCLOSURE
The Fair Value Measurement and Disclosure framework in ASC 820, “Fair Value Measurement,” provides a three-tiered fair value hierarchy based on the reliability of the inputs used to determine fair value. Level 1 refers to fair values determined based on quoted prices in active markets for identical assets. Level 2 refers to fair values estimated using significant other observable inputs and Level 3 includes fair values estimated using significant unobservable inputs.
The level of an asset or liability within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Our valuation techniques maximize the use of observable inputs and minimize the use of unobservable inputs.
The valuation methodologies described above may produce a fair value calculation that may not be indicative of future net realizable value or reflective of future fair values. We believe our valuation methods are appropriate and consistent with other market participants. The use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date. There have been no changes in the methodologies used since December 31, 2018.
26
AT&T INC.
SEPTEMBER 30, 2019
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
Long-Term Debt and Other Financial Instruments
The carrying amounts and estimated fair values of our long-term debt, including current maturities, and other financial instruments, are summarized as follows:
|
| September 30, 2019 |
| December 31, 2018 | ||||||||
|
| Carrying |
| Fair |
| Carrying |
| Fair | ||||
|
| Amount |
| Value |
| Amount |
| Value | ||||
Notes and debentures1 | $ |
| $ |
| $ |
| $ | |||||
Commercial paper |
|
|
|
|
|
|
| |||||
Bank borrowings |
|
|
|
|
|
|
| |||||
Investment securities2 |
|
|
|
|
|
|
| |||||
1 | ||||||||||||
2 |
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.
The following tables present the fair value leveling for investment securities and derivatives that are measured at fair value as of September 30, 2019 and December 31, 2018. Derivatives designated as hedging instruments are reflected as “Other assets,” “Other noncurrent liabilities” and, for a portion of interest rate swaps, “Other current assets” on our consolidated balance sheets.
|
| September 30, 2019 | ||||||||||
|
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||
Equity Securities |
|
|
|
|
|
|
|
|
|
|
| |
Domestic equities | $ |
| $ |
| $ |
| $ | |||||
International equities |
|
|
|
|
|
|
| |||||
Fixed income equities |
|
|
|
|
|
|
| |||||
Available-for-Sale Debt Securities |
|
|
|
|
|
|
| |||||
Asset Derivatives |
|
|
|
|
|
|
|
|
|
|
| |
Interest rate swaps |
|
|
|
|
|
|
| |||||
Cross-currency swaps |
|
|
|
|
|
|
| |||||
Foreign exchange contracts |
|
|
|
|
|
|
| |||||
Liability Derivatives |
|
|
|
|
|
|
|
|
|
|
| |
Cross-currency swaps |
|
|
| ( |
|
|
|
| ( | |||
Interest rate locks |
|
|
| ( |
|
|
|
| ( | |||
Foreign exchange contracts |
|
|
| ( |
|
|
|
| ( |
27
AT&T INC.
SEPTEMBER 30, 2019
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
|
| December 31, 2018 | ||||||||||
|
| Level 1 |
| Level 2 |
| Level 3 |
| Total | ||||
Equity Securities |
|
|
|
|
|
|
|
|
|
|
| |
Domestic equities | $ |
| $ |
| $ |
| $ | |||||
International equities |
|
|
|
|
|
|
| |||||
Fixed income equities |
|
|
|
|
|
|
| |||||
Available-for-Sale Debt Securities |
|
|
|
|
|
|
| |||||
Asset Derivatives |
|
|
|
|
|
|
|
|
|
|
| |
Cross-currency swaps |
|
|
|
|
|
|
| |||||
Foreign exchange contracts |
|
|
|
|
|
|
| |||||
Liability Derivatives |
|
|
|
|
|
|
|
|
|
|
| |
Interest rate swaps |
|
|
| ( |
|
|
|
| ( | |||
Cross-currency swaps |
|
|
| ( |
|
|
|
| ( | |||
Foreign exchange contracts |
|
|
| ( |
|
|
|
| ( |
Investment Securities
Our investment securities include both equity and debt securities that are measured at fair value, as well as equity securities without readily determinable fair values. A substantial portion of the fair values of our investment securities is estimated based on quoted market prices. Investments in equity securities not traded on a national securities exchange are valued at cost, less any impairment, and adjusted for changes resulting from observable, orderly transactions for identical or similar securities. Investments in debt securities not traded on a national securities exchange are valued using pricing models, quoted prices of securities with similar characteristics or discounted cash flows.
The components comprising total gains and losses in the period on equity securities are as follows:
| Three months ended |
| Nine months ended | ||||||||
| September 30, |
| September 30, | ||||||||
| 2019 |
| 2018 |
| 2019 |
| 2018 | ||||
Total gains (losses) recognized on equity securities | $ |
| $ |
| $ |
| $ | ||||
Gains (Losses) recognized on equity securities sold |
|
|
| ( |
|
|
|
| ( | ||
Unrealized gains (losses) recognized on equity securities held at end of period |
|
|
|
|
|
|
|
At September 30, 2019, available-for-sale debt securities totaling $
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.
28
AT&T INC.
SEPTEMBER 30, 2019
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
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 nine months ended September 30, 2019 and 2018, no ineffectiveness was measured on fair value hedges.
Cash Flow Hedging We designate our cross-currency swaps as cash flow hedges. We have entered into multiple cross-currency swaps to hedge our exposure to variability in expected future cash flows that are attributable to foreign currency risk generated from the issuance of our foreign-denominated debt. These agreements include initial and final exchanges of principal from fixed foreign currency denominated amounts to fixed U.S. dollar denominated amounts, to be exchanged at a specified rate that is usually determined by the market spot rate upon issuance. They also include an interest rate swap of a fixed or floating foreign currency-denominated interest rate to a fixed U.S. dollar denominated interest rate.
We also designate some of our foreign exchange contracts as cash flow hedges. The purpose of these contracts is to hedge currency risk associated with variability in anticipated foreign-currency-denominated cash flows, such as unremitted or forecasted royalty and license fees owed to WarnerMedia’s domestic companies for the sale or anticipated sale of U.S. copyrighted products abroad or cash flows for certain film production costs denominated in a foreign currency.
Unrealized gains on derivatives designated as cash flow hedges are recorded at fair value as assets, and unrealized losses are recorded at fair value as liabilities. For derivative instruments designated as cash flow hedges, the effective portion is reported as a component of accumulated OCI until reclassified into the consolidated statements of income in the same period the hedged transaction affects earnings. The gain or loss on the ineffective portion is recognized as “Other income (expense) – net” in the consolidated statements of income in each period. We evaluate the effectiveness of our cash flow hedges each quarter. In the nine months ended September 30, 2019 and 2018, no ineffectiveness was measured on cash flow hedges.
Periodically, we enter into and designate interest rate locks to partially hedge the risk of changes in interest payments attributable to increases in the benchmark interest rate during the period leading up to the probable issuance of fixed-rate debt. We designate our interest rate locks as cash flow hedges. Gains and losses from the settlement of our interest rate locks are amortized into income over the life of the related debt, except where a material amount is deemed to be ineffective, which would be immediately reclassified to “Other income (expense) – net” in the consolidated statements of income. Over the next 12 months, we expect to reclassify $
Net Investment Hedging We have designated €
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 September 30, 2019, we had posted collateral of $
29
AT&T INC.
SEPTEMBER 30, 2019
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
$
Following are the notional amounts of our outstanding derivative positions:
|
| September 30, |
| December 31, | ||
| 2019 |
| 2018 | |||
Interest rate swaps | $ |
| $ | |||
Cross-currency swaps |
|
|
| |||
Interest rate locks |
|
|
| |||
Foreign exchange contracts |
|
|
| |||
Total | $ |
| $ |
Effect of Derivatives on the Consolidated Statements of Income |
|
|
|
|
|
|
|
| |||
| Three months ended |
| Nine months ended | ||||||||
| September 30, |
| September 30, | ||||||||
Fair Value Hedging Relationships | 2019 |
| 2018 |
| 2019 |
| 2018 | ||||
Interest rate swaps (Interest expense): |
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss) on interest rate swaps | $ |
| $ |
| $ |
| $ | ( | |||
Gain (Loss) on long-term debt |
|
|
| ( |
|
| ( |
|
|
In addition, the net swap settlements that accrued and settled in the quarter ended September 30 were offset against interest expense.
The following table presents information for our cash flow hedging relationships:
| Three months ended |
| Nine months ended | ||||||||
| September 30, |
| September 30, | ||||||||
Cash Flow Hedging Relationships | 2019 |
| 2018 |
| 2019 |
| 2018 | ||||
Cross-currency swaps: |
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss) recognized in accumulated OCI | $ | ( |
| $ | ( |
| $ | ( |
| $ | |
Foreign exchange contracts: |
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss) recognized in accumulated OCI |
|
|
|
|
|
|
| ||||
Other income (expense) - net reclassified from accumulated OCI into income |
|
|
|
|
|
|
| ||||
Interest rate locks: |
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss) recognized in accumulated OCI |
| ( |
|
|
|
| ( |
|
| ||
Interest income (expense) reclassified from accumulated OCI into income |
| ( |
|
| ( |
|
| ( |
|
| ( |
30
AT&T INC.
SEPTEMBER 30, 2019
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
NOTE 8. ACQUISITIONS, DISPOSITIONS AND OTHER ADJUSTMENTS
Acquisitions
Time Warner On
The fair values of the assets acquired and liabilities assumed were determined using the income, cost and market approaches. The fair value measurements were primarily based on significant inputs that are not observable in the market and thus represent a Level 3 measurement as defined in ASC 820, other than cash and long-term debt acquired in the acquisition. The income approach was primarily used to value the intangible assets, consisting primarily of distribution network, released TV and film content, in-place advertising network, trade names, and franchises. The income approach estimates fair value for an asset based on the present value of cash flow projected to be generated by the asset. Projected cash flow is discounted at a required rate of return that reflects the relative risk of achieving the cash flow and the time value of money. The cost approach, which estimates value by determining the current cost of replacing an asset with another of equivalent economic utility, was used, as appropriate, for plant, property and equipment. The cost to replace a given asset reflects the estimated reproduction or replacement cost for the property, less an allowance for loss in value due to depreciation.
Goodwill is calculated as the difference between the acquisition date fair value of the consideration transferred and the fair value of the net assets acquired, and represents the future economic benefits that we expect to achieve as a result of the acquisition.
31
AT&T INC.
SEPTEMBER 30, 2019
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
The following table summarizes the fair values of the Time Warner assets acquired and liabilities assumed and related deferred income taxes as of the acquisition date:
Assets acquired |
|
|
|
Cash |
| $ | |
Accounts receivable |
|
| |
All other current assets |
|
| |
Noncurrent inventory and theatrical film and television production costs |
|
| |
Property, plant and equipment |
|
| |
Intangible assets subject to amortization |
|
|
|
Distribution network |
|
| |
Released television and film content |
|
| |
Trademarks and trade names |
|
| |
Other |
|
| |
Investments and other assets |
|
| |
Goodwill |
|
| |
Total assets acquired |
|
| |
|
|
|
|
Liabilities assumed |
|
|
|
Current liabilities, excluding current portion of long-term debt |
|
| |
Debt maturing within one year |
|
| |
Long-term debt |
|
| |
Other noncurrent liabilities |
|
| |
Total liabilities assumed |
|
| |
Net assets acquired |
|
| |
Noncontrolling interest |
|
| ( |
Aggregate value of consideration paid |
| $ |
Purchased goodwill is not expected to be deductible for tax purposes. All of the goodwill was allocated to the WarnerMedia segment.
Dispositions
Hudson Yards In , we sold our ownership in Hudson Yards North Tower Holdings LLC under a sale-leaseback arrangement for cash proceeds of $
Hulu In , we sold our ownership in Hulu for cash proceeds of $
Held-for-Sale
In , we entered into an agreement to sell our wireless and wireline operations in Puerto Rico and the U.S. Virgin Islands for approximately $
In the third quarter of 2019, we applied held-for-sale treatment to the assets and liabilities of these operations, and, accordingly, included the assets in “Other current assets,” and the related liabilities in “Accounts payable and accrued liabilities,” on our consolidated balance sheet at September 30, 2019.
32
AT&T INC.
SEPTEMBER 30, 2019
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
The assets and liabilities primarily consist of approximately $
NOTE 9. SALES OF RECEIVABLES
We have agreements with various third-party financial institutions pertaining to the sales of certain types of our accounts receivable. The most significant of these programs are discussed in detail below and generally consist of (1) receivables arising from equipment installment plans, which are sold for cash and a deferred purchase price, and (2) receivables related to our WarnerMedia business. Under these programs, we transfer receivables to purchasers in exchange for cash and additional consideration upon settlement of the receivables, where applicable. Under the terms of our agreements for these programs, we continue to bill and collect the payments from our customers on behalf of the financial institutions.
The sales of receivables did not have a material impact on our consolidated statements of income or to “Total Assets” reported on our consolidated balance sheets. We reflect cash receipts on sold receivables as cash flows from operations in our consolidated statements of cash flows. Cash receipts on the deferred purchase price are classified as cash flows from investing activities.
Our equipment installment and WarnerMedia programs are discussed in detail below. A summary of the receivables and accounts being serviced is as follows:
|
| September 30, 2019 |
| December 31, 2018 | ||||||||
|
| Equipment |
|
|
|
| Equipment |
|
|
| ||
|
| Installment |
| WarnerMedia |
| Installment |
| WarnerMedia | ||||
Gross receivables: | $ |
| $ |
| $ |
| $ | |||||
Balance sheet classification |
|
|
|
|
|
|
|
|
|
|
| |
Accounts receivable |
|
|
|
|
|
|
|
|
|
|
| |
Notes receivable |
|
|
|
|
|
|
| |||||
Trade receivables |
|
|
|
|
|
|
| |||||
Other Assets |
|
|
|
|
|
|
|
|
|
|
| |
Noncurrent notes and trade receivables |
|
|
|
|
|
|
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding portfolio of receivables derecognized from our consolidated balance sheets |
|
|
|
|
|
|
| |||||
Cash proceeds received, net of remittances1 |
|
|
|
|
|
|
| |||||
1 |
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.
33
AT&T INC.
SEPTEMBER 30, 2019
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
The following table sets forth a summary of equipment installment receivables sold during the three and nine months ended September 30, 2019 and 2018:
|
| Three months ended |
| Nine months ended | ||||||||
|
| September 30, |
| September 30, | ||||||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 | ||||
Gross receivables sold | $ |
| $ |
| $ |
| $ | |||||
Net receivables sold1 |
|
|
|
|
|
|
| |||||
Cash proceeds received |
|
|
|
|
|
|
| |||||
Deferred purchase price recorded |
|
|
|
|
|
|
| |||||
Guarantee obligation recorded |
|
|
|
|
|
|
| |||||
1 |
The deferred purchase price and guarantee obligation are initially recorded at estimated fair value and subsequently carried at the lower of cost or net realizable value. The estimation of their fair values is based on remaining installment payments expected to be collected and the expected timing and value of device trade-ins. The estimated value of the device trade-ins considers prices offered to us by independent third parties that contemplate changes in value after the launch of a device model. The fair value measurements used for the deferred purchase price and the guarantee obligation are considered Level 3 under the Fair Value Measurement and Disclosure framework (see Note 7).
The following table shows the previously transferred equipment installment receivables, which we repurchased in exchange for the associated deferred purchase price during the three and nine months ended September 30, 2019 and 2018:
|
| Three months ended |
| Nine months ended | ||||||||
|
| September 30, |
| September 30, | ||||||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 | ||||
Fair value of repurchased receivables | $ |
| $ |
| $ |
| $ | |||||
Carrying value of deferred purchase price |
|
|
|
|
|
|
| |||||
Gain (loss) on repurchases1 | $ |
| $ |
| $ |
| $ | |||||
1 |
At September 30, 2019 and December 31, 2018, our deferred purchase price receivable was $
WarnerMedia Receivables
In March 2019, we entered into a revolving agreement to transfer $
34
AT&T INC.
SEPTEMBER 30, 2019
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
The following table sets forth a summary of WarnerMedia receivables sold during the three and nine months ended September 30, 2019 and 2018:
|
| Three months ended |
| Nine months ended | ||||||||
|
| September 30, |
| September 30, | ||||||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 | ||||
Gross receivables sold/cash proceeds received1 | $ |
| $ |
| $ |
| $ | |||||
Collections reinvested under revolving agreement |
|
|
|
|
|
|
| |||||
Collections not reinvested |
|
|
|
|
|
|
| |||||
Net cash proceeds received (remitted) | $ | ( |
| $ |
| $ |
| $ | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Net receivables sold2 | $ |
| $ |
| $ |
| $ | |||||
Obligations recorded |
|
|
|
|
|
|
| |||||
1 | ||||||||||||
2 |
NOTE 10. LEASES
We have operating and finance leases for certain facilities and equipment used in our operations. As of September 30, 2019, our leases have remaining lease terms of up to years. Some of our real estate operating leases contain renewal options that may be exercised, and .
Subsequent to the adoption of ASC 842 on January 1, 2019, we recognize a right-of-use asset for both operating and finance leases, and an operating lease liability that represents the present value of our obligation to make payments over the lease term. The present value of the lease payments is calculated using the incremental borrowing rate for operating and finance leases, which was determined using a portfolio approach based on the rate of interest that we would have to pay to borrow an amount equal to the lease payments on a collateralized basis over a similar term. We use the unsecured borrowing rate and risk-adjust that rate to approximate a collateralized rate in the currency of the lease, which is updated on a quarterly basis for measurement of new lease obligations.
The components of lease expense were as follows:
| Three months ended |
| Nine months ended | ||
| September 30, 2019 |
| September 30, 2019 | ||
Operating lease cost | $ |
| $ | ||
|
|
|
|
|
|
Finance lease cost: |
|
|
|
|
|
Amortization of right-of-use assets | $ |
| $ | ||
Interest on lease obligation |
|
|
| ||
Total finance lease cost | $ |
| $ |
35
AT&T INC.
SEPTEMBER 30, 2019
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
At September 30, 2019 |
| ||
|
| ||
Operating Leases |
|
|
|
Operating lease right-of-use assets | $ |
| |
|
|
|
|
Accounts payable and accrued liabilities | $ |
| |
Operating lease obligation |
|
| |
Total operating lease obligation | $ |
| |
|
|
|
|
Finance Leases |
|
|
|
Property, plant and equipment, at cost | $ |
| |
Accumulated depreciation and amortization |
| ( |
|
Property, plant and equipment, net | $ |
| |
|
|
|
|
Current portion of long-term debt | $ |
| |
Long-term debt |
|
| |
Total finance lease obligation | $ |
| |
|
|
|
|
Weighted-Average Remaining Lease Term |
|
|
|
Operating leases |
| yrs | |
Finance leases |
| yrs | |
|
|
|
|
Weighted-Average Discount Rate |
|
|
|
Operating leases |
| % | |
Finance leases |
| % |
36
AT&T INC.
SEPTEMBER 30, 2019
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
At September 30, 2019 | Operating |
| Finance | ||
| Leases |
| Leases | ||
Remainder of 2019 | $ |
| $ | ||
2020 |
|
|
| ||
2021 |
|
|
| ||
2022 |
|
|
| ||
2023 |
|
|
| ||
2024 |
|
|
| ||
Thereafter |
|
|
| ||
Total lease payments |
|
|
| ||
Less imputed interest |
| ( |
|
| ( |
Total | $ |
| $ |
NOTE 11. ADDITIONAL FINANCIAL INFORMATION
Cash and Cash Flows
We typically maintain our restricted cash balances for purchases and sales of certain investment securities and funding of certain deferred compensation benefit payments. The components comprising cash and cash equivalents and restricted cash are as follows:
|
| September 30, |
| December 31, | ||||||||
|
|
| 2019 |
|
| 2018 |
|
| 2018 |
|
| 2017 |
Cash and cash equivalents |
| $ |
| $ |
| $ |
| $ | ||||
Restricted cash in Other current assets |
|
|
|
|
|
|
|
| ||||
Restricted cash in Other Assets |
|
|
|
|
|
|
|
| ||||
Cash and cash equivalents and restricted cash |
| $ |
| $ |
| $ |
| $ |
|
| Nine months ended | ||||
|
| September 30, | ||||
|
| 2019 |
| 2018 | ||
Cash Flows from Operating Activities |
|
|
|
|
|
|
Cash paid for amounts included in lease obligations |
|
|
|
|
|
|
Operating cash flows from operating leases |
| $ |
| $ | ||
|
|
|
|
|
|
|
Supplemental Lease Cash Flow Disclosures |
|
|
|
|
|
|
Operating lease right-of-use assets obtained |
|
|
|
|
|
|
in exchange for new operating lease obligations |
|
|
|
|
37
AT&T INC.
SEPTEMBER 30, 2019
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - Continued
Dollars in millions except per share amounts
| Nine months ended | ||||
| September 30, | ||||
|
| 2019 |
|
| 2018 |
Interest | $ |
| $ | ||
Income taxes, net of refunds |
|
|
| ( |
Other Noncash Investing and Financing Activities In 2019, we recorded approximately $
Preferred Interests Issued by Subsidiary In September 2019, we issued $
The membership interests in Tower Holdings consist of (1) common interests, which are held by a consolidated subsidiary of AT&T, and (2) these newly issued preferred interests (Tower preferred interests), which pay an initial preferred distribution of 5.0% annually, subject to declaration, resetting every five years. The declaration and payment of distributions on the preferred interests do not impose any limitation on cash movements between affiliates, or our ability to declare a dividend on or repurchase AT&T shares. We can call the Tower preferred interests beginning five years from the issuance date or upon the receipt of proceeds from the sale of the underlying assets. The preferred interests are included in “Noncontrolling interest” on the consolidated balance sheet.
The holders of the Tower preferred interests have the option to require redemption upon the occurrence of certain contingent events, such as the failure of AT&T to pay the preferred distribution for two or more periods or to meet certain other requirements, including a minimum credit rating. If notice is given upon such an event, all other holders of equal or more subordinate classes of membership interests in Tower Holdings are entitled to receive the same form of consideration payable to the holders of the preferred interests, resulting in a deemed liquidation for accounting purposes.
38
AT&T INC.
SEPTEMBER 30, 2019
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
OVERVIEW
AT&T Inc. is referred to as “we,” “AT&T” or the “Company” throughout this document, and the names of the particular subsidiaries and affiliates providing the services generally have been omitted. AT&T is a holding company whose subsidiaries and affiliates operate worldwide in the telecommunications, media and technology industries. You should read this discussion in conjunction with the consolidated financial statements and accompanying notes (Notes). We 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. We have recast our segment results for all prior periods presented to exclude our wireless and wireline operations in Puerto Rico and the U.S. Virgin Islands from our Mobility and Business Wireline business units of the Communications segment, instead reporting them with Corporate and Other (see Note 8).
| Third Quarter |
|
| Nine-Month Period |
| ||||||||||
|
|
|
|
|
| Percent |
|
|
|
|
|
|
| Percent |
|
| 2019 |
| 2018 | Change |
|
| 2019 |
| 2018 | Change |
| ||||
Operating Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Communications | $ | 35,401 |
| $ | 36,007 | (1.7) | % |
| $ | 105,837 |
| $ | 106,498 | (0.6) | % |
WarnerMedia |
| 7,846 |
|
| 8,204 | (4.4) |
|
|
| 24,575 |
|
| 9,709 | - |
|
Latin America |
| 1,730 |
|
| 1,833 | (5.6) |
|
|
| 5,205 |
|
| 5,809 | (10.4) |
|
Xandr |
| 504 |
|
| 445 | 13.3 |
|
|
| 1,415 |
|
| 1,174 | 20.5 |
|
Corporate and other |
| 407 |
|
| 531 | (23.4) |
|
|
| 1,218 |
|
| 1,636 | (25.6) |
|
Eliminations and consolidation |
| (1,300) |
|
| (1,281) | (1.5) |
|
|
| (3,878) |
|
| (2,063) | (88.0) |
|
AT&T Operating Revenues |
| 44,588 |
|
| 45,739 | (2.5) |
|
|
| 134,372 |
|
| 122,763 | 9.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Contribution |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Communications |
| 8,036 |
|
| 8,150 | (1.4) |
|
|
| 24,718 |
|
| 24,498 | 0.9 |
|
WarnerMedia |
| 2,544 |
|
| 2,528 | 0.6 |
|
|
| 6,879 |
|
| 2,992 | - |
|
Latin America |
| (166) |
|
| (201) | 17.4 |
|
|
| (548) |
|
| (462) | (18.6) |
|
Xandr |
| 327 |
|
| 333 | (1.8) |
|
|
| 905 |
|
| 952 | (4.9) |
|
Segment Operating Contribution | $ | 10,741 |
| $ | 10,810 | (0.6) | % |
| $ | 31,954 |
| $ | 27,980 | 14.2 | % |
The Communications segment provides services to businesses and consumers located in the U.S. and businesses globally. Our business strategies reflect bundled product offerings that cut across product lines and utilize shared assets. This segment contains the following business units:
Mobility provides nationwide wireless service and equipment.
Entertainment Group provides video, including over-the-top (OTT) services, broadband and voice communications services primarily to residential customers. This segment also sells advertising on DIRECTV and U-verse distribution platforms.
Business Wireline provides advanced IP-based services, as well as traditional voice and data services to business customers.
39
AT&T INC.
SEPTEMBER 30, 2019
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
The WarnerMedia segment develops, produces and distributes feature films, television, gaming and other content over various physical and digital formats. This segment contains the following business units:
Turner primarily operates multichannel basic television networks and digital properties. Turner also sells advertising on its networks and digital properties.
Home Box Office consists of premium pay television and OTT services domestically and premium pay, basic tier television and OTT services internationally, as well as content licensing and home entertainment.
Warner Bros. consists of the production, distribution and licensing of television programming and feature films, the distribution of home entertainment products and the production and distribution of games.
The Latin America segment provides entertainment and wireless services outside of the U.S. This segment contains the following business units:
Mexico provides wireless service and equipment to customers in Mexico.
Vrio provides video services primarily to residential customers using satellite technology in Latin America and the Caribbean.
The Xandr segment provides advertising services and includes our recently acquired AppNexus. These services utilize data insights to develop and deliver targeted advertising across video and digital platforms.
RESULTS OF OPERATIONS
Consolidated Results Our financial results are summarized in the following discussions. Additional analysis is discussed in our “Segment Results” section. Certain prior period amounts have been reclassified to conform to the current period’s presentation.
| Third Quarter |
|
| Nine-Month Period |
| ||||||||||
|
|
|
|
|
| Percent |
|
|
|
|
|
|
| Percent |
|
| 2019 |
| 2018 | Change |
|
| 2019 |
| 2018 | Change |
| ||||
Operating Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service | $ | 40,317 |
| $ | 41,297 | (2.4) | % |
| $ | 122,024 |
| $ | 109,849 | 11.1 | % |
Equipment |
| 4,271 |
|
| 4,442 | (3.8) |
|
|
| 12,348 |
|
| 12,914 | (4.4) |
|
Total Operating Revenues |
| 44,588 |
|
| 45,739 | (2.5) |
|
|
| 134,372 |
|
| 122,763 | 9.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations and support |
| 29,738 |
|
| 30,304 | (1.9) |
|
|
| 90,482 |
|
| 82,289 | 10.0 |
|
Depreciation and amortization |
| 6,949 |
|
| 8,166 | (14.9) |
|
|
| 21,256 |
|
| 20,538 | 3.5 |
|
Total Operating Expenses |
| 36,687 |
|
| 38,470 | (4.6) |
|
|
| 111,738 |
|
| 102,827 | 8.7 |
|
Operating Income |
| 7,901 |
|
| 7,269 | 8.7 |
|
|
| 22,634 |
|
| 19,936 | 13.5 |
|
Interest expense |
| 2,083 |
|
| 2,051 | 1.6 |
|
|
| 6,373 |
|
| 5,845 | 9.0 |
|
Equity in net income (loss) of affiliates |
| 3 |
|
| (64) | - |
|
|
| 36 |
|
| (71) | - |
|
Other income (expense) – net |
| (935) |
|
| 1,053 | - |
|
|
| (967) |
|
| 5,108 | - |
|
Income Before Income Taxes |
| 4,886 |
|
| 6,207 | (21.3) |
|
|
| 15,330 |
|
| 19,128 | (19.9) |
|
Net Income |
| 3,949 |
|
| 4,816 | (18.0) |
|
|
| 12,271 |
|
| 14,823 | (17.2) |
|
Net Income Attributable to AT&T | $ | 3,700 |
| $ | 4,718 | (21.6) | % |
| $ | 11,509 |
| $ | 14,512 | (20.7) | % |
Operating revenues decreased in the third quarter and increased in the first nine months of 2019. The decrease in the third quarter was primarily due to declines in our Communications, WarnerMedia and Latin America segments. Communications segment decreases were due to continued declines in legacy and video services and lower wireless device upgrades, partially offset by growth in advanced data and wireless services. WarnerMedia segment declines were driven by lower theatrical
40
AT&T INC.
SEPTEMBER 30, 2019
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
product compared to a more favorable mix of box office releases in the prior year, partially offset by higher international licenses revenues at Home Box Office. Latin America revenues were negatively impacted by foreign exchange pressures.
The increase in the first nine months was primarily due to our 2018 acquisition of Time Warner. Partially offsetting the increase were declines in the Communications segment driven by continued pressure in legacy and video services and lower wireless equipment upgrades that were offset by growth in advanced data and wireless services, and foreign exchange pressures in our Latin America segment.
Operations and support expenses decreased in the third quarter and increased in the first nine months of 2019. The decrease in the third quarter was primarily due to declines in content costs reflecting continued declines in premium TV subscribers and postpaid smartphone volumes in the Communications segment. Lower film and television production costs in the WarnerMedia segment and foreign exchange rate impacts in the Latin America segment also contributed to lower expense in 2019.
The increase in the first nine months of 2019 was primarily due to our 2018 acquisition of Time Warner. The increase was partially offset by lower costs in our Communications segment, including lower content and wireless equipment costs, foreign exchange rate impacts in our Latin America segment, and lower expenses due to our continued focus on cost management.
Depreciation and amortization expense decreased in the third quarter and increased for the first nine months of 2019. Depreciation expense increased $5, or 0.1% in the third quarter and $168, or 1.1% for the first nine months of 2019. The increase in the nine-month period was primarily due to the Time Warner acquisition.
Amortization expense decreased $1,222, or 39.4% in the third quarter and increased $550, or 9.9% for the first nine months of 2019 primarily due to the amortization of intangibles associated with WarnerMedia. We expect continued quarterly declines in amortization expense, reflecting the accelerated method of amortization applied on the WarnerMedia intangibles.
Operating income increased in the third quarter and the first nine months of 2019. Our operating income margin for the third quarter increased from 15.9% in 2018 to 17.7% in 2019 and for the first nine months increased from 16.2% in 2018 to 16.8% in 2019.
Interest expense increased in the third quarter and first nine months of 2019. The increase was primarily due to lower capitalized interest associated with putting spectrum into network service. Higher debt balances related to our acquisition of Time Warner also contributed to higher expense for the nine-month period.
Equity in net income of affiliates increased in the third quarter and for the first nine months of 2019, primarily due to changes in our investment portfolio resulting from acquisitions and the second-quarter 2019 sale of Hulu.
Other income (expense) – net decreased in the third quarter and for the first nine months of 2019. The decrease in the quarter was primarily due to the recognition of a $1,917 actuarial loss in 2019 with no comparable remeasurement in 2018, and higher income in the prior year resulting from a gain on our third-quarter 2018 Otter Media transaction.
The decrease for the first nine months was primarily due to the recognition of an actuarial loss of $4,048 in 2019, compared to actuarial gain of $2,726 in 2018, and the prior-year gain on the Otter Media transaction. Partially offsetting the declines was a $740 gain on the second-quarter 2019 sale of our investment in Hulu and lower premiums on debt redemptions.
Income taxes decreased in the third quarter and for the first nine months of 2019. Our effective tax rate was 19.2% for the third quarter and 20.0% for the first nine months of 2019, versus 22.4% for the third quarter and 22.5% for the first nine months of 2018. The decrease in income tax expense and the effective tax rate for the third quarter was primarily due to tax benefits related to internal restructurings and lower income before income taxes. The decrease in income tax expense and the effective tax rate for the first nine months was primarily due to benefits from tax settlements, internal restructurings and lower income before income taxes, including impacts of actuarial losses of $1,917 in the third quarter and $4,048 for the first nine months of 2019, compared to actuarial gains of $2,726 for the first nine months of 2018.
41
AT&T INC.
SEPTEMBER 30, 2019
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
COMMUNICATIONS SEGMENT | Third Quarter |
|
| Nine-Month Period |
| ||||||||||
|
|
|
|
|
| Percent |
|
|
|
|
|
|
| Percent |
|
| 2019 |
| 2018 | Change |
|
| 2019 |
| 2018 | Change |
| ||||
Segment Operating Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobility | $ | 17,701 |
| $ | 17,735 | (0.2) | % |
| $ | 52,356 |
| $ | 51,965 | 0.8 | % |
Entertainment Group |
| 11,197 |
|
| 11,589 | (3.4) |
|
|
| 33,893 |
|
| 34,498 | (1.8) |
|
Business Wireline |
| 6,503 |
|
| 6,683 | (2.7) |
|
|
| 19,588 |
|
| 20,035 | (2.2) |
|
Total Segment Operating Revenues |
| 35,401 |
|
| 36,007 | (1.7) |
|
|
| 105,837 |
|
| 106,498 | (0.6) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Operating Contribution |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobility |
| 5,742 |
|
| 5,575 | 3.0 |
|
|
| 16,817 |
|
| 16,144 | 4.2 |
|
Entertainment Group |
| 1,085 |
|
| 1,104 | (1.7) |
|
|
| 4,077 |
|
| 3,888 | 4.9 |
|
Business Wireline |
| 1,209 |
|
| 1,471 | (17.8) |
|
|
| 3,824 |
|
| 4,466 | (14.4) |
|
Total Segment Operating Contribution | $ | 8,036 |
| $ | 8,150 | (1.4) | % |
| $ | 24,718 |
| $ | 24,498 | 0.9 | % |
Selected Subscribers and Connections |
|
|
|
| September 30, | ||
(000s) | 2019 |
| 2018 |
Total domestic broadband connections | 15,575 |
| 15,747 |
Network access lines in service | 8,831 |
| 10,399 |
U-verse VoIP connections | 4,539 |
| 5,274 |
Results in the Mobility and Business Wireline business units of the Communications segment have been recast for all prior periods presented to remove operations in Puerto Rico and the U.S. Virgin Islands (see Note 8).
Operating revenues decreased in the third quarter and for the first nine months of 2019. The decrease in the quarter was driven by declines in each of our business units, Entertainment Group, Business Wireline and Mobility. Revenues reflect continued declines in legacy voice and data products, the shift to over-the-top (OTT) video offerings and decreased wireless equipment revenues, partially offset by growth in strategic and managed business services, wireless service and IP broadband.
The decrease for the first nine months was primarily due to declines in our Entertainment Group and Business Wireline business units, offset by increases in our Mobility business unit. The decrease reflects the shift away from legacy communications and linear video offerings, and lower wireless equipment revenues, largely offset by higher wireless service and advanced data revenues.
Operating contribution decreased in the third quarter and increased for the first nine months of 2019. The decrease in the quarter reflects declines in our Business Wireline and Entertainment Group business units, largely offset by improvement in our Mobility business unit. The increase for the first nine months includes improvements 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 third quarter increased from 22.6% in 2018 to 22.7% in 2019 and for the first nine months increased from 23.0% in 2018 to 23.4% in 2019.
42
AT&T INC.
SEPTEMBER 30, 2019
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
Communications Business Unit Discussion | |||||||||||||||
Mobility Results |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Third Quarter |
| Nine-Month Period | ||||||||||||
|
|
|
|
|
| Percent |
|
|
|
|
|
| Percent | ||
| 2019 |
| 2018 | Change |
| 2019 |
| 2018 | Change | ||||||
Operating revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service | $ | 13,930 |
| $ | 13,828 | 0.7 | % |
| $ | 41,383 |
| $ | 40,594 | 1.9 | % |
Equipment |
| 3,771 |
|
| 3,907 | (3.5) |
|
|
| 10,973 |
|
| 11,371 | (3.5) |
|
Total Operating Revenues |
| 17,701 |
|
| 17,735 | (0.2) |
|
|
| 52,356 |
|
| 51,965 | 0.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations and support |
| 9,948 |
|
| 10,104 | (1.5) |
|
|
| 29,511 |
|
| 29,603 | (0.3) |
|
Depreciation and amortization |
| 2,011 |
|
| 2,057 | (2.2) |
|
|
| 6,027 |
|
| 6,218 | (3.1) |
|
Total Operating Expenses |
| 11,959 |
|
| 12,161 | (1.7) |
|
|
| 35,538 |
|
| 35,821 | (0.8) |
|
Operating Income |
| 5,742 |
|
| 5,574 | 3.0 |
|
|
| 16,818 |
|
| 16,144 | 4.2 |
|
Equity in Net Income (Loss) of Affiliates |
| - |
|
| 1 | - |
|
|
| (1) |
|
| - | - |
|
Operating Contribution | $ | 5,742 |
| $ | 5,575 | 3.0 | % |
| $ | 16,817 |
| $ | 16,144 | 4.2 | % |
The following tables highlight other key measures of performance for Mobility:
|
|
|
|
|
|
|
| September 30, | Percent | ||||
(in 000s) |
|
|
|
|
|
| 2019 |
| 2018 | Change | |||
Mobility Subscribers |
|
|
|
|
|
|
|
|
|
|
|
| |
Postpaid smartphones |
|
|
|
|
|
|
| 60,306 |
| 59,829 | 0.8 | % | |
Postpaid feature phones and data-centric devices |
|
|
|
|
|
|
| 14,846 |
| 16,344 | (9.2) |
| |
Postpaid |
|
|
|
|
|
|
| 75,152 |
| 76,173 | (1.3) |
| |
Prepaid |
|
|
|
|
|
|
| 17,740 |
| 16,721 | 6.1 |
| |
Reseller |
|
|
|
|
|
|
| 7,120 |
| 8,079 | (11.9) |
| |
Connected devices1 |
|
|
|
|
|
|
| 62,288 |
| 48,177 | 29.3 |
| |
Total Mobility Subscribers |
|
|
|
|
|
|
| 162,300 |
| 149,150 | 8.8 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Postpaid Phone Subscribers |
|
|
|
|
|
|
| 62,812 |
| 62,850 | (0.1) |
| |
Total Phone Subscribers |
|
|
|
|
|
|
| 79,462 |
| 78,639 | 1.0 | % | |
1 | Includes data-centric devices such as wholesale automobile systems, monitoring devices, fleet management, and session-based tablets. |
43
AT&T INC.
SEPTEMBER 30, 2019
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
| Third Quarter |
|
|
|
| Nine-Month Period |
| ||||||
|
|
|
| Percent |
|
|
|
|
| Percent | |||
(in 000s) | 2019 |
| 2018 | Change |
|
| 2019 |
| 2018 | Change | |||
Mobility Net Additions2 |
|
|
|
|
|
|
|
|
|
|
|
| |
Postpaid | (217) |
| (231) | 6.1 | % |
|
| (570) |
| (105) | - | % | |
Prepaid | 227 |
| 570 | (60.2) |
|
|
| 669 |
| 1,275 | (47.5) |
| |
Reseller | (231) |
| (366) | 36.9 |
|
|
| (677) |
| (1,175) | 42.4 |
| |
Connected devices1 | 3,900 |
| 3,459 | 12.7 |
|
|
| 10,947 |
| 9,171 | 19.4 |
| |
Mobility Net Subscriber Additions | 3,679 |
| 3,432 | 7.2 |
|
|
| 10,369 |
| 9,166 | 13.1 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Postpaid Phone Net Additions | 101 |
| 67 | 50.7 |
|
|
| 254 |
| 63 | - |
| |
Total Phone Net Additions | 255 |
| 547 | (53.4) | % |
|
| 780 |
| 1,104 | (29.3) | % | |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Postpaid Churn3 | 1.19 |
| 1.16 | 3 | BP |
|
| 1.14 |
| 1.08 | 6 | BP | |
Postpaid Phone-Only Churn3 | 0.95 |
| 0.93 | 2 | BP |
|
| 0.91 |
| 0.86 | 5 | BP | |
1 | Includes data-centric devices such as wholesale automobile systems, monitoring devices, fleet management, and session-based tablets. | ||||||||||||
2 | Excludes acquisition-related additions during the period. | ||||||||||||
3 | Calculated by dividing the aggregate number of wireless subscribers who canceled service during a month divided by the total number | ||||||||||||
| of wireless subscribers at the beginning of that month. The churn rate for the period is equal to the average of the churn rate for | ||||||||||||
| each month of that period. |
Service revenue increased in the third quarter and for the first nine months of 2019 largely due higher postpaid phone average revenue per subscriber (ARPU) and gains in prepaid subscribers.
ARPU
Postpaid ARPU increased in the third quarter and for the first nine months primarily due to price actions that were not in effect in the comparative periods of the 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 was higher due to tablet and involuntary churn. Postpaid phone-only churn was higher due to involuntary churn. Also contributing to higher churn for the first nine months was continued competitive pricing in the industry.
Equipment revenue decreased in the third quarter and for the first nine months of 2019 driven by lower postpaid smartphone sales, resulting from the continuing trend of customers choosing to upgrade devices less frequently or bring their own.
Operations and support expenses decreased in the third quarter and for the first nine months of 2019. The decreases were primarily due to lower postpaid smartphone volumes and increased operational efficiencies, partially offset by higher bad debt expense, commission deferral amortization and handset insurance costs. In the second quarter of 2019, we extended the estimated economic life of our customers, which will result in a decline of commission deferral amortization in the second half of 2019.
Depreciation expense decreased in the third quarter and for the first nine months of 2019 primarily due to fully depreciated assets, partially offset by ongoing capital spending for network upgrades and expansion.
Operating income increased in the third quarter and for the first nine months of 2019. Our Mobility operating income margin in the third quarter increased from 31.4% in 2018 to 32.4% in 2019, and for the first nine months increased from 31.1% in 2018 to 32.1% in 2019. Our Mobility EBITDA margin in the third quarter increased from 43.0% in 2018 to 43.8%
44
AT&T INC.
SEPTEMBER 30, 2019
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
in 2019, and for the first nine months increased from 43.0% in 2018 to 43.6% in 2019. EBITDA is defined as operating contribution excluding equity in net income (loss) of affiliates and depreciation and amortization.
Subscriber Relationships
As the wireless industry has matured, future wireless growth will increasingly depend on our ability to offer innovative services, plans and devices and to provide these services in bundled product offerings with our video and broadband services. Subscribers that purchase two or more services from us have significantly lower churn than subscribers that purchase only one service. To support higher mobile video and data usage, our priority is to best utilize a wireless network that has sufficient spectrum and capacity to support these innovations on as broad a geographic basis as possible.
To attract and retain subscribers in a mature and highly competitive market, we have launched a wide variety of plans. Virtually all of our postpaid smartphone subscribers are on plans that provide for service on multiple devices at reduced rates, and such subscribers tend to have higher retention and lower churn rates. Such offerings are intended to encourage existing subscribers to upgrade their current services and/or add devices, attract subscribers from other providers and/or minimize subscriber churn.
Connected Devices
Connected devices include data-centric devices such as wholesale automobile systems, monitoring devices, fleet management and session-based tablets. Connected device subscribers increased in 2019, and during the third quarter and for the first nine months of 2019, we added approximately 2.1 million and 6.2 million wholesale connected cars through agreements with various carmakers, and experienced strong growth in other Internet of Things (IoT) connections. We believe that these connected car agreements give us the opportunity to create future retail relationships with the car owners.
Entertainment Group Results |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Third Quarter |
|
| Nine-Month Period |
| ||||||||||
|
|
|
|
|
| Percent |
|
|
|
|
|
| Percent | ||
| 2019 |
| 2018 | Change |
| 2019 |
| 2018 | Change | ||||||
Operating revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Video entertainment | $ | 7,933 |
| $ | 8,283 | (4.2) | % |
| $ | 24,042 |
| $ | 24,681 | (2.6) | % |
High-speed internet |
| 2,117 |
|
| 2,045 | 3.5 |
|
|
| 6,296 |
|
| 5,904 | 6.6 |
|
Legacy voice and data services |
| 628 |
|
| 739 | (15.0) |
|
|
| 1,969 |
|
| 2,317 | (15.0) |
|
Other service and equipment |
| 519 |
|
| 522 | (0.6) |
|
|
| 1,586 |
|
| 1,596 | (0.6) |
|
Total Operating Revenues |
| 11,197 |
|
| 11,589 | (3.4) |
|
|
| 33,893 |
|
| 34,498 | (1.8) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations and support |
| 8,797 |
|
| 9,155 | (3.9) |
|
|
| 25,839 |
|
| 26,623 | (2.9) |
|
Depreciation and amortization |
| 1,316 |
|
| 1,331 | (1.1) |
|
|
| 3,978 |
|
| 3,986 | (0.2) |
|
Total Operating Expenses |
| 10,113 |
|
| 10,486 | (3.6) |
|
|
| 29,817 |
|
| 30,609 | (2.6) |
|
Operating Income |
| 1,084 |
|
| 1,103 | (1.7) |
|
|
| 4,076 |
|
| 3,889 | 4.8 |
|
Equity in Net Income (Loss) of Affiliates |
| 1 |
|
| 1 | - |
|
|
| 1 |
|
| (1) | - |
|
Operating Contribution | $ | 1,085 |
| $ | 1,104 | (1.7) | % |
| $ | 4,077 |
| $ | 3,888 | 4.9 | % |
45
AT&T INC.
SEPTEMBER 30, 2019
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
The following tables highlight other key measures of performance for Entertainment Group:
|
|
|
|
|
|
|
| September 30, | Percent | ||||
|
|
|
|
|
|
| 2019 |
| 2018 | Change | |||
Video Connections |
|
|
|
|
|
|
|
|
|
|
|
| |
Premium TV |
|
|
|
|
|
|
| 20,418 |
| 23,294 | (12.3) | % | |
AT&T Now1 |
|
|
|
|
|
|
| 1,145 |
| 1,858 | (38.4) |
| |
Total Video Connections |
|
|
|
|
|
|
| 21,563 |
| 25,152 | (14.3) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Broadband Connections |
|
|
|
|
|
|
|
|
|
|
|
| |
IP |
|
|
|
|
|
|
| 13,739 |
| 13,723 | 0.1 |
| |
DSL |
|
|
|
|
|
|
| 562 |
| 718 | (21.7) |
| |
Total Broadband Connections |
|
|
|
|
|
|
| 14,301 |
| 14,441 | (1.0) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail Consumer Switched Access Lines |
|
|
|
|
|
|
| 3,467 |
| 4,144 | (16.3) |
| |
U-verse Consumer VoIP Connections |
|
|
|
|
|
|
| 3,973 |
| 4,757 | (16.5) |
| |
Total Retail Consumer Voice Connections |
|
|
|
|
|
|
| 7,440 |
| 8,901 | (16.4) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiber Broadband Connections (included in IP) |
|
|
|
|
|
|
| 3,696 |
| 2,504 | 47.6 | % | |
1 | Consistent with industry practice, connections that are on a free-trial are included. | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Third Quarter |
|
|
|
| Nine-Month Period |
|
| ||||
|
|
|
|
| Percent |
|
|
|
|
| Percent | ||
(in 000s) | 2019 |
| 2018 | Change |
|
| 2019 |
| 2018 | Change | |||
Video Net Additions |
|
|
|
|
|
|
|
|
|
|
|
| |
Premium TV2 | (1,163) |
| (346) | - | % |
|
| (2,485) |
| (795) | - | % | |
AT&T Now1 | (195) |
| 49 | - |
|
|
| (446) |
| 703 | - |
| |
Net Video Additions | (1,358) |
| (297) | - |
|
|
| (2,931) |
| (92) | - |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Broadband Net Additions |
|
|
|
|
|
|
|
|
|
|
|
| |
IP | (83) |
| 31 | - |
|
|
| 10 |
| 261 | (96.2) |
| |
DSL | (36) |
| (45) | 20.0 |
|
|
| (118) |
| (170) | 30.6 |
| |
Net Broadband Additions | (119) |
| (14) | - |
|
|
| (108) |
| 91 | - |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Fiber Broadband Net Additions (included in IP) | 318 |
| 300 | 6.0 | % |
|
| 933 |
| 775 | 20.4 | % | |
1 | Consistent with industry practice, connections that are on a free-trial are included. | ||||||||||||
2 | Includes disconnections for customers that migrated to AT&T Now. |
Video entertainment revenues are comprised of subscription and advertising revenues. Revenues decreased in the third quarter and for the first nine months of 2019, largely driven by an 12.3% decline in premium TV subscribers as we continue to focus on high-value customers. Our customers continue to shift, consistent with the rest of the industry, from a premium linear service to our more economically priced OTT video service, or to competitors, which has pressured our video revenues. Churn rose for subscribers with premium TV-only service, partially reflecting price increases. We also experienced
46
AT&T INC.
SEPTEMBER 30, 2019
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
increased churn in video (including customers who bundled broadband service) due to carriage disputes during the third quarter of 2019.
Revenue declines in our premium TV products were partially offset by growth in revenues from our OTT service, AT&T Now, which were primarily attributable to pricing actions. AT&T Now subscriber net additions declined in the third quarter and for the first nine months due to price increases and fewer promotions.
High-speed internet revenues increased in the third quarter and for the first nine months of 2019 reflecting the continued shift of subscribers to our higher-speed fiber services. Our bundling strategy is helping to lower churn with subscribers who bundle broadband with another AT&T service.
Legacy voice and data service revenues decreased in the third quarter and for the first nine months of 2019, reflecting the continued migration of customers to our more advanced IP-based offerings or to competitors.
Operations and support expenses decreased in the third quarter and for the first nine months of 2019. Contributing to the decreases were lower content and selling costs largely due to lower subscribers and our ongoing focus on cost initiatives. Partially offsetting the decreases were increased costs associated with NFL SUNDAY TICKET and higher amortization of fulfillment cost deferrals, including the impact of second-quarter 2019 updates to decrease the estimated economic life for our Entertainment Group customers.
Depreciation expense decreased in the third quarter and for the first nine months of 2019. The decreases were due to fully depreciated assets, largely offset by ongoing capital spending for network upgrades and expansion.
Operating income decreased in the third quarter and increased for the first nine months of 2019. Our Entertainment Group operating income margin in the third quarter increased from 9.5% in 2018 to 9.7% in 2019, and for the first nine months increased from 11.3% in 2018 to 12.0% in 2019. Our Entertainment Group EBITDA margin in the third quarter increased from 21.0% in 2018 to 21.4% in 2019, and for the first nine months increased from 22.8% in 2018 to 23.8% in 2019.
Business Wireline Results |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Third Quarter |
|
| Nine-Month Period |
| ||||||||||
|
|
|
|
|
| Percent |
|
|
|
|
|
| Percent | ||
| 2019 |
| 2018 | Change |
| 2019 |
| 2018 | Change | ||||||
Operating revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Strategic and managed services | $ | 3,900 |
| $ | 3,677 | 6.1 | % |
| $ | 11,513 |
| $ | 10,849 | 6.1 | % |
Legacy voice and data services |
| 2,252 |
|
| 2,602 | (13.5) |
|
|
| 6,973 |
|
| 8,176 | (14.7) |
|
Other service and equipment |
| 351 |
|
| 404 | (13.1) |
|
|
| 1,102 |
|
| 1,010 | 9.1 |
|
Total Operating Revenues |
| 6,503 |
|
| 6,683 | (2.7) |
|
|
| 19,588 |
|
| 20,035 | (2.2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations and support |
| 4,022 |
|
| 4,022 | - |
|
|
| 12,029 |
|
| 12,047 | (0.1) |
|
Depreciation and amortization |
| 1,271 |
|
| 1,187 | 7.1 |
|
|
| 3,735 |
|
| 3,520 | 6.1 |
|
Total Operating Expenses |
| 5,293 |
|
| 5,209 | 1.6 |
|
|
| 15,764 |
|
| 15,567 | 1.3 |
|
Operating Income |
| 1,210 |
|
| 1,474 | (17.9) |
|
|
| 3,824 |
|
| 4,468 | (14.4) |
|
Equity in Net Income (Loss) of Affiliates |
| (1) |
|
| (3) | 66.7 |
|
|
| - |
|
| (2) | - |
|
Operating Contribution | $ | 1,209 |
| $ | 1,471 | (17.8) | % |
| $ | 3,824 |
| $ | 4,466 | (14.4) | % |
Strategic and managed services revenues increased in the third quarter and for the first nine months of 2019. Our strategic services are made up of (1) data services, including our VPN, dedicated internet ethernet and broadband, (2) voice service, including VoIP and cloud-based voice solutions, (3) security and cloud solutions, and (4) managed, professional and
47
AT&T INC.
SEPTEMBER 30, 2019
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
outsourcing services. Revenue increases were primarily attributable to growth in our security and cloud solutions, dedicated internet and managed services.
Legacy voice and data service revenues decreased in the third quarter and for the first nine months of 2019, primarily due to lower demand as customers continue to shift to our more advanced IP-based offerings or our competitors.
Other service and equipment revenues decreased in the third quarter and increased for the first nine months of 2019. Revenue trends are impacted by the licensing of intellectual property assets, which vary from period-to-period. In the third quarter, intellectual property revenues in 2018 exceeded 2019, which contributed to the revenue decline. During the first nine months, intellectual property revenues driven by second-quarter 2019 license sales, exceeded revenues recorded for the comparable 2018 period, which contributed to the revenue increase. Other service revenues include project-based revenue, which is nonrecurring in nature, as well as revenues from customer premises equipment.
Operations and support expenses were flat in the third quarter and decreased for the first nine months of 2019, primarily due to our continued efforts to shift to a software-based network and automate and digitize our customer support activities, partially offset by higher fulfillment deferral amortization.
Depreciation expense increased in the third quarter and for the first nine months of 2019, primarily due to increases in capital spending for network upgrades and expansion.
Operating income decreased in the third quarter and for the first nine months of 2019. Our Business Wireline operating income margin in the third quarter decreased from 22.1% in 2018 to 18.6% in 2019, and for the first nine months decreased from 22.3% in 2018 to 19.5% in 2019. Our Business Wireline EBITDA margin in the third quarter decreased from 39.8% in 2018 to 38.2% in 2019, and for the first nine months decreased from 39.9% in 2018 to 38.6% in 2019.
WARNERMEDIA SEGMENT | Third Quarter |
| Nine-Month Period |
| |||||||||||
|
|
|
|
|
| Percent |
|
|
|
|
|
| Percent | ||
| 2019 |
| 2018 | Change |
| 2019 |
| 2018 | Change | ||||||
Segment Operating Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Turner | $ | 3,007 |
| $ | 2,988 | 0.6 | % |
| $ | 9,860 |
| $ | 3,767 | - | % |
Home Box Office |
| 1,819 |
|
| 1,644 | 10.6 |
|
|
| 5,045 |
|
| 1,925 | - |
|
Warner Bros. |
| 3,333 |
|
| 3,720 | (10.4) |
|
|
| 10,240 |
|
| 4,227 | - |
|
Eliminations & Other |
| (313) |
|
| (148) | - |
|
|
| (570) |
|
| (210) | - |
|
Total Segment Operating Revenues |
| 7,846 |
|
| 8,204 | (4.4) |
|
|
| 24,575 |
|
| 9,709 | - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Operating Contribution |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Turner |
| 1,489 |
|
| 1,449 | 2.8 |
|
|
| 3,926 |
|
| 1,802 | - |
|
Home Box Office |
| 724 |
|
| 630 | 14.9 |
|
|
| 1,894 |
|
| 734 | - |
|
Warner Bros. |
| 563 |
|
| 553 | 1.8 |
|
|
| 1,556 |
|
| 642 | - |
|
Eliminations & Other |
| (232) |
|
| (104) | - |
|
|
| (497) |
|
| (186) | - |
|
Total Segment Operating Contribution | $ | 2,544 |
| $ | 2,528 | 0.6 | % |
| $ | 6,879 |
| $ | 2,992 | - | % |
Our WarnerMedia segment consists of our Turner, Home Box Office and Warner Bros. business units. The order of presentation reflects the consistency of revenue streams, rather than overall magnitude as that is subject to timing and frequency of studio releases. WarnerMedia also includes our financial results for RSNs.
The WarnerMedia segment does not include results from Time Warner operations for the periods prior to our June 14, 2018 acquisition. Otter Media is included as an equity method investment for periods prior to our August 7, 2018 acquisition of the remaining interest and is in the segment operating results following the acquisition. Consistent with our past practice, many of the impacts of the fair value adjustments from the application of purchase accounting required under GAAP have not been allocated to the segment, instead they are reported as acquisition-related items in the reconciliation to consolidated results.
48
AT&T INC.
SEPTEMBER 30, 2019
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
Segment and business unit results for the first nine months are not comparable to the prior period and therefore not discussed. Comparative results for the third quarter are discussed below.
Operating revenues decreased in the third quarter of 2019, primarily due to lower Warner Bros. revenues, partially offset by increased revenues from Home Box Office and Turner.
Operating contribution increased in the third quarter of 2019. The WarnerMedia segment operating income margin in the third quarter increased from 31.3% in 2018 to 32.2% in 2019.
WarnerMedia Business Unit Discussion | |||||||||||||||
Turner Results |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Third Quarter |
| Nine-Month Period | ||||||||||||
|
|
|
|
|
| Percent |
|
|
|
|
|
| Percent | ||
| 2019 |
| 2018 | Change |
| 2019 |
| 2018 | Change | ||||||
Operating revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription | $ | 1,927 |
| $ | 1,855 | 3.9 | % |
| $ | 5,835 |
| $ | 2,363 | - | % |
Advertising |
| 913 |
|
| 944 | (3.3) |
|
|
| 3,440 |
|
| 1,181 | - |
|
Content and other |
| 167 |
|
| 189 | (11.6) |
|
|
| 585 |
|
| 223 | - |
|
Total Operating Revenues |
| 3,007 |
|
| 2,988 | 0.6 |
|
|
| 9,860 |
|
| 3,767 | - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations and support |
| 1,460 |
|
| 1,487 | (1.8) |
|
|
| 5,813 |
|
| 1,933 | - |
|
Depreciation and amortization |
| 68 |
|
| 59 | 15.3 |
|
|
| 167 |
|
| 71 | - |
|
Total Operating Expenses |
| 1,528 |
|
| 1,546 | (1.2) |
|
|
| 5,980 |
|
| 2,004 | - |
|
Operating Income |
| 1,479 |
|
| 1,442 | 2.6 |
|
|
| 3,880 |
|
| 1,763 | - |
|
Equity in Net Income of Affiliates |
| 10 |
|
| 7 | 42.9 |
|
|
| 46 |
|
| 39 | 17.9 |
|
Operating Contribution | $ | 1,489 |
| $ | 1,449 | 2.8 | % |
| $ | 3,926 |
| $ | 1,802 | - | % |
Turner includes the WarnerMedia businesses managed by Turner as well as our RSNs.
Operating revenues increased in the third quarter of 2019, reflecting higher subscription revenues driven by higher domestic affiliate rates and growth at Turner’s international networks. These increases were partially offset by lower advertising revenues, resulting from lower audience delivery in the domestic entertainment networks, reduced content revenue and foreign exchange pressure.
Operations and support expenses decreased in the third quarter of 2019 due to lower programming, marketing and direct operating costs.
Operating income increased in the third quarter of 2019. Our Turner operating income margin in the third quarter increased from 48.3% in 2018 to 49.2% in 2019. Our Turner EBITDA margin increased from 50.2% in 2018 to 51.4% in 2019.
49
AT&T INC.
SEPTEMBER 30, 2019
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
Home Box Office Results |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Third Quarter |
| Nine-Month Period | ||||||||||||
|
|
|
|
|
| Percent |
|
|
|
|
|
| Percent | ||
| 2019 |
| 2018 | Change |
| 2019 |
| 2018 | Change | ||||||
Operating revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscription | $ | 1,533 |
| $ | 1,517 | 1.1 | % |
| $ | 4,383 |
| $ | 1,787 | - | % |
Content and other |
| 286 |
|
| 127 | - |
|
|
| 662 |
|
| 138 | - |
|
Total Operating Revenues |
| 1,819 |
|
| 1,644 | 10.6 |
|
|
| 5,045 |
|
| 1,925 | - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations and support |
| 1,072 |
|
| 991 | 8.2 |
|
|
| 3,124 |
|
| 1,162 | - |
|
Depreciation and amortization |
| 33 |
|
| 25 | 32.0 |
|
|
| 67 |
|
| 30 | - |
|
Total Operating Expenses |
| 1,105 |
|
| 1,016 | 8.8 |
|
|
| 3,191 |
|
| 1,192 | - |
|
Operating Income |
| 714 |
|
| 628 | 13.7 |
|
|
| 1,854 |
|
| 733 | - |
|
Equity in Net Income of Affiliates |
| 10 |
|
| 2 | - |
|
|
| 40 |
|
| 1 | - |
|
Operating Contribution | $ | 724 |
| $ | 630 | 14.9 | % |
| $ | 1,894 |
| $ | 734 | - | % |
Operating revenues increased in the third quarter of 2019, driven by higher content and other revenues due to an increase in international licensing. Subscription revenues also increased as a result of growth in digital and international subscriptions, partially offset by lower domestic linear subscribers.
Operations and support expenses increased in the third quarter of 2019 due to higher programming, distribution and marketing expenses.
Operating income increased in the third quarter of 2019. Our Home Box Office operating income margin in the third quarter increased from 38.2% in 2018 to 39.3% in 2019. Our Home Box Office EBITDA margin increased from 39.7% in 2018 to 41.1% in 2019.
Warner Bros. Results |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Third Quarter |
| Nine-Month Period | ||||||||||||
|
|
|
|
|
| Percent |
|
|
|
|
|
| Percent | ||
| 2019 |
| 2018 | Change |
| 2019 |
| 2018 | Change | ||||||
Operating revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Theatrical product | $ | 1,375 |
| $ | 1,694 | (18.8) | % |
| $ | 4,408 |
| $ | 1,917 | - | % |
Television product |
| 1,461 |
|
| 1,591 | (8.2) |
|
|
| 4,384 |
|
| 1,794 | - |
|
Games and other |
| 497 |
|
| 435 | 14.3 |
|
|
| 1,448 |
|
| 516 | - |
|
Total Operating Revenues |
| 3,333 |
|
| 3,720 | (10.4) |
|
|
| 10,240 |
|
| 4,227 | - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations and support |
| 2,706 |
|
| 3,104 | (12.8) |
|
|
| 8,543 |
|
| 3,507 | - |
|
Depreciation and amortization |
| 39 |
|
| 40 | (2.5) |
|
|
| 122 |
|
| 54 | - |
|
Total Operating Expenses |
| 2,745 |
|
| 3,144 | (12.7) |
|
|
| 8,665 |
|
| 3,561 | - |
|
Operating Income |
| 588 |
|
| 576 | 2.1 |
|
|
| 1,575 |
|
| 666 | - |
|
Equity in Net Income (Loss) of Affiliates |
| (25) |
|
| (23) | (8.7) |
|
|
| (19) |
|
| (24) | 20.8 |
|
Operating Contribution | $ | 563 |
| $ | 553 | 1.8 | % |
| $ | 1,556 |
| $ | 642 | - | % |
50
AT&T INC.
SEPTEMBER 30, 2019
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
Operating revenues decreased in the third quarter of 2019, primarily due to lower theatrical product resulting from a more favorable mix of box office releases in the prior-year quarter, and lower television licensing revenues. These decreases were partially offset by increases in games and initial telecast revenues.
Operations and support expenses decreased in the third quarter of 2019 primarily due to lower film and television production costs.
Operating income increased in the third quarter of 2019. Our Warner Bros. operating income margin in the third quarter increased from 15.5% in 2018 to 17.6% in 2019. Our Warner Bros. EBITDA margin increased from 16.6% in 2018 to 18.8% in 2019.
LATIN AMERICA SEGMENT | Third Quarter |
| Nine-Month Period | ||||||||||||
|
|
|
|
|
| Percent |
|
|
|
|
|
| Percent | ||
| 2019 |
| 2018 | Change |
| 2019 |
| 2018 | Change | ||||||
Segment Operating Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vrio | $ | 1,013 |
| $ | 1,102 | (8.1) | % |
| $ | 3,112 |
| $ | 3,710 | (16.1) | % |
Mexico |
| 717 |
|
| 731 | (1.9) |
|
|
| 2,093 |
|
| 2,099 | (0.3) |
|
Total Segment Operating Revenues |
| 1,730 |
|
| 1,833 | (5.6) |
|
|
| 5,205 |
|
| 5,809 | (10.4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment Operating Contribution |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vrio |
| 13 |
|
| 66 | (80.3) |
|
|
| 43 |
|
| 281 | (84.7) |
|
Mexico |
| (179) |
|
| (267) | 33.0 |
|
|
| (591) |
|
| (743) | 20.5 |
|
Total Segment Operating Contribution | $ | (166) |
| $ | (201) | 17.4 | % |
| $ | (548) |
| $ | (462) | (18.6) | % |
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 third quarter and for the nine months of 2019 driven by lower revenues for Vrio, primarily resulting from foreign exchange pressures related to Argentina’s hyperinflationary economy.
Operating contribution increased in the third quarter and decreased for the first nine months of 2019, reflecting foreign exchange pressure. Our Latin America segment operating income margin in the third quarter increased from (11.5)% in 2018 to (10.3)% in 2019, and for the first nine months decreased from (8.4)% in 2018 to (11.0)% in 2019.
51
AT&T INC.
SEPTEMBER 30, 2019
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
Latin America Business Unit Discussion |
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Mexico Results |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Third Quarter |
|
| Nine-Month Period |
| ||||||||||
| 2019 |
| 2018 | Percent Change |
| 2019 |
| 2018 | Percent Change | ||||||
Operating revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service | $ | 455 |
| $ | 440 | 3.4 | % |
| $ | 1,376 |
| $ | 1,261 | 9.1 | % |
Equipment |
| 262 |
|
| 291 | (10.0) |
|
|
| 717 |
|
| 838 | (14.4) |
|
Total Operating Revenues |
| 717 |
|
| 731 | (1.9) |
|
|
| 2,093 |
|
| 2,099 | (0.3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations and support |
| 774 |
|
| 869 | (10.9) |
|
|
| 2,312 |
|
| 2,459 | (6.0) |
|
Depreciation and amortization |
| 122 |
|
| 129 | (5.4) |
|
|
| 372 |
|
| 383 | (2.9) |
|
Total Operating Expenses |
| 896 |
|
| 998 | (10.2) |
|
|
| 2,684 |
|
| 2,842 | (5.6) |
|
Operating Income (Loss) |
| (179) |
|
| (267) | 33.0 |
|
|
| (591) |
|
| (743) | 20.5 |
|
Equity in Net Income of Affiliates |
| - |
|
| - | - |
|
|
| - |
|
| - | - |
|
Operating Contribution | $ | (179) |
| $ | (267) | 33.0 | % |
| $ | (591) |
| $ | (743) | 20.5 | % |
The following tables highlight other key measures of performance for Mexico:
|
|
|
|
|
|
|
|
|
| September 30, | Percent | |||||
(in 000s) |
|
|
|
|
|
|
|
| 2019 |
|
| 2018 | Change | |||
Mexico Wireless Subscribers1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Postpaid |
|
|
|
|
|
|
|
|
| 5,352 |
|
| 5,822 | (8.1) | % | |
Prepaid |
|
|
|
|
|
|
|
|
| 12,848 |
|
| 11,270 | 14.0 |
| |
Reseller |
|
|
|
|
|
|
|
|
| 419 |
|
| 213 | 96.7 |
| |
Total Mexico Wireless Subscribers |
|
|
|
|
|
|
|
|
| 18,619 |
|
| 17,305 | 7.6 | % | |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Third Quarter |
|
| Nine-Month Period | |||||||||||
|
|
|
|
|
|
| Percent |
|
|
|
|
|
| Percent | ||
(in 000s) |
| 2019 |
|
| 2018 | Change |
|
| 2019 |
|
| 2018 | Change | |||
Mexico Wireless Net Additions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Postpaid |
| (137) |
|
| 73 | - | % |
|
| (359) |
|
| 324 | - | % | |
Prepaid |
| 668 |
|
| 802 | (16.7) |
|
|
| 1,183 |
|
| 1,873 | (36.8) |
| |
Reseller |
| 67 |
|
| 32 | - |
|
|
| 166 |
|
| 9 | - |
| |
Mexico Wireless Net Subscriber Additions |
| 598 |
|
| 907 | (34.1) | % |
|
| 990 |
|
| 2,206 | (55.1) | % | |
1 | 2019 excludes the impact of 692 subscriber disconnections resulting 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 third quarter and for the first nine months of 2019, primarily due to growth in our subscriber base.
Equipment revenues decreased in the third quarter and for the first nine months of 2019, reflecting higher demand in the prior year for our initial offering of equipment installment programs.
52
AT&T INC.
SEPTEMBER 30, 2019
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
Operations and support expenses decreased in the third quarter and for the first nine months of 2019, primarily due to lower equipment sales, partially offset by higher bad debt expenses. Approximately 6% of Mexico expenses are U.S. dollar based, with the remainder in the local currency.
Depreciation and amortization expense decreased in the third quarter and for the first nine months of 2019, primarily due to changes in the useful lives of certain assets, partially offset by the amortization of spectrum licenses and higher in-service assets.
Operating income increased in the third quarter and first nine months of 2019. Our Mexico operating income margin in the third quarter increased from (36.5)% in 2018 to (25.0)% in 2019, and for the first nine months increased from (35.4)% in 2018 to (28.2)% in 2019. Our Mexico EBITDA margin in the third quarter increased from (18.9)% in 2018 to (7.9)% in 2019, and for the first nine months increased from (17.2)% in 2018 to (10.5)% in 2019.
Vrio Results |
|
|
|
|
|
|
|
|
|
|
|
|
| ||
| Third Quarter |
| Nine-Month Period | ||||||||||||
|
|
|
|
|
| Percent |
|
|
|
|
|
| Percent | ||
| 2019 |
| 2018 | Change |
| 2019 |
| 2018 | Change | ||||||
Operating revenues | $ | 1,013 |
| $ | 1,102 | (8.1) | % |
| $ | 3,112 |
| $ | 3,710 | (16.1) | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations and support |
| 851 |
|
| 877 | (3.0) |
|
|
| 2,598 |
|
| 2,894 | (10.2) |
|
Depreciation and amortization |
| 162 |
|
| 168 | (3.6) |
|
|
| 496 |
|
| 559 | (11.3) |
|
Total Operating Expenses |
| 1,013 |
|
| 1,045 | (3.1) |
|
|
| 3,094 |
|
| 3,453 | (10.4) |
|
Operating Income |
| - |
|
| 57 | - |
|
|
| 18 |
|
| 257 | (93.0) |
|
Equity in Net Income of Affiliates |
| 13 |
|
| 9 | 44.4 |
|
|
| 25 |
|
| 24 | 4.2 |
|
Operating Contribution | $ | 13 |
| $ | 66 | (80.3) | % |
| $ | 43 |
| $ | 281 | (84.7) | % |
The following tables highlight other key measures of performance for Vrio:
|
|
|
|
|
|
|
|
| September 30, | Percent | |||||
(in 000s) |
|
|
|
|
|
|
| 2019 |
|
| 2018 | Change | |||
Vrio Video Subscribers1,2 |
|
|
|
|
|
|
|
| 13,306 |
|
| 13,640 | (2.4) | % | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Third Quarter |
| Nine -Month Period | ||||||||||
|
|
|
|
|
|
| Percent |
|
|
|
|
| Percent | ||
(in 000s) |
| 2019 |
|
| 2018 | Change |
| 2019 |
|
| 2018 | Change | |||
Vrio Video Net Subscriber Additions3 |
| (167) |
|
| (73) | - | % |
| (310) |
|
| 52 | - | % | |
1 | Excludes subscribers of our equity investment in SKY Mexico, in which we own a 41.3% stake. SKY Mexico had 7.4 million | ||||||||||||||
| subscribers at June 30, 2019 and 7.8 million subscribers at September 30, 2018. | ||||||||||||||
2 | 2019 excludes the impact of 222 subscriber disconnections resulting from conforming our video credit policy across the region, which is | ||||||||||||||
| reflected in beginning of period subscribers. | ||||||||||||||
3 | Excludes SKY Mexico net subscriber additions of 7 and losses of 126 for the quarter ended June 30, 2019 and September 30, 2018, | ||||||||||||||
| respectively. |
Operating revenues decreased in the third quarter and for the first nine months of 2019, primarily due to foreign exchange pressures.
53
AT&T INC.
SEPTEMBER 30, 2019
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
Operations and support expenses decreased in the third quarter and for the first nine months of 2019, primarily due to changes in foreign currency exchange rates. Approximately 19% of Vrio expenses are U.S. dollar based, with the remainder in the local currency.
Depreciation expense decreased in the third quarter and for the first nine months of 2019, primarily due to changes in foreign currency exchange rates.
Operating income decreased in the third quarter and for the first nine months of 2019. Our Vrio operating income was $0, compared to an operating income of $57, or an operating income margin of 5.2%, in the year-earlier quarter. For the first nine months our operating income margin decreased from 6.9% in 2018 to 0.6% in 2019. Our Vrio EBITDA margin in the third quarter decreased from 20.4% in 2018 to 16.0% in 2019, and for the first nine months decreased from 22.0% in 2018 to 16.5% in 2019.
XANDR SEGMENT | Third Quarter |
|
| Nine-Month Period |
| ||||||||||
|
|
|
|
|
| Percent |
|
|
|
|
|
| Percent | ||
| 2019 |
| 2018 | Change |
| 2019 |
| 2018 | Change | ||||||
Operating revenues | $ | 504 |
| $ | 445 | 13.3 | % |
| $ | 1,415 |
| $ | 1,174 | 20.5 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations and support |
| 162 |
|
| 109 | 48.6 |
|
|
| 469 |
|
| 218 | - |
|
Depreciation and amortization |
| 15 |
|
| 3 | - |
|
|
| 41 |
|
| 4 | - |
|
Total Operating Expenses |
| 177 |
|
| 112 | 58.0 |
|
|
| 510 |
|
| 222 | - |
|
Operating Income |
| 327 |
|
| 333 | (1.8) |
|
|
| 905 |
|
| 952 | (4.9) |
|
Equity in Net Income of Affiliates |
| - |
|
| - | - |
|
|
| - |
|
| - | - |
|
Operating Contribution | $ | 327 |
| $ | 333 | (1.8) | % |
| $ | 905 |
| $ | 952 | (4.9) | % |
Operating revenues increased in the third quarter and for the first nine months of 2019 primarily due to our acquisition of AppNexus in August 2018.
Operations and support expenses increased in the third quarter and for the first nine months of 2019, primarily due to our acquisition of AppNexus and our ongoing development of the platform supporting Xandr’s business.
Operating income decreased in the third quarter and for the first nine months of 2019. Our Xandr segment operating income margin in the third quarter decreased from 74.8% in 2018 to 64.9% in 2019, and for the first nine months decreased from 81.1% in 2018 to 64.0% in 2019.
54
AT&T INC.
SEPTEMBER 30, 2019
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Third Quarter |
|
| Nine-Month Period |
| ||||||||||
|
|
|
|
|
| Percent |
|
|
|
|
|
| Percent | ||
| 2019 |
| 2018 | Change |
| 2019 |
| 2018 | Change | ||||||
Operating Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WarnerMedia | $ | 945 |
| $ | 983 | (3.9) | % |
| $ | 3,509 |
| $ | 1,222 | - | % |
Communications |
| 495 |
|
| 478 | 3.6 |
|
|
| 1,382 |
|
| 1,284 | 7.6 |
|
Xandr |
| 504 |
|
| 445 | 13.3 |
|
|
| 1,415 |
|
| 1,174 | 20.5 |
|
Eliminations |
| (421) |
|
| (401) | (5.0) |
|
|
| (1,170) |
|
| (1,122) | (4.3) |
|
Total Advertising Revenues | $ | 1,523 |
| $ | 1,505 | 1.2 | % |
| $ | 5,136 |
| $ | 2,558 | - | % |
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Third Quarter |
|
| Nine-Month Period |
| ||||||||||
| 2019 |
| 2018 | Percent Change |
| 2019 |
| 2018 | Percent Change | ||||||
|
|
|
| ||||||||||||
Operating revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wireless service | $ | 2,009 |
| $ | 1,857 | 8.2 | % |
| $ | 5,901 |
| $ | 5,440 | 8.5 | % |
Strategic and managed services |
| 3,900 |
|
| 3,677 | 6.1 |
|
|
| 11,513 |
|
| 10,849 | 6.1 |
|
Legacy voice and data services |
| 2,252 |
|
| 2,602 | (13.5) |
|
|
| 6,973 |
|
| 8,176 | (14.7) |
|
Other service and equipment |
| 351 |
|
| 404 | (13.1) |
|
|
| 1,102 |
|
| 1,010 | 9.1 |
|
Wireless equipment |
| 694 |
|
| 586 | 18.4 |
|
|
| 1,902 |
|
| 1,737 | 9.5 |
|
Total Operating Revenues |
| 9,206 |
|
| 9,126 | 0.9 |
|
|
| 27,391 |
|
| 27,212 | 0.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations and support |
| 5,643 |
|
| 5,575 | 1.2 |
|
|
| 16,770 |
|
| 16,724 | 0.3 |
|
Depreciation and amortization |
| 1,573 |
|
| 1,485 | 5.9 |
|
|
| 4,643 |
|
| 4,408 | 5.3 |
|
Total Operating Expenses |
| 7,216 |
|
| 7,060 | 2.2 |
|
|
| 21,413 |
|
| 21,132 | 1.3 |
|
Operating Income |
| 1,990 |
|
| 2,066 | (3.7) |
|
|
| 5,978 |
|
| 6,080 | (1.7) |
|
Equity in Net Income (Loss) of Affiliates |
| (1) |
|
| (3) | 66.7 |
|
|
| - |
|
| (2) | - |
|
Operating Contribution | $ | 1,989 |
| $ | 2,063 | (3.6) | % |
| $ | 5,978 |
| $ | 6,078 | (1.6) | % |
55
AT&T INC.
SEPTEMBER 30, 2019
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
OTHER BUSINESS MATTERS
Unlimited Data Plan Claims In October 2014, the FTC filed a civil suit in the U.S. District Court for the Northern District of California against AT&T Mobility, LLC seeking injunctive relief and unspecified money damages under Section 5 of the Federal Trade Commission Act. The FTC’s allegations concern the application of AT&T’s Maximum Bit Rate (MBR) program to customers who enrolled in our Unlimited Data Plan from 2007-2010. MBR temporarily reduces in certain instances the download speeds of a small portion of our legacy Unlimited Data Plan customers each month after the customer exceeds a designated amount of data during the customer’s billing cycle. MBR is an industry-standard practice that is designed to affect only the most data-intensive applications (such as video streaming). Texts, emails, tweets, social media posts, internet browsing and many other applications are typically unaffected. Contrary to the FTC’s allegations, our MBR program is permitted by our customer contracts, was fully disclosed in advance to our Unlimited Data Plan customers, and was implemented to protect the network for the benefit of all customers. We reached a tentative agreement with the FTC staff in August 2019, pending FTC approval. We do not expect the resolution of the matter to have a material adverse impact on our financial results. We are not admitting culpability in the tentative agreement. In addition to the FTC case, several class actions were filed challenging our MBR program. We secured dismissals in each of these cases except Roberts v. AT&T Mobility LLC, which is ongoing.
Labor Contracts As of September 30, 2019, we employed approximately 252,000 persons. Approximately 40% of our employees are represented by the Communications Workers of America (CWA), the International Brotherhood of Electrical Workers (IBEW) or other unions. After expiration of the agreements, work stoppages or labor disruptions may occur in the absence of new contracts or other agreements being reached.
A contract covering approximately 8,000 traditional wireline employees in our Midwest region expired in April 2018. In August 2019, a new four-year contract was ratified by employees and will expire in April 2022.
A contract covering approximately 3,000 traditional wireline employees in our legacy AT&T Corp. business expired in April 2018. In August 2019, a new four-year contract was ratified by employees and will expire in April 2022.
A contract covering approximately 20,000 traditional wireline employees in our Southeast region expired in August 2019. In October 2019, a new five-year contract was ratified by employees and will expire in August 2024.
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 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.
56
AT&T INC.
SEPTEMBER 30, 2019
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
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. On October 1, 2019, the court issued a unanimous opinion upholding the FCC’s reclassification of broadband as an information service, and its reliance on transparency requirements and competitive marketplace dynamics to safeguard net neutrality. While the court vacated the FCC’s express preemption of any state regulation of net neutrality, it nevertheless stressed that its ruling does not prevent the FCC or ISPs from relying on conflict preemption to invalidate particular state laws that are inconsistent with the FCC’s regulatory objectives and framework. The court also concluded that the FCC failed to satisfy its obligation under the Administrative Procedure Act (APA) to consider the impact of its 2017 order in three discrete areas—public safety, the Lifeline program, and pole attachment regulation—and thus remanded it to the FCC for further proceedings on those issues, but without disturbing the operative effect of that order. A number of states have adopted legislation that would reimpose the very rules the FCC repealed, and in some cases, established 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. If no one seeks rehearing or Supreme Court review of the D.C. Circuit’s decision, the foregoing litigation will recommence. We expect that additional states may seek to regulate net neutrality based on the D.C. Circuit’s decision. We will continue to support congressional action to codify a set of standard consumer rules for the internet.
In October 2016, a sharply divided FCC adopted new rules governing the use of customer information by providers of broadband internet access service. Those rules were more restrictive in certain respects than those governing other participants in the internet economy, including so-called “edge” providers such as Google and Facebook. In April 2017, the president signed a resolution passed by Congress repealing the new rules under the Congressional Review Act.
Privacy-related legislation has been considered in a number of states. Legislative and regulatory action could result in increased costs of compliance, claims against broadband internet access service providers and others, and increased uncertainty in the value and availability of data. On June 28, 2018, the state of California enacted comprehensive privacy legislation that, effective as of January 1, 2020, gives California consumers the right to know what personal information is being collected about them, and whether and to whom it is sold or disclosed, and to access and request deletion of this information. Subject to certain exceptions, it also gives consumers the right to opt-out of the sale of personal information. The law applies the same rules to all companies that collect consumer information.
Wireless The industry-wide deployment of 5G technology, which is needed to satisfy extensive demand for video and internet access, will involve significant deployment of “small cell” equipment and therefore increase the need for local permitting processes that allow for the placement of small cell equipment on reasonable timelines and terms. Federal regulations also can delay and impede broadband services, including small cell equipment. In March, August and September 2018, the FCC adopted orders to streamline the wireless infrastructure review process in order to facilitate deployment of next-generation wireless facilities. Those orders have been appealed and the various appeals remain pending in the DC Circuit and 9th Circuit Court of Appeals. In addition, to date, 28 states and Puerto Rico have adopted legislation to facilitate small cell deployment.
In December 2018, we introduced the nation’s first commercial mobile 5G service. We currently have mobile 5G in parts of 21 U.S. cities and we plan to roll out mobile 5G service in parts of at least 29 cities by the end of the year. We expect to have mobile 5G service nationwide to more than 200 million people by the first half of 2020.
57
AT&T INC.
SEPTEMBER 30, 2019
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
LIQUIDITY AND CAPITAL RESOURCES
We had $6,588 in cash and cash equivalents available at September 30, 2019. Cash and cash equivalents included cash of $3,765 and money market funds and other cash equivalents of $2,823. Approximately $2,200 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 $1,384 since December 31, 2018. In the first nine months of 2019, cash inflows were primarily provided by the cash receipts from operations, including cash from our sale and transfer of certain wireless equipment installment and WarnerMedia receivables to third parties, sale of investments, issuance of commercial paper and long-term debt, collateral received from banks and other participants in our derivative arrangements and issuance of perpetual nonconvertible preferred interests in a subsidiary. 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, spectrum deposits and dividends to stockholders.
Cash Provided by or Used in Operating Activities
During the first nine months of 2019, cash provided by operating activities was $36,725, compared to $31,522 for the first nine months of 2018. Higher operating cash flows in 2019 were primarily due to contributions from WarnerMedia and higher cash flows from working capital initiatives, including sales of receivables (see Note 9), partly offset by higher spend on film and television production and net tax payments in 2019 compared to net tax refunds in 2018.
We actively manage the timing of our supplier payments for non-capital items to optimize the use of our cash. Among other things, we seek to make payments on 90-day or greater terms, while providing the suppliers with access to bank facilities that permit earlier payments at their cost. In addition, for payments to a key supplier, we have arrangements that allow us to extend payment terms up to 90 days at an additional cost to us (referred to as supplier financing). The net impact of supplier financing on cash from operating activities was to reduce working capital $345 for the first nine months of 2019, and to improve working capital $284 for the first nine months of 2018. All supplier financing payments are due within one year.
Cash Used in or Provided by Investing Activities
For the first nine months of 2019, cash used in investing activities totaled $13,002, and consisted primarily of $15,843 (including interest during construction) for capital expenditures, ($1,256 lower than the prior-year comparable period), offset by proceeds from the sales of our ownership interests in Hulu and WarnerMedia’s headquarters (Hudson Yards) under a sale-leaseback arrangement (see Note 8).
For capital improvements, we have negotiated favorable vendor payment terms of 120 days or more (referred to as vendor financing) with some of our vendors, which are excluded from capital expenditures and reported as financing activities. For the first nine months of 2019, these vendor financing payments were $2,601, and when combined with $15,843 of capital expenditures, total capital investment was $18,444 ($998 higher than the prior-year comparable period). In the first nine months of 2019, we placed $1,917 of equipment in service under vendor financing arrangements.
The vast majority of our capital expenditures are spent on our networks, including product development and related support systems. During the first nine months, approximately $850 of assets related to the FirstNet build were placed into service. Total reimbursements from the government for FirstNet during the first nine months were $134 for 2019 and $336 for 2018, predominantly for capital expenditures.
The amount of capital expenditures is influenced by demand for services and products, capacity needs and network enhancements. In July 2019, we completed our DIRECTV merger commitment, marketing fiber-to-the-premises network to nearly 14 million customer locations.
Cash Provided by or Used in Financing Activities
For the first nine months of 2019, cash used in financing activities totaled $22,341 and included net proceeds of $15,034, which consisted primarily of the following issuances:
58
AT&T INC.
SEPTEMBER 30, 2019
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
Issued and redeemed in 2019
January draw of $2,850 on an 11-month syndicated term loan agreement (repaid in the third quarter).
January draw of $750 on a private financing agreement (repaid in the first quarter).
August borrowings of $400 under a private financing agreement (repaid in the third quarter).
Issued and outstanding at September 30, 2019
February issuance of $3,000 of 4.350% global notes due 2029.
February issuance of $2,000 of 4.850% global notes due 2039.
Borrowings of $725 in January and $525 in June that are supported by government agencies to support network equipment purchases.
June draw of $300 on U.S. Bank credit agreement.
September issuance of €1,000 of 0.25% global notes due 2026, €1,250 of 0.80% global notes due 2030 and €750 of 1.80% global notes due 2039 (when combined, $3,308 at issuance).
September draw of $1,300 on a Bank of America term loan credit agreement.
During the first nine months of 2019, repayment of long-term debt totaled $24,368. Repayments primarily consisted of the following:
Notes redeemed at maturity:
$1,850 of 2.300% AT&T global notes in the first quarter.
$400 of AT&T floating-rate notes in the first quarter.
€1,500 of AT&T floating-rate notes in the second quarter ($1,882 at maturity).
$650 of 2.100% WarnerMedia, LLC notes in the second quarter.
Notes redeemed prior to maturity:
$2,010 of AT&T global notes with interest rates ranging from 4.750% to 5.200% and original maturities in 2020 and 2021, in the first quarter.
$2,000 of Warner Media, LLC notes with interest rates ranging from 4.700% to 5.200% and original maturities in 2021, in the first quarter.
$590 of Warner Media, LLC and/or Historic TW Inc. notes that were tendered for cash in our May 2019 obligor debt exchange. The notes had interest rates ranging between 6.500% and 9.150% and original maturities ranging from 2023 to 2036.
$243 of open market redemptions of AT&T notes, with interest rates ranging from 7.125% to 8.750% and original maturities in 2031, in the second quarter.
$154 of open market redemptions of WarnerMedia, LLC, Historic TW Inc., BellSouth LLC and AT&T Mobility LLC notes, with interest rates ranging from 2.95% to 7.625% and original maturities ranging from 2022 to 2097, in the third quarter.
Credit facilities and other redemptions:
$2,625 of final amounts outstanding under our Acquisition Term Loan (defined below) in the first quarter.
$750 of January borrowings under a private financing agreement, in the first quarter.
$1,500 of four-year and five-year borrowings under the Nova Scotia Credit Agreement (defined below) in the second quarter and $750 of three-year borrowings in the third quarter.
$600 of borrowings under our credit agreement with Canadian Imperial Bank of Commerce in the second quarter.
$500 of advances under our November 2018 Term Loan (defined below) in the second quarter, with payment of the remaining $3,050 of advances in the third quarter.
$250 of borrowings under a U.S. Bank credit agreement in the second quarter.
$750 of borrowings under a private credit agreement in the third quarter.
$400 of borrowings under a private financing agreement in the third quarter.
$2,850 of borrowings under an 11-month syndicated term loan agreement from January 2019 in the third quarter.
59
AT&T INC.
SEPTEMBER 30, 2019
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
Our weighted average interest rate of our entire long-term debt portfolio, including the impact of derivatives, was approximately 4.4% as of September 30, 2019 and 4.4% as of December 31, 2018. We had $160,758 of total notes and debentures outstanding at September 30, 2019, which included Euro, British pound sterling, Swiss franc, Brazilian real, Mexican peso, Canadian dollar and Australian dollar denominated debt that totaled approximately $41,399.
At September 30, 2019, we had $11,608 of debt maturing within one year, consisting of $2,443 of commercial paper and other short-term borrowings and $9,165 of long-term debt issuances. Debt maturing within one year includes the following notes that may be put back to us by the holders:
$1,000 of annual put reset securities issued by BellSouth that may be put back to us each April until maturity in 2021.
An accreting zero-coupon note that may be redeemed each May until maturity in 2022. If the remainder of the zero-coupon note (issued for principal of $500 in 2007 and partially exchanged in the 2017 debt exchange offers) is held to maturity, the redemption amount will be $592.
For the first nine months of 2019, we paid $2,601 of cash under our vendor financing program, compared to $347 in the first nine months of 2018. Total vendor financing payables included in our September 30, 2019 consolidated balance sheet were approximately $1,800, with $1,350 due within one year (in “Accounts payable and accrued liabilities”) and the remainder predominantly due within two to three years (in “Other noncurrent liabilities”).
In September 2019, we contributed certain tower assets to a wireless subsidiary and then generated $1,500 of capital from the issuance of nonconvertible preferred interests, which we reported as financing activities (see Note 11).
At September 30, 2019, we had approximately 371 million shares remaining from share repurchase authorizations approved by the Board of Directors in 2013 and 2014.
We paid dividends of $11,162 during the first nine months of 2019, compared with $9,775 for the first nine months of 2018, primarily reflecting the increase in the number of shares outstanding related to our June 2018 acquisition of Time Warner as well as an increase in our quarterly dividend approved by our Board of Directors in December 2018. Dividends declared by our Board of Directors totaled $1.53 per share in the first nine months of 2019 and $1.50 per share for the first nine 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 September 30, 2019.
In September 2017, we entered into a $2,250 syndicated term loan credit agreement (the “Nova Scotia Credit Agreement”) containing (i) a three-year $750 term loan facility (the “2021 facility”), (ii) a four-year $750 term loan facility (the “2022 facility”) and (iii) a five-year $750 term loan facility (the “2023 facility”), with certain investment and commercial banks and The Bank of Nova Scotia, as administrative agent. We drew on all three facilities during the first quarter of 2018, paid the 2022 and 2023 facilities during the second quarter of 2019 and paid the 2021 facility during the third quarter of 2019. No amounts were outstanding under the Nova Scotia Credit Agreement as of September 30, 2019.
On November 20, 2018, we entered into and drew on a 4.5 year $3,550 term loan credit agreement (the “November 2018 Term Loan”) with Bank of America, N.A., as agent. We used the proceeds to finance the repayment, in part, of loans
60
AT&T INC.
SEPTEMBER 30, 2019
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
outstanding under the Acquisition Term Loan. We paid $500 of these borrowings in the second quarter of 2019, and paid the remaining $3,050 in the third quarter. No amounts were outstanding under this agreement as of September 30, 2019.
On January 31, 2019, we entered into and drew on an 11-month $2,850 syndicated term loan credit agreement (the “Citibank Term Loan”), with certain investment and commercial banks and Citibank, N.A., as administrative agent. We paid the borrowings under the Citibank Term Loan during the third quarter. As of September 30, 2019, no amounts were outstanding under this agreement.
In September 2019, we entered into and drew on a $1,300 term loan credit agreement containing (i) a 1.25 year $400 facility due in 2020 (BAML Tranche A Facility), (ii) a 2.25 year $400 facility due in 2021 (BAML Tranche B Facility), and (iii) a 3.25 year $500 facility due in 2022 (BAML Tranche C Facility), with Bank of America, N.A., as agent. No payment had been made under these facilities as of September 30, 2019.
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 September 30, 2019, we were in compliance with the covenants for our credit facilities.
Collateral Arrangements
During the year, we amended collateral arrangements with certain counterparties to require cash collateral posting by AT&T only when derivative market values exceed certain thresholds. Under these arrangements, counterparties are still required to post collateral. During the first nine months of 2019, we received $1,204 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 September 30, 2019, our debt ratio was 45.9%, compared to 49.8% at September 30, 2018 and 47.7% at December 31, 2018. Our net debt ratio was 44.1% at September 30, 2019, compared to 47.4% at September 30, 2018 and 46.2% at December 31, 2018. The debt ratio is affected by the same factors that affect total capital, and reflects our recent debt issuances and repayments.
During the first nine months of 2019, we have received $3,775 from the disposition of assets, and when combined with capital received from the external investors in a wireless tower subsidiary, an amendment of collateral arrangements, and working capital monetization initiatives, which include the sale of receivables, total cash received from monetization efforts was approximately $10,800. We plan to continue to explore similar opportunities. In October 2019, we entered into an agreement to sell our wireless and wireline operations in Puerto Rico and the U.S. Virgin Islands for approximately $1,950, which we expect to close in the first half of 2020 (Note 8). Also in October, we entered into a sale-leaseback of certain domestic company-owned wireless towers for approximately $680, with a substantial number of the towers expected to close by year-end 2019, and an agreement to sell our stake in Central European Media Enterprises Ltd. for approximately $1,100, which we expect to close in the second quarter of 2020.
61
AT&T INC.
SEPTEMBER 30, 2019
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
DISCUSSION AND RECONCILIATION OF NON-GAAP MEASURE
We believe the following measure is relevant and useful information to investors as it is used by management as a method of comparing performance with that of many of our competitors. This supplemental measure should be considered in addition to, but not as a substitute of, our consolidated and segment financial information.
Business Solutions Reconciliation
We provide a supplemental discussion of our Business Solutions operations that is calculated by combining our Mobility and Business Wireline business units, and then adjusting to remove non-business operations. The following table presents a reconciliation of our supplemental Business Solutions results.
|
| Three Months Ended | |||||||||||||||
|
| September 30, 2019 |
|
| September 30, 2018 | ||||||||||||
|
| Mobility |
| Business Wireline |
| Adjustments1 |
| Business Solutions |
|
| Mobility |
| Business Wireline |
| Adjustments1 |
| Business Solutions |
Operating Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wireless service | $ | 13,930 | $ | - | $ | (11,921) | $ | 2,009 |
| $ | 13,828 | $ | - | $ | (11,971) | $ | 1,857 |
Strategic and managed services |
| - |
| 3,900 |
| - |
| 3,900 |
|
| - |
| 3,677 |
| - |
| 3,677 |
Legacy voice and data services |
| - |
| 2,252 |
| - |
| 2,252 |
|
| - |
| 2,602 |
| - |
| 2,602 |
Other service and equipment |
| - |
| 351 |
| - |
| 351 |
|
| - |
| 404 |
| - |
| 404 |
Wireless equipment |
| 3,771 |
| - |
| (3,077) |
| 694 |
|
| 3,907 |
| - |
| (3,321) |
| 586 |
Total Operating Revenues |
| 17,701 |
| 6,503 |
| (14,998) |
| 9,206 |
|
| 17,735 |
| 6,683 |
| (15,292) |
| 9,126 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations and support |
| 9,948 |
| 4,022 |
| (8,327) |
| 5,643 |
|
| 10,104 |
| 4,022 |
| (8,551) |
| 5,575 |
EBITDA |
| 7,753 |
| 2,481 |
| (6,671) |
| 3,563 |
|
| 7,631 |
| 2,661 |
| (6,741) |
| 3,551 |
Depreciation and amortization |
| 2,011 |
| 1,271 |
| (1,709) |
| 1,573 |
|
| 2,057 |
| 1,187 |
| (1,759) |
| 1,485 |
Total Operating Expense |
| 11,959 |
| 5,293 |
| (10,036) |
| 7,216 |
|
| 12,161 |
| 5,209 |
| (10,310) |
| 7,060 |
Operating Income |
| 5,742 |
| 1,210 |
| (4,962) |
| 1,990 |
|
| 5,574 |
| 1,474 |
| (4,982) |
| 2,066 |
Equity in net income (loss) of affiliates |
| - |
| (1) |
| - |
| (1) |
|
| 1 |
| (3) |
| (1) |
| (3) |
Operating Contribution | $ | 5,742 | $ | 1,209 | $ | (4,962) | $ | 1,989 |
| $ | 5,575 | $ | 1,471 | $ | (4,983) | $ | 2,063 |
1Non-business wireless reported in the Communications segment under the Mobility business unit. |
62
AT&T INC.
SEPTEMBER 30, 2019
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Continued
Dollars, subscribers and connections in millions, except per share and per subscriber amounts
|
| Nine Months Ended | |||||||||||||||
|
| September 30, 2019 |
|
| September 30, 2018 | ||||||||||||
|
| Mobility |
| Business Wireline |
| Adjustments1 |
| Business Solutions |
|
| Mobility |
| Business Wireline |
| Adjustments1 |
| Business Solutions |
Operating Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wireless service | $ | 41,383 | $ | - | $ | (35,482) | $ | 5,901 |
| $ | 40,594 | $ | - | $ | (35,154) | $ | 5,440 |
Strategic and managed services |
| - |
| 11,513 |
| - |
| 11,513 |
|
| - |
| 10,849 |
| - |
| 10,849 |
Legacy voice and data services |
| - |
| 6,973 |
| - |
| 6,973 |
|
| - |
| 8,176 |
| - |
| 8,176 |
Other service and equipment |
| - |
| 1,102 |
| - |
| 1,102 |
|
| - |
| 1,010 |
| - |
| 1,010 |
Wireless equipment |
| 10,973 |
| - |
| (9,071) |
| 1,902 |
|
| 11,371 |
| - |
| (9,634) |
| 1,737 |
Total Operating Revenues |
| 52,356 |
| 19,588 |
| (44,553) |
| 27,391 |
|
| 51,965 |
| 20,035 |
| (44,788) |
| 27,212 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operations and support |
| 29,511 |
| 12,029 |
| (24,770) |
| 16,770 |
|
| 29,603 |
| 12,047 |
| (24,926) |
| 16,724 |
EBITDA |
| 22,845 |
| 7,559 |
| (19,783) |
| 10,621 |
|
| 22,362 |
| 7,988 |
| (19,862) |
| 10,488 |
Depreciation and amortization |
| 6,027 |
| 3,735 |
| (5,119) |
| 4,643 |
|
| 6,218 |
| 3,520 |
| (5,330) |
| 4,408 |
Total Operating Expense |
| 35,538 |
| 15,764 |
| (29,889) |
| 21,413 |
|
| 35,821 |
| 15,567 |
| (30,256) |
| 21,132 |
Operating Income |
| 16,818 |
| 3,824 |
| (14,664) |
| 5,978 |
|
| 16,144 |
| 4,468 |
| (14,532) |
| 6,080 |
Equity in net income (loss) of affiliates |
| (1) |
| - |
| 1 |
| - |
|
| - |
| (2) |
| - |
| (2) |
Operating Contribution | $ | 16,817 | $ | 3,824 | $ | (14,663) | $ | 5,978 |
| $ | 16,144 | $ | 4,466 | $ | (14,532) | $ | 6,078 |
1Non-business wireless reported in the Communications segment under the Mobility business unit. |
63
AT&T INC.
SEPTEMBER 30, 2019
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Dollars in millions except per share amounts
At September 30, 2019, we had interest rate swaps with a notional value of $853 and a fair value of $2.
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 $42,792 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 $(4,483) at September 30, 2019. We have rate locks with a notional value of $3,500 and a fair value of $(225) at September 30, 2019.
We have foreign exchange contracts with a U.S. dollar notional value of $473 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 $79 at September 30, 2019.
We have designated €1,450 million aggregate principal amount of debt as a hedge of the variability of some of the Euro-denominated net investments of our subsidiaries. The gain or loss on the debt that is designated as, and is effective as, an economic hedge of the net investment in a foreign operation is recorded as a currency translation adjustment within accumulated 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 September 30, 2019. Based on that evaluation, the chief executive officer and chief financial officer concluded that the registrant’s disclosure controls and procedures were effective as of September 30, 2019.
64
AT&T INC.
SEPTEMBER 30, 2019
CAUTIONARY LANGUAGE CONCERNING FORWARD-LOOKING STATEMENTS
Information set forth in this report contains forward-looking statements that are subject to risks and uncertainties, and actual results could differ materially. Many of these factors are discussed in more detail in the “Risk Factors” section. We claim the protection of the safe harbor for forward-looking statements provided by the Private Securities Litigation Reform Act of 1995.
The following factors could cause our future results to differ materially from those expressed in the forward-looking statements:
Adverse economic and/or capital access changes in the markets served by us or in countries in which we have significant investments, including the impact on customer demand and our ability and our suppliers’ ability to access financial markets at favorable rates and terms.
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.
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 and/or government-owned or subsidized networks.
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
65
AT&T INC.
SEPTEMBER 30, 2019
CAUTIONARY LANGUAGE CONCERNING FORWARD-LOOKING STATEMENTS
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.
66
AT&T INC.
SEPTEMBER 30, 2019
PART II – OTHER INFORMATION
Dollars in millions except per share amounts
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 third quarter of 2019, there were no such material developments.
67
AT&T INC.
SEPTEMBER 30, 2019
PART II – OTHER INFORMATION - CONTINUED
Dollars in millions except per share amounts
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds |
|
| |||||||
|
|
|
|
|
|
|
|
|
|
(c) A summary of our repurchases of common stock during the third quarter of 2019 is as follows: | |||||||||
|
|
|
|
|
|
|
|
|
|
|
| (a) |
| (b) |
| (c) |
| (d) | |
Period | Total Number of Shares (or Units) Purchased 1, 2, 3 |
| Average Price Paid Per Share (or Unit) |
| Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs1 |
| Maximum Number (or Approximate Dollar Value) of Shares (or Units) That May Yet Be Purchased Under The Plans or Programs | ||
|
|
|
|
|
|
|
|
|
|
July 1, 2019 - July 31, 2019 | 220,880 |
| $ | 33.45 |
| - |
| 375,662,000 | |
August 1, 2019 - August 31, 2019 | 4,784,883 |
|
| 33.73 |
| 4,764,343 |
| 370,897,657 | |
September 1, 2019 - September 30, 2019 | 447,419 |
|
| 37.32 |
| - |
| 370,897,657 | |
Total | 5,453,182 |
| $ | 34.01 |
| 4,764,343 |
|
| |
1 | In March 2014, our Board of Directors approved an additional authorization 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. | ||||||||
2 | Of the shares repurchased, 258,198 shares were acquired through the withholding of taxes on the vesting of restricted stock | ||||||||
| and performance shares or on the exercise price of options. | ||||||||
3 | Of the shares repurchased, 430,641 shares were acquired through reimbursements from AT&T maintained Voluntary Employee Benefit | ||||||||
| Association (VEBA) trusts. |
68
AT&T INC.
SEPTEMBER 30, 2019
Item 6. Exhibits
The following exhibits are filed or incorporated by reference as a part of this report:
Exhibit |
|
|
Number | Exhibit Description | |
10-a |
| |
10-b |
| |
10-c |
| |
31 |
| Rule 13a-14(a)/15d-14(a) Certifications |
|
| |
|
| |
32 |
| |
101 |
| The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, formatted in Inline XBRL: (i) Consolidated Statements of Cash Flows, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Balance Sheets, and (v) Notes to Consolidated Financial Statements, tagged as blocks of text and including detailed tags. |
104 |
| The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, (formatted as Inline XBRL and contained in Exhibit 101). |
69
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.
November 4, 2019 |
|
| AT&T Inc.
/s/ John J. Stephens John J. Stephens Senior Executive Vice President and Chief Financial Officer |
70
Exhibit 10-a
AT&T HEALTH PLAN
Effective January 1, 2020
The AT&T Health Plan ("Plan") provides Participants with certain medical, dental, and vision benefits, as specified herein. Effective March 23, 2010, the Plan shall be frozen to new Participants, except as described in Section 2.15. The Company intends this Plan to be a “grandfathered health plan” under the Patient Protection and Affordable Care Act (the “Affordable Care Act”). Appendix C hereto contains the required Participant disclosure regarding the Plan’s grandfathered status under the Affordable Care Act.
For purposes of this Plan, the following words and phrases shall have the meanings indicated, unless the context clearly indicates otherwise:
2.1 Active Participant. “Active Participant” shall mean an Active Employee Participant and his Dependents.
2.2 Active Employee Participant. “Active Employee Participant” shall mean an Eligible Employee electing to participate in the Plan while in active service, on a Leave of Absence or while receiving short term disability benefits under the Officer Disability Plan.
2.3 Annual Deductible. “Annual Deductible” shall mean the amount the Active Participant must pay for Covered Health Services in a Plan Year before the Plan will begin paying for Covered Benefits in that calendar year. The Annual Deductible applies to all Covered Health Services. The Annual Deductible does not apply to Preventive Care, Dental Services and Vision Services. Once the Participant meets his applicable Annual Deductible, the Plan will begin to pay Covered Benefits, subject to any required Coinsurance, in accordance with and as governed by Section 4.1. The applicable Annual Deductible is set forth in Appendix A to this Plan.
2.4 Annual Out-of-Pocket Maximum. “Annual Out-of-Pocket Maximum” shall mean the maximum amount of Covered Health Services an Active Participant must pay out-of-pocket every calendar year, including the Participant’s Annual Deductible. Once the Participant reaches the applicable Annual Out-of-Pocket Maximum, Covered Benefits for those Covered Health Services that apply to the Annual Out-of-Pocket Maximum are payable in accordance with and as governed by Section 4.1 during the rest of that Plan Year. The following costs shall never apply toward the Annual Out-of-Pocket Maximum: (a) any applicable Monthly Contributions and (b) any charges for Non-Covered Health Services. Even when the Annual Out-of-Pocket Maximum has been reached, Covered Benefits will not be provided for the following: (a) any applicable Monthly Contributions and (b) any charges for Non-Covered Health Services. The applicable Annual Out-of-Pocket Maximum is set forth in Appendix A to this Plan.
2.5 AT&T. “AT&T” shall mean AT&T Inc. References to “Company” shall mean AT&T.
2.6 CEO. "CEO" shall mean the Chief Executive Officer of AT&T Inc.
2.7 COBRA. “COBRA” shall mean the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended.
2.8 Coinsurance. “Coinsurance” shall mean the amount an Active Participant must pay each time he/she receives Covered Health Services, after he/she meets the applicable Annual Deductible. Coinsurance payments are calculated as a percentage of Covered Health Services, rather than a set dollar amount. Coinsurance does not apply to Preventive Care, Dental Services and Vision Services (or Medical Services for Retired Participants as provided in Section 4.1(c)). The applicable Coinsurance percentage is set forth in Appendix A to this Plan.
2.9 Committee. "Committee" shall mean the Human Resources Committee of the Board of Directors of AT&T Inc.
2.10 Covered Benefits. “Covered Benefits” shall mean the benefits provided by the Plan, as provided for and governed by Section 4.1 of the Plan.
2.11 Covered Health Services. “Covered Health Services” means all Medical Services or Preventive Care that would qualify as deductible medical expenses for federal income tax purposes, whether deducted or not. Dental Services and Vision Services are not included in the definition of Covered Health Services.
2.12 Dental Services. “Dental Services” shall mean services for dental and orthodontic care. The Plan Administrator, in its sole discretion, shall determine whether a particular service is classified as Preventive Care or a Dental, Medical or Vision Service.
2.13 Dependent(s). “Dependent(s)” shall mean those individuals who would qualify as a Participant’s dependent(s) under the terms of the AT&T Medical Program.
2.14 Disability. "Disability" shall mean qualification for long term disability benefits under Section 3.1 of the Officer Disability Plan.
2.15 Eligible Employee. "Eligible Employee" shall mean an Officer. Notwithstanding the foregoing, the CEO may, from time to time, exclude any Officer or group of Officers from being an “Eligible Employee” under this Plan. Employees of a company acquired by AT&T shall not be considered an Eligible Employee unless designated as such by the CEO. Notwithstanding the foregoing, only the Committee shall have the authority to exclude from participation or take any action with respect to Executive Officers.
Notwithstanding the foregoing provisions, unless otherwise provided for in Appendix D to this Plan, individuals hired, rehired or promoted to an Officer level position on or after March 23, 2010 shall be excluded from the term Eligible Employee, and such individuals (and their Dependents) shall not be eligible to participate in this Plan.
2.16 Employer. "Employer" shall mean AT&T Inc. or any of its Subsidiaries.
2.17 Executive Officer. “Executive Officer” shall mean any executive officer of AT&T, as that term is used under the Securities Exchange Act of 1934.
2.18 International Plan. “International Plan” shall mean the “AT&T International Health Plan” for Officers serving in expatriate positions with the Company.
2.19 Leave of Absence. “Leave of Absence” shall mean a Company-approved leave of absence.
2.20 Medical Services. “Medical Services” shall mean medical/surgical, mental health/substance abuse and prescription pharmacy services. The Plan Administrator, in its sole discretion, shall determine whether a particular service is classified as Preventive Care or a Medical, Dental or Vision Service. Medical Services do not include Dental Services and Vision Services.
2.21 Monthly Contributions. “Monthly Contributions” shall mean the monthly premiums or contributions required for participation in this Plan as further governed by Article 7 of the Plan. The applicable Monthly Contributions are set forth in Exhibit A to this Plan.
2.22 Non-Covered Health Services. “Non-Covered Health Services” shall mean any Medical Services or Preventive Care which do not meet the definition of Covered Health Services.
2.23 Officer. "Officer" shall mean an individual who is designated as an officer level employee for compensation purposes on the records of AT&T.
2.24 Participant. “Participant” shall mean an Active Participant or Retired Participant or both, as the context indicates.
2.25 Plan Administrator. “Plan Administrator” shall mean the SEVP-HR, or any other person or persons whom the Committee may appoint to administer the Plan; provided that the Committee may act as the Plan Administrator at any time.
2.26 Plan Year. ”Plan Year” shall mean the calendar year.
2.27 Preventive Care. “Preventive Care” generally focuses on evaluating a Participant’s current health status when the Participant is symptom-free and taking the necessary steps to maintain the Participant’s health. The Plan Administrator, in its sole discretion, shall determine whether a particular service constitutes Preventive Care.
2.28 Qualified Dependent. “Qualified Dependent” shall mean a Dependent who loses coverage under a COBRA eligible program due to a Qualifying Event.
2.29 Qualifying Event. “Qualifying Event” shall mean any of the following events if, but for COBRA continuation coverage, they would result in a Participant’s loss of coverage under this Plan:
(1) death of a covered Eligible Employee;
(2) termination (other than by reason of such Eligible Employee’s gross misconduct) of an Employee’s employment;
(3) reduction in hours of an Eligible Employee;
(4) divorce or legal separation of an Eligible Employee or dissolution of an Eligible Employee’s registered domestic partnership;
(5) an Eligible Employee’s entitlement to Medicare benefits; or
(6) a Dependent child ceasing to qualify as a Dependent
2.30 Retire, Retired or Retirement. “Retire,” “Retired” or "Retirement" shall mean the termination of an Active Employee Participant's employment with AT&T or any of its Subsidiaries, for reasons other than death, on or after the earlier of the following dates: (1) the date such Active Employee Participant has attained age 55, and, for an Active Employee Participant on or after January 1, 2002, has five (5) years of service, or (2) the date the Active Employee Participant has attained one of the following combinations of age and service at termination of employment on or after April 1, 1997:
Net Credited Service Age
25 years or more 50 or older
30 years or more Any age
2.31 Retired Participant. “Retired Participant” shall mean a Retired Employee Participant and his Dependents.
2.32 Retired Employee Participant. “Retired Employee Participant” shall mean a former Active Employee Participant who has Retired within the meaning of Section 2.30 and who meets the additional requirements of Section 3.2 to be eligible for coverage in Retirement.
2.33 SEVP-HR. “SEVP-HR” shall mean AT&T’s highest ranking Officer, specifically responsible for human resources matters.
2.34 Subsidiary . "Subsidiary" shall mean any corporation, partnership, venture or other entity in which AT&T holds, directly or indirectly, a 50% or greater ownership interest. The Committee may, at its sole discretion, designate any other corporation, partnership, venture or other entity a Subsidiary for the purpose of participating in this Plan.
2.35 Vision Services. “Vision Services” shall mean services for vision care. The Plan Administrator, in its sole discretion, shall determine whether a particular service is classified as Preventive Care or a Vision, Medical or Dental Service.
2.36 Medicare Eligible Retired Participant. “Medicare Eligible Retired Participant” shall mean a Retired Participant who is eligible for Medicare due to reaching the eligible age for Medicare.
3.1 Active Participants. Each Eligible Employee shall be eligible to participate in this Plan along with his/her Dependent(s) beginning on the effective date of the employee becoming an Eligible Employee. In order to continue participation, the Active Participant must pay all applicable Monthly Contributions. If an Active Employee Participant terminates participation in this Plan at any time for any reason, that Participant and his/her Dependent(s) shall be
ineligible to participate in the Plan at any time in the future.
3.2 Retired Participants. Provisions of this Plan will continue in effect during Retirement for each Retired Employee Participant and his/her Dependent(s) with respect to any Eligible Employee who became a Participant before January 1, 1999. Neither an Eligible Employee who became a Participant after December 31, 1998 nor his/her Dependent(s) shall be eligible for participation hereunder on or after such Participant’s Retirement. Coverage for Retired Participants shall be subject to the payment of all applicable Monthly Contributions, as governed by Article 7. The provisions of this Plan related to Retired Participants, including the level of Covered Benefits and the applicable Monthly Premiums, shall begin to apply on the first day of the month following the month in which the Active Employee Participant Retires. If a Retired Employee Participant terminates participation at any time for any reason, participation of that Retired Employee participant and his/her Dependent(s) may not be reinstated for any reason.
3.3 Requirement to Enroll and Participate in Medicare and the International Plan. Notwithstanding any provision in this plan to the contrary, as a condition to participation in the Plan, each Participant must be enrolled in, paying for, and participating in (i) all parts of Medicare for which such Participant is eligible and for which Medicare would be primary if enrolled therein, except for Medicare Part D relating to prescription drug coverage, and (ii) the International Plan (if eligible).
4.1 Covered Benefits. Subject to the limitations in this Plan (including but not limited to the loyalty conditions set forth in Article 8 below), this Plan provides the benefits described below. Monthly Contributions for participation in this Plan, the International Plan, Medicare, or any other health plan are not considered “services”, and are therefore are not Covered Benefits under this Plan.
(a) Active Participants (Medical Services and Preventive Care) -
Medical Services - After the Annual Deductible has been met, 100% payment of Covered Health Services not paid under the International Plan or Medicare minus the amount of Coinsurance, until the Active Participant reaches the Annual Out-of-Pocket Maximum, at which time coverage is 100% of Covered Health Services (or 100% of Covered Health Services not paid under the International Plan).
Preventive Care - Preventive Care is covered at 100%, not subject to the Annual Deductible or Coinsurance.
(b) Active Participants (Dental Services and Vision Services) -
100% payment, through reimbursement or otherwise, of all Dental Services and Vision Services not paid under the Active Participant’s (i) Medicare, or (ii) International Plan, provided expenses for such services would qualify as deductible medical expenses for federal income tax purposes, whether deducted or not.
(c) Retired Participants
100% payment, through reimbursement or otherwise, of all Medical, Dental, Vision and Preventive services not paid under the Retired Participant’s Medicare, provided expenses for such services would qualify as deductible medical expenses for federal income tax purposes, whether deducted or not.
4.2 Priority of Paying Covered Claims. Claims for benefits will be applied against the various health plans, as applicable, and coordinated with Medicare in the following order:
(1) Medicare, to the extent the Participant is eligible therefore and such claim is actually paid by Medicare,
(2) International Plan, if applicable,
(2) CarePlus, if elected,
(3) Long Term Care Plan, if elected,
(4) this Plan.
5.1 Termination of Participation. Participation will cease on the last day of the month in which one of the following conditions occurs:
(1) A Participant ceases to meet the definition of a Dependent (as set forth in Section 2.13 of this Plan) for any reason, in which case participation ceases for such Participant;
(2) A Participant eligible to enroll in Medicare is no longer a participant in all parts of Medicare for which such Participant is eligible to enroll and for which Medicare would be primary if enrolled therein, except for Medicare Part D relating to prescription drug coverage, in which case participation ceases for such Participant;
(3) The Active Employee Participant’s termination of employment for reasons other than Death, Disability, or Retirement by an individual who meets the applicable requirements of Section 3.2 in order to qualify for Plan benefits in Retirement, in which case participation ceases for the Participant and his/her Dependent(s);
(4) The demotion or designation of an Active Employee Participant so as to no longer be eligible to participate in the Plan, in which case participation ceases for the Participant and his/her Dependent(s);
(5) The Active Employee Participant (or Retired Employee Participant) participates in an activity that constitutes engaging in competitive activity with AT&T or engaging in conduct disloyal to AT&T under Article 8, in which case participation ceases for the Active Employee Participant (or Retired Employee Participant) and his/her Dependent(s); or
(6) Discontinuance of the Plan by AT&T, or, with respect to a Subsidiary’s Active Employee Participants (or Retired Employee Participants), such Subsidiary’s failure to make the benefits hereunder available to Active Employee Participants employed by it (or its Retired Employee Participants).
5.2 Death. In the event of the Active Employee Participant’s (or Retired Employee’s Participant’s) death, his Dependents may continue participation in this Plan as follows:
(1) In the event of the death of a Retired Employee Participant such Retired Employee Participant’s Dependents may continue participation in this Plan, eligible for the Covered Benefits described in Section 4.1(c) of the Plan, for so long as such Dependents would have otherwise been eligible to participate under the terms of the AT&T Medical Program, are paying any applicable contributions for this Plan as provided in Article 7, and are participating in Medicare if eligible. If a surviving spouse of such deceased Active Employee Participant otherwise eligible for participation in the Plan remarries, his/her participation and the participation of any otherwise eligible Dependents will cease with the effective date of his/ her marriage.
(2) In the event of an in-service death of an Active Employee Participant eligible to participate in the Plan in Retirement as provided under Article 3.2, who was Retirement eligible, within the meaning of Section 2.30, at the time of death, such Active Employee Participant’s surviving Dependents may continue participation in this Plan, eligible for the Covered Benefits described in Section 4.1(a) and (b), for so long as such Dependents would have otherwise been eligible for participation under the terms of the AT&T Medical Program, are paying any applicable contributions for this Plan as provided in Article 7, and are participating in Medicare if eligible. If a surviving spouse of such deceased Active Employee Participant otherwise eligible for participation in the Plan remarries, his/her participation and the participation of any otherwise eligible Dependents will cease with the effective date of his/ her marriage.
(3) In the event of (i) an in-service death of an Active Employee Participant not eligible to participate in the Plan in Retirement as provided in Article 3.2 or (ii) an in-service death of an Active Employee Participant eligible to participate in the Plan in Retirement as provided in Article 3.2 but the individual was not Retirement eligible, within the meaning of Section 2.30, at the time of death,
such Active Employee Participant’s Dependent(s) may continue participation in this Plan, eligible for the Covered Benefits described in Sections 4.1(a) and (b), for a 36-month period commencing the month following the month in which such Active Employee Participant dies as long as such Dependent(s) would have otherwise been eligible for participation under the terms of the AT&T Medical Program and subject to the payment of Active Participant Contributions for the first 12 months and payment of Active COBRA Contributions for the remaining 24 months, as provided by Articles 7 and 10.1. If the Active Employee Participant’s Dependent(s) are eligible for COBRA, they will automatically be enrolled in COBRA so that there is no lapse in coverage, and this 36-month coverage will be integrated and run concurrently with COBRA coverage.
6
ARTICLE 6 DISABILITY
6.1 Disability. With respect to any Active Employee Participant who commences receipt of short term or long term disability benefits under the Officer Disability Plan, participation under this Plan will be as follows:
(1) The Participant will continue to participate in this Plan, eligible for the Covered Benefits described in Section 4.1(a) and (b), for as long as he/she receives short term disability benefits under the Officer Disability Plan and pays the applicable contributions for this Plan as provided by Article 7.
(2) An Active Employee Participant not eligible to participate in the Plan in Retirement as provided in Article 3.2 who commences long term disability benefits under the Officer Disability Plan or an Active Employee Participant eligible to participate in the Plan in Retirement as provided in Article 3.2 but who is not Retirement eligible, within the meaning of Section 2.30, at the time long term disability benefits under the Officer Disability Plan commence, will cease participation in this Plan (along with his/her Dependents) effective as of the last day of the calendar month in which such long term disability benefits commence, unless such benefits commence on the first day of a calendar month, in which case participation in this Plan shall cease effective as of the last day of the prior month.
(3) An Active Employee Participant eligible to participate in the Plan in Retirement as provided in Article 3.2 ,who is Retirement eligible, within the meaning of Section 2.30, at the time long term disability benefits under the Officer Disability Plan commence, will be eligible to continue participation in this Plan on the same terms and conditions that participation would be available to such Participant in Retirement, subject to the payment of applicable contributions for this Plan as provided by Article 7, regardless of his/her continued receipt of long term disability benefits under the Officer Disability Plan.
7.1 Provision of Benefits under the Plan. Except as provided below in this Article 7 with respect to required Monthly Contributions or with respect to any required Coinsurance, the benefits available to Participants under this Plan shall be provided through an insurance policy maintained by AT&T.
7.2 Active Participant Contributions. An Active Participant electing to participate in the Plan will pay Monthly Contributions to participate in the Plan while in active service, while on Leave of Absence or while receiving short term disability benefits under the Officer Disability Plan. The Monthly Contribution for participation may change annually, effective at the beginning of each Plan Year. Contributions to be made by Active Participants electing to participate in the Plan shall be set annually by the SEVP-HR, determined in the SEVP-HR’s sole and absolute discretion. The SEVP-HR may adopt tiered rates for similarly situated groups of Participants based on factors such as the number of Dependents covered or Medicare eligibility. Notwithstanding the foregoing, required Monthly Contributions for Executive Officers shall be approved by the Committee.
7.3 Retired Participant Contributions. Retired Participants who elect to participate will pay Monthly Contributions to participate in the Plan. The Monthly Contribution for participation may change annually, effective at the beginning of each Plan Year. Contributions to be made by Retired Participants who elect to participate shall be set annually by the SEVP-HR (in his/her sole and absolute discretion), to the extent their contributions have not previously been provided for in a separate agreement.
7.4 Survivor Contributions. Upon the death of a Participant, the Participant’s Dependents shall be required to pay Monthly Contributions to participate in the Plan. The Monthly Contributions shall be set annually by the SEVP-HR, in the SEVP-HR’s sole and absolute discretion. Any changes to the Monthly Contributions shall be effective at the beginning of each Plan Year.
7.5 Contributions for Participants on Disability. Participants continuing benefits while on Disability shall be required to pay Monthly Contributions to participate in the Plan. The Monthly Contributions shall be set annually by the SEVP-HR, determined in the SEVP-HR’s sole and absolute discretion. Any changes to the Monthly Contributions shall be effective at the beginning of each Plan Year.
ARTICLE 8 LOYALTY CONDITIONS
8.1 Participants acknowledge that no coverage and benefits would be provided under this Plan on and after January 1, 2010 but for the loyalty conditions and covenants set forth in this Article, and that the conditions and covenants herein are a material inducement to AT&T’s willingness to sponsor the Plan and to offer Plan coverage and benefits for the Participants on or after January 1, 2010. Accordingly, as a condition of receiving coverage and any Plan benefits on or after January 1, 2010, each Participant is deemed to agree that he/she shall not, without obtaining the written consent of the Plan Administrator in advance, participate in activities that constitute engaging in competition with AT&T or engaging in conduct disloyal to AT&T, as those terms are defined in this Section. Further and notwithstanding any other provision of this Plan, all coverage and benefits under this Plan on and after January 1, 2010 with respect to a Participant and his or her Dependents shall be subject in their entirety to the enforcement provisions of this Section if the Participant, without the Plan Administrator’s consent, participates in an activity that constitutes engaging in competition with AT&T or engaging in conduct disloyal to AT&T, as defined below. The provisions of this Article 8 as in effect immediately before such date shall be applicable to Participants who retire before January 1, 2010.
8.2 Definitions. For purposes of this Article and of the Plan generally
(1) an “Employer Business” shall mean AT&T, any Subsidiary, or any business in which AT&T or a Subsidiary or an affiliated company of AT&T has a substantial ownership or joint venture interest;
(2) “engaging in competition with AT&T” shall mean, while employed by an Employer Business or within two (2) years after the Participant’s termination of employment, engaging by the Participant in any business or activity in all or any portion of the same geographical market where the same or substantially similar business or activity is being carried on by an Employer Business. “Engaging in competition with AT&T” shall not include owning a nonsubstantial publicly traded interest as a shareholder in a business that competes with an Employer Business. “Engaging in competition with AT&T” shall include representing or providing consulting services to, or being an employee or director of, any person or entity that is engaged in competition with any Employer Business or that takes a position adverse to any Employer Business.
(3) “engaging in conduct disloyal to AT&T” means, while employed by an Employer Business or within two (2) years after the Participant’s termination of employment, (i) soliciting for employment or hire, whether as an employee or as an independent contractor, for any business in competition with an Employer Business, any person employed by AT&T or its affiliates during the one (1) year prior to the termination of the Participant’s employment, whether or not acceptance of such position would constitute a breach of such person’s contractual obligations to AT&T and its affiliates; (ii) soliciting, encouraging, or inducing any vendor or supplier with which Participant had business contact on behalf of any Employer Business during the two (2) years prior to the termination of the Participant’s employment, for any reason to terminate, discontinue, renegotiate, reduce, or otherwise cease or modify its relationship with AT&T or its affiliate; or (iii) soliciting, encouraging, or inducing any customer or active prospective customer with whom Participant had business contact, whether in person or by other media, on behalf of any Employer Business during the two (2) years prior to the termination of Participant’s employment for any reason (“Customer”), to terminate, discontinue, renegotiate, reduce, or otherwise cease or modify its relationship with any Employer Business, or to purchase competing goods or services from a business competing with any Employer Business, or accepting or servicing business from such Customer on behalf of himself or any other business. “Engaging in conduct disloyal to AT&T” also means, disclosing Confidential Information to any third party or using Confidential Information, other than for an Employer Business, or failing to return any Confidential Information to the Employer Business following termination of employment.
(4) “Confidential Information” shall mean all information belonging to, or otherwise relating to, an Employer Business, which is not generally known, regardless of the manner in which it is
stored or conveyed to the Participant, and which the Employer Business has taken reasonable measures under the circumstances to protect from unauthorized use or disclosure. Confidential Information includes trade secrets as well as other proprietary knowledge, information, know-how, and non-public intellectual property rights, including unpublished or pending patent applications and all related patent rights, formulae, processes, discoveries, improvements, ideas, conceptions, compilations of data, and data, whether or not patentable or copyrightable and whether or not it has been conceived, originated, discovered, or developed in whole or in part by the Participant. For example, Confidential Information includes, but is not limited to, information concerning the Employer Business’ business plans, budgets, operations, products, strategies, marketing, sales, inventions, designs, costs, legal strategies, finances, employees, customers, prospective customers, licensees, or licensors; information received from third parties under confidential conditions; or other valuable financial, commercial, business, technical or marketing information concerning the Employer Business, or any of the products or services made, developed or sold by the Employer Business. Confidential Information does not include information that (i) was generally known to the public at the time of disclosure; (ii) was lawfully received by the Participant from a third party; (iii) was known to the Participant prior to receipt from the Employer Business; or (iv) was independently developed by the Participant or independent third parties; in each of the foregoing circumstances, this exception applies only if such public knowledge or possession by an independent third party was without breach by the Participant or any third party of any obligation of confidentiality or non-use, including but not limited to the obligations and restrictions set forth in this Plan.
8.3 Forfeiture of Benefits. Subject to the provisions of Section 1001(5) of the Affordable Care Act, coverage and benefits shall be forfeited and shall not be provided under this Plan for any period as to which the Plan Administrator determines that, within the time period and without the written consent specified, Participant has been either engaging in competition with AT&T or engaging in conduct disloyal to AT&T.
8.4 Equitable Relief. The parties recognize that any Participant’s breach of any of the covenants in this Article 8 will cause irreparable injury to AT&T, will represent a failure of the consideration under which AT&T (in its capacity as creator and sponsor of the Plan) agreed to provide the Participant with the opportunity to receive Plan coverage and benefits, and that monetary damages would not provide AT&T with an adequate or complete remedy that would warrant AT&T’s continued sponsorship of the Plan and payment of Plan benefits for all Participants. Accordingly, in the event of a Participant’s actual or threatened breach of the covenants in this Article, the Plan Administrator, in addition to all other rights and acting as a fiduciary under ERISA on behalf of all Participants, shall have a fiduciary duty (in order to assure that AT&T receives fair and promised consideration for its continued Plan sponsorship and funding) to seek an injunction restraining the Participant from breaching the covenants in this Article 8. In addition, AT&T shall pay for any Plan expenses that the Plan Administrator incurs hereunder, and shall be entitled to recover from the Participant its reasonable attorneys’ fees and costs incurred in obtaining such injunctive remedies. To enforce its repayment rights with respect to a Participant, the Plan shall have a first priority, equitable lien on all Plan benefits provided to or for the Participant and his or her Dependents. In the event the Plan Administrator succeeds in enforcing the terms of this Article through a written settlement with the Participant or a court order granting an injunction hereunder, the Participant shall be entitled to collect Plan benefits collect Plan benefits prospectively, if the Participant is otherwise entitled to such benefits, net of any fees and costs assessed pursuant hereto (which fees and costs shall be paid to AT&T as a repayment on behalf of the Participant), provided that the Participant complies with said settlement or injunction.
8.5 Uniform Enforcement. In recognition of AT&T’s need for nationally uniform standards for the Plan administration, it is an absolute condition in consideration of any Participant’s accrual or receipt of benefits under the Plan after January 1, 2010 that each and all of the following conditions apply to all Participants and to any benefits that are paid or are payable under the Plan:
(1) ERISA shall control all issues and controversies hereunder, and the Committee shall serve for purposes hereof as a “fiduciary” of the Plan, and as its “named fiduciary” within the meaning of ERISA.
(2) All litigation between the parties relating to this Article shall occur in federal court, which shall have exclusive jurisdiction, any such litigation shall be held in the United States District Court
for the Northern District of Texas, and the only remedies available with respect to the Plan shall be those provided under ERISA.
(3) If the Plan Administrator determines in its sole discretion either (I) that AT&T or its affiliate that employed the Participant terminated the Participant’s employment for cause, or (II) that equitable relief enforcing the Participant’s covenants under this Article 8 is either not reasonably available, not ordered by a court of competent jurisdiction, or circumvented because the Participant has sued in state court, or has otherwise sought remedies not available under ERISA, then in any and all of such instances the Participant shall not be entitled to collect any Plan benefits, and if any Plan benefits have been paid to the, the Participant shall immediately repay all Plan benefits to the Plan (with such repayments being used within such year for increased benefits for other Participants in any manner determined in the Plan Administrator’s discretion) upon written demand from the Plan Administrator. Furthermore, the Participant shall hold AT&T and its affiliates harmless from any loss, expense, or damage that may arise from any of the conduct described in clauses (I) and (II) hereof.
9.1 Administration. The Plan Administrator is the named fiduciary of the Plan and has the power and duty to do all things necessary to carry out the terms of the Plan. The Plan Administrator has the sole and absolute discretion to interpret the provisions of the Plan, to make findings of fact, to determine the rights and status of Participants and other under the Plan, to determine which expenses and benefits qualify as Covered Health Services or Covered Benefits, to make all benefit determinations under the Plan, to decide disputes under the Plan and to delegate all or a part of this discretion to third parties and insurers. To the fullest extent permitted by law, such interpretations, findings, determinations and decisions shall be final, binding and conclusive on all persons for all purposes of the Plan. The Plan Administrator may delegate any or all of its authority and responsibility under the Plan to other individuals, committees, third party administrators, claims administrators or insurers for any purpose, including, but not limited to the processing of benefits and claims related thereto. In carrying out these functions, these individuals or entities have been delegated responsibility and discretion for interpreting the provisions of the Plan, making findings of fact, determining the rights and status of Participants and others under the Plan, and deciding disputes under the Plan and such interpretations, findings, determinations and decisions shall be final, binding and conclusive on all persons for all purposes of the Plan.
9.2 Amendments and Termination. This Plan may be modified or terminated at any time in accordance with the provisions of AT&T's Schedule of Authorizations.
9.3 Newborns' and Mothers' Health Protection Act of 1996. To the extent this Plan provides benefits for hospital lengths of stay in connection with childbirth, the Plan will cover the minimum length of stay required for deliveries (i.e., a 48-hour hospital stay after a vaginal delivery or a 96-hour stay following a delivery by Cesarean section.) The mother’s or newborn’s attending physician, after consulting with the mother, may discharge the mother or her newborn earlier than the minimum length of stay otherwise required by law. Such coverage shall be subject to all other provisions of this Plan.
9.4 Women's Health and Cancer Rights Act of 1998. To the extent this Plan provides benefits for mastectomies, it will provide, for an individual who is receiving benefits in connection with a mastectomy and who elects breast reconstruction in connection with such mastectomy, coverage for reconstruction on the breast on which the mastectomy was performed, surgery and reconstruction on the other breast to give a symmetrical appearance, and prosthesis and coverage for physical complications of all stages of the mastectomy, including lymphedemas. Such coverage shall be subject to all other provisions of this Plan.
9.5 Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008. To the extent this Plan provides mental health benefits or substance use disorder benefits it will not place annual or lifetime maximums for such benefits that are lower than the annual and lifetime maximums for physical health benefits. In addition, the financial requirements (e.g., deductibles and co-payments) and treatment limitations (e.g., number of visits or days of coverage) that apply to mental health benefits or substance use disorder benefits will not be more restrictive than the predominant financial requirements or treatment limitations that apply to substantially all medical/surgical benefits; mental health benefits and substance use disorder benefits will not be subject to any separate cost sharing requirements or treatment limitations that only apply to such benefits; if the Plan provides for out of
10
network medical/surgical or substance use disorder benefits, it will provide for out of network mental health and substance use disorder benefits and standards for medical necessity determinations and reasons for any denial of benefits relating to mental health benefits and substance use disorder benefits will be made available upon request to plan participants. Such coverage shall be subject to all other provisions of this Plan.
9.6 Continuation of Coverage During Family or Medical Leave. During any period which an Active Employee Participant is on a family or medical leave as defined in the Family or Medical Leave Act, any benefit elections in force for such Participant shall remain in effect. While the Participant is on paid leave, contributions shall continue. If the Participant is on an unpaid leave, the Participant may elect to prepay required contributions on a pre-tax basis before the commencement of such unpaid leave. Alternatively, the Participant may elect to make such payments on an after-tax basis monthly in accordance with an arrangement that the Plan Administrator shall provide. If coverage is not continued during the entire period of the family or medical leave because the Participant declines to pay the premium, the coverage must be reinstated upon reemployment with no exclusions or waiting periods, notwithstanding any other provision of this Plan to the contrary. If the Participant does not return to work upon completion of the leave, the Participant must pay the full cost of any health care coverage that was continued on his/her behalf during the leave. These rules apply to the COBRA eligible programs.
9.7 Rights While on Military Leave. Pursuant to the provisions of the Uniformed Services Employment and Reemployment Rights Act of 1994, an Active Employee Participant on military leave will be considered to be on a Leave of Absence and will be entitled during the leave to the health and welfare benefits that would be made available to other similarly situated employees if they were on a Leave of Absence. This entitlement will end if the individual provides written notice of intent not to return to work following the completion of the military leave. The individual shall have the right to continue his/her coverage, including any Dependent coverage, for the lesser of the length of the leave or 18 months. If the military leave is for a period of 31 days or more, the individual may be required to pay 102 percent of the total premium (determined in the same manner as a COBRA continuation coverage premium). If coverage is not continued during the entire period of the military leave because the individual declines to pay the premium or the leave extends beyond 18 months, the coverage must be reinstated upon reemployment with no pre-existing condition exclusions (other than for service-related illnesses or injuries) or waiting periods (other than those applicable to all Eligible Employees).
9.8 Qualified Medical Child Support Orders. The Plan will comply with any Qualified Medical Child Support Order issued by a court of competent jurisdiction or administrative body that requires the Plan to provide medical coverage to a Dependent child of an Active Employee or Retired Employee Participant. The Plan Administrator will establish reasonable procedures for determining whether a court order or administrative decree requiring medical coverage for a Dependent child meets the requirements for a Qualified Medical Child Support Order. The cost of coverage or any additional cost of such coverage, if any, shall be borne by the Participant.
9.9 Right of Recovery. If the Plan has made an erroneous or excess payment to any Participant, the Plan Administrator shall be entitled to recover such excess from the individual or entity to whom such payments were made. The recovery of such overpayment may be made by offsetting the amount of any other benefit or amount payable by the amount of the overpayment under the Plan.
10.1 Continuation of Coverage Under COBRA. Participants shall have all COBRA continuation rights required by federal law and all conversion rights. COBRA continuation coverage shall be continued as provided in this Article 10.
10.2 COBRA Continuation Coverage for Terminated Participants. A covered Active Employee Participant may elect COBRA continuation coverage, at his/her own expense, if his participation under this Plan would terminate as a result of one of the following Qualifying Events: an Employee’s termination of employment or reduction of hours with an Employer.
10.3 COBRA Continuation Coverage for Dependents. A Qualified Dependent may elect COBRA continuation coverage, at his/her own expense, if his/her participation under this Plan would terminate as a result of a Qualifying Event.
10.4 Period of Continuation Coverage for Covered Participants. A covered Active Employee Participant who qualifies for COBRA continuation coverage as a result of a Participant’s termination of employment or reduction in
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hours of employment described in Subsection 10.2 may elect COBRA continuation coverage for up to 18 months measured from the date of the Qualifying Event.
Coverage under this
Subsection 10.4 may not continue beyond the:
(1)
date on which the Active Employee Participant’s Employer ceases to
maintain this Plan;
(2)
last day of the month for which premium payments have been made
with respect to this Plan, if the individual fails to make premium payments on
time, in accordance with Subsection 10.6;
(3)
date the covered Active Employee Participant becomes entitled to
Medicare; or
(4) date the covered Participant is no longer subject to a pre-existing condition exclusion under the Participant's other coverage or new employer plan for the type of coverage available under the COBRA eligible program for which the COBRA election was made.
10.5 Period of COBRA Continuation Coverage for Dependents. If a Qualified Dependent elects COBRA continuation coverage under a COBRA eligible program as a result of the an Active Employee Participant’s termination of employment as described in Subsection 10.2, continuation coverage may be continued for up to 18 months measured from the date of the Qualifying Event. COBRA continuation coverage for all other Qualifying Events may continue for up to 36 months.
Continuation
coverage under this Subsection 10.5 with respect to a COBRA eligible program
may not continue beyond the date:
(1)
on which premium payments have not been made, in accordance with
Subsection 10.6 below;
(2)
the Qualified Dependent becomes entitled to Medicare;
(3)
on which the Employer ceases to maintain this Plan; or
(4) the Qualified Dependent is no longer subject to a pre-existing condition exclusion under the Participant’s other coverage or new employer plan for the type of coverage available under this Plan.
10.6 Contribution Requirements for COBRA Continuation Coverage. Covered Participants and Qualified Dependents who elect COBRA continuation coverage as a result of a Qualifying Event will be required to pay continuation coverage payments. Continuation coverage payments are the payments required for COBRA continuation coverage that is an amount equal to a reasonable estimate of the cost to this Plan of providing coverage for all covered Participants at the time of the Qualifying Event plus a 2% administrative expense.
10.7 In the case of a disabled individual who receives an additional 11-month extended coverage under COBRA, the Employer may assess up to 150% of the cost for this extended coverage period. Such cost shall be determined on an actuarial basis and take into account such factors as the Secretary of the Treasury may prescribe in regulations.
Covered Participants and Qualified Dependents must make the continuation coverage payment prior to the first day of the month in which such coverage will take effect. However, a covered Participant or Qualified Dependent has 45 days from the date of an affirmative election to pay the continuation coverage payment for the first month's payment and the cost for the period between the date medical coverage would otherwise have terminated due to the Qualifying Event and the date the covered Participant and/or Qualified Dependent actually elects COBRA continuation coverage.
The covered Participant and/or Qualified Dependent shall have a 30-day grace period to make the continuation coverage payments due thereafter. Continuation coverage payments must be postmarked on or before the completion of the 30-day grace period. If continuation coverage payments are not made on a timely basis, COBRA continuation coverage will terminate as of the last day of the month for which timely premiums were made. The 30-day grace period shall not apply to the 45-day period for the first month’s payment of COBRA premiums as set out in the section above.
If payment is received that is significantly less than the required continuation coverage payment, then continuation
coverage will terminate as of the last day of the month for which premiums were paid. A payment is considered significantly less than the amount due if it is greater than the lesser of $50 or 10% of the required continuation coverage payment. Upon receipt of a continuation coverage payment that is insignificantly less than the required amount, the Plan Administrator must notify the covered Participant or Qualified Dependent of the amount of the shortfall and provide them with an additional 30-day grace period from the date of the notice for this payment only.
10.8 Limitation on Participant's Rights to COBRA Continuation Coverage.
(1)
If a Qualified Dependent loses, or will lose medical coverage
under this Plan as a result of divorce, legal separation, entitlement to
Medicare, or ceasing to be a Dependent, such Qualified Dependent is responsible
for notifying the Plan Administrator in writing within 60 days of the
Qualifying Event. Failure to make timely notification will terminate the
Qualified Dependent's rights to COBRA continuation coverage under this Article.
(2) A Participant must complete and return the required enrollment materials within 60 days from the later of (a) the date of loss of coverage, or (b) the date the Plan Administrator sends notice of eligibility for COBRA continuation coverage. Failure to enroll for COBRA continuation coverage during this 60-day period will terminate all rights to COBRA continuation coverage under this Article. An affirmative election of COBRA continuation coverage by a Participant or his/her spouse shall be deemed to be an election for that Participant's Dependent(s) who would otherwise lose coverage under the Plan.
Subsequent Qualifying Event. If a second Qualifying Event occurs during an 18-month extension explained above, coverage may be continued for a maximum of 36 months from the date of the first Qualifying Event. In the event the Dependent loses coverage due to a Qualifying Event and after such date the Participant becomes entitled to Medicare, the Dependent shall have available up to 36 months of coverage measured from the date of the Qualifying Event that causes the loss of coverage. If the Participant was entitled to Medicare prior to the Qualifying Event, the Dependent shall have up to 36 months of coverage measured from the date of entitlement to Medicare.
10.9 Extension of COBRA Continuation Period for Disabled Individuals. The period of continuation shall be extended to 29 months in total (measured from the date of the Qualifying Event) in the event the individual is disabled as determined by the Social Security laws within 60 days of the Qualifying Event. The individual must provide evidence to the Plan Administrator of such Social Security determination prior to the earlier of 60 days after the date of the Social Security determination, or the expiration of the initial 18 months of COBRA continuation coverage. In such event, the Employer may charge the individual up to 150% of the COBRA cost of the coverage.
ARTICLE 11 PRIVACY OF MEDICAL INFORMATION
11.1
Definitions. For purposes of this
Article 11, the following defined terms shall have the meaning assigned to such
terms in this subsection:
(1) “Business Associate” shall have the meaning assigned to such phrase at 45 C.F.R. § 160.103;
(2) “Health Care Operations” shall have the meaning assigned to such phrase at 45 C.F.R. § 164.501;
(3) “HIPAA” shall mean Parts 160 (“General Administrative Requirements”) and 164 (“Security and Privacy”) of Title 45 of the Code of Federal Regulations as such parts are amended from time to time;
(4) “Payment” shall have the meaning assigned to such phrase at 45 C.F.R § 160.103;
(5) “Protected Health Information” or “PHI” shall have the meaning assigned to such phrase at 45 C.F.R. § 160.103; and
(6) “Treatment” shall have the meaning assigned to such phrase at 45 C.F.R. § 164.501.
11.2 Privacy Provisions Relating to Protected Health Information (“PHI”). The Plan and its Business Associates shall use and disclose PHI to the extent permitted by, and in accordance with, HIPAA, for purposes of providing benefits under the Plan and for purposes of administering the plan, including, by way of illustration and not
11.3 Disclosure of De-Identified or Summary Health Information. The HIPAA Plan, or, with respect to the HIPAA Plan, a health insurance issuer, may disclose summary health information (as that phrase is defined at 45 C.F.R. § 160.5049a)) to the Plan Sponsor of the HIPAA Plan (and its affiliates) if such entity requests such information for the purpose of:
(1) Obtaining premium bids from health plans for providing health
insurance coverage under the HIPAA Plan;
(2) Modifying, amending or terminating the group health benefits
under the HIPAA Plan.
In addition, the HIPAA Plan or a health insurance insurer with respect to the HIPAA Plan may disclose to the Plan Sponsor of the HIPAA Plan (or its affiliates) information on whether an individual is participating in the group health benefits provided by the HIPAA Plan or is enrolled in, or has ceased enrollment with health insurance offered by the HIPAA Plan.
11.4
The
HIPAA Plan Will Use and Disclose PHI as Required by Law
or as Permitted by the Authorization of the Participant or
Beneficiary.
Upon submission of an authorization signed by a Participant, beneficiary, subscriber or personal representative that meets HIPAA requirements, the HIPAA Plan will disclose PHI.
In addition, PHI will be disclosed to the extent permitted or required by law, without the submission of an authorization form.
11.5 Disclosure of PHI to the Plan Sponsor. The HIPAA Plan will disclose information to the Plan Sponsor only upon certification from the Plan Sponsor that the HIPAA Plan documents have been amended to incorporate the assurances provided below.
The Plan
Sponsor agrees to:
(1) not use or further disclose PHI other than as permitted or required by the HIPAA Plan document or as required by law;
(2) ensure that any affiliates or agents, including a subcontractor, to whom the Plan Sponsor provides PHI received from the HIPAA Plan, agrees to the same restrictions and conditions that apply to the Plan Sponsor with respect to such PHI;
(3) not use or disclose PHI for employment-related actions and decisions unless authorized by the individual to whom the PHI relates;
(4) not use or disclose PHI in connection with any other benefits or employee benefit plan of the Plan Sponsor or its affiliates unless permitted by the Plan or authorized by an individual to whom the PHI relates;
(5) report to the Plan any PHI use or disclosure that is inconsistent with the uses or disclosures provided for of which it becomes aware;
(6) make PHI available to an individual in accordance with HIPAA’s access rules;
(7) make PHI available for amendment and incorporate any amendments to PHI in accordance with HIPAA;
(8) make available the information required to provide an accounting
of disclosures;
(9) make internal practices, books and records relating to the use and disclosure of PHI received from the HIPAA Plan available to the Secretary of the United States Department of Health and Human Resources for purposes of determining the Plan’s compliance with HIPAA; and
(10) if feasible, return or destroy all PHI received from the HIPAA Plan that the Plan Sponsor still maintains in any form, and retain no copies of such PHI when no longer needed for the purpose for which disclosure was made (or if return or destruction is not feasible, limit further uses and disclosures to those purposes that make the return or destruction infeasible).
11.6 Separation Between the Plan Sponsor and the HIPAA Plan. In accordance with HIPAA, only the following employees and Business Associate personnel shall be given access to PHI:
(1) employees of the AT&T Benefits and/or AT&T Executive Compensation organizations responsible for administering group health plan benefits under the HIPAA Plan, including those employees whose functions in the regular course of business include Payment, Health Care Operations or other matters pertaining to the health care programs under a HIPAA Plan;
(2) employees who supervise the work of the employees described in (1), above;
(3) support personnel, including other employees outside of the AT&T Benefits or AT&T Executive Compensation organizations whose duties require them to rule on health plan-related appeals or perform functions concerning the HIPAA Plan;
(4) investigatory personnel to the limited extent that such PHI is necessary to conduct investigations of possible fraud;
(5) outside and in-house legal counsel providing counsel to the HIPAA Plan;
(6) consultants providing advice concerning the administration of the HIPAA Plan; and
(7) the employees of Business Associates charged with providing services to the HIPAA Plan.
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The persons identified above shall have access to and use PHI to the extent that such access and use is necessary for the administration of group health benefits under a HIPAA Plan. If these persons do not comply with this Plan document, the Plan Sponsor shall provide a mechanism for resolving issues of noncompliance, including disciplinary sanctions.
11.7 Enforcement.
Enforcement of this Article 11 shall be as provided for by HIPAA. In particular, participants and beneficiaries are not authorized to sue with regard to purported breaches of this Article 11 except as explicitly permitted by HIPAA.
ARTICLE 12 CLAIM AND APPEAL PROCESS
12.1 Claims for Benefits under the Plan. – See Appendix B.
12.2 Claims Related to Basic Eligibility for Coverage under the Plan and Claims Related to the Article 8 Loyalty Conditions.
(a) Claims. A person who believes that he or she is being denied a benefit to which he or she is entitled under this Plan (hereinafter referred to as a “Claimant”) based on a claim for basic eligibility for coverage under the Plan or a claim related to the Article 8 Loyalty Conditions may file a written request for such benefit with the Executive Compensation Administration Department, setting forth his or her claim. The request must be addressed to the AT&T Executive Compensation Administration Department at its then principal place of business.
(b) Claim Decision. Upon receipt of a claim, the AT&T Executive Compensation Administration Department shall review the claim and provide the Claimant with a written notice of its decision within a reasonable period of time, not to exceed ninety (90) days, after the claim is received. If the AT&T Executive Compensation Administration Department determines that special circumstances require an extension of time beyond the initial ninety (90)- day claim review period, the AT&T Executive Compensation Administration Department shall notify the Claimant in writing within the initial ninety (90)-day period and explain the special circumstances that require the extension and state the date by which the AT&T Executive Compensation Administration Department expects to render its decision on the claim. If this notice is provided, the AT&T Executive Compensation Administration Department may take up to an additional ninety (90) days (for a total of one hundred eighty (180) days after receipt of the claim) to render its decision on the claim.
If the claim is denied by the AT&T Executive Compensation Administration Department, in whole or in part, the AT&T Executive Compensation Administration Department shall provide a written decision using language calculated to be understood by the Claimant and setting forth: (i) the specific reason or reasons for such denial; (ii) specific references to pertinent provisions of this Plan on which such denial is based; (iii) a description of any additional material or information necessary for the Claimant to perfect his or her claim and an explanation of why such material or such information is necessary; (iv) a description of the Plan’s procedures for review of denied claims and the steps to be taken if the Claimant wishes to submit the claim for review; (v) the time limits for requesting a review of a denied claim under this section and for conducting the review under this section ; and (vi) a statement of the Claimant’s right to bring a civil action under Section 502(a) of ERISA if the claim is denied following review under this section.
(c) Request for Review. Within sixty (60) days after the receipt by the Claimant of the written decision on the claim provided for in this section, the Claimant may request in writing that the Plan Administrator review the determination of the AT&T Executive Compensation Administration Department. Such request must be addressed to the Plan Administrator at the address provided in the written decision regarding the claim. To assist the Claimant in deciding whether to request a review of a denied claim or in preparing a request for review of a denied claim, a Claimant shall be provided, upon written request to the Plan Administrator and free of charge, reasonable access to, and copies of, all documents, records and other information relevant to the claim. The Claimant or his or her duly authorized representative may, but need not, submit a statement of the issues and comments in writing, as well as other documents, records or other information relating to the claim for consideration by the Committee. If the Claimant does not request a review by the Plan Administrator of the AT&T Executive Compensation Administration Department’s decision within such sixty (60)-day period, the Claimant shall be barred and estopped from challenging the determination of the AT&T Executive Compensation Administration Department.
(d) Review of Decision. Within sixty (60) days after the Plan Administrator’s receipt of a request for review, the Plan Administrator will review the decision of the AT&T Executive Compensation Administration Department. If the Plan Administrator determines that special circumstances require an extension of time beyond the initial sixty (60)-day review period, the Plan Administrator shall notify the Claimant in writing within the initial sixty (60)-day period and explain
the special circumstances that require the extension and state the date by which the Plan Administrator expects to render its decision on the review of the claim. If this notice is provided, the Plan Administrator may take up to an additional sixty (60) days (for a total of one hundred twenty (120) days after receipt of the request for review) to render its decision on the review of the claim.
During its review of the claim, the Plan Administrator shall:
(1) Take into account all comments, documents, records, and other information submitted by the Claimant relating to the claim, without regard to whether such information was submitted or considered in the initial review of the claim conducted pursuant to this section;
(2) Follow reasonable procedures to verify that its benefit determination is made in accordance with the applicable Plan documents; and
(3) Follow reasonable procedures to ensure that the applicable Plan provisions are applied to the Participant to whom the claim relates in a manner consistent with how such provisions have been applied to other similarly-situated Participants.
After considering all materials presented by the Claimant, the Plan Administrator will render a decision, written in a manner designed to be understood by the Claimant. If the Plan Administrator denies the claim on review, the written decision will include (i) the specific reasons for the decision; (ii) specific references to the pertinent provisions of this Plan on which the decision is based; (iii) a statement that the Claimant is entitled to receive, upon request to the Plan Administrator and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the claim; and (iv) a statement of the Claimant’s right to bring a civil action under Section 502(a) of ERISA.
In any case, a Participant or Beneficiary may have further rights under ERISA. The Plan provisions require that Participants or Beneficiary pursue all claim and appeal rights described in this section before they seek any other legal recourse regarding claims for benefits.
APPENDIX A
AT&T HEALTH PLAN
2020 MONTHLY CONTRIBUTIONS, ANNUAL DEDUCTIBLE, COINSURANCE PERCENTAGES AND ANNUAL OUT-OF-POCKET MAXIMUM
Active Participants
Monthly Contributions |
Individual - $196 Individual + Spouse - $322 Individual + 1 or More Children - $212 Individual + Spouse + 1 or More Children - $501 |
Annual Deductible |
Individual - $1,700 All other tiers - $3,400 |
Coinsurance Percentage |
10% after the Annual Deductible is met. Coinsurance applies until the Annual Out-of-Pocket Maximum is reached. |
Annual Out-of-Pocket Maximum |
Individual - $6,900 All other tiers- $13,800 (individual amount of $6,900) |
Retired Participants – Monthly Contributions
Retired Prior to August 31, 1992 and Surviving Spouses |
Individual - $209 Individual + Spouse - $209 Individual + 2 or More - $209 |
|
Retired on or after September 1, 1992 and Surviving Spouses
Note: The Plan Administrator shall maintain records governing whether a Retired Participant is in Class A, B, C or D.
|
Class A |
Individual - $667 Individual + Spouse - $1,016 Individual + 1 or More Children - $667 Individual + Spouse + 1 or More Children - $946 |
Class B |
Individual - $799 Individual + Spouse - $1,150 Individual + 1 or More Children - $799 Individual + Spouse + 1 or More Children - $1,159 |
|
Class C |
Individual - $987 Individual + Spouse - $1,339 Individual + 1 or More Children - $987 Individual + Spouse + 1 or More Children - $1,399 |
|
Class D |
Individual - $1,266 Individual + Spouse - $1,906 Individual + 1 or More Children - $1,266 Individual + Spouse + 1 or More Children - $1,912 |
COBRA Continuation Coverage – Monthly Contributions
Active COBRA |
Individual - $2,295 Individual + Spouse - $4,702 Individual + 1 or More Children - $3,729 Individual + Spouse + 1 or More Children - $6,725 |
Retired Prior to August 31, 1992 and Surviving Spouses COBRA |
Individual - $1,502 Individual + 1 - $2,934 Individual + 2 or More - $4,213 |
Retired on or after September 1, 1992 and Surviving Spouses COBRA |
Individual - $1,441 Individual + Spouse - $2,953 Individual + 1 or More Children - $2,342 Individual + Spouse + 1 or More Children - $4,224 |
APPENDIX B
CLAIMS PROCEDURE APPLICABLE TO CLAIMS FOR BENEFITS UNDER THE PLAN
You, your covered dependents or a duly authorized person has the right under ERISA and the Plan to file a written claim for benefits under the Plan. The following describes the procedures used by the Plan to process claims for benefits, along with your rights and responsibilities. These procedures were designed to comply with the rules of the Department of Labor (DOL) concerning claims for Benefits. It is important that you follow these procedures to make sure that you receive full benefits under the Plan.
The Plan is an ERISA plan, and you may file suit in federal court if you are denied benefits you believe are due you under the Plan. However, you must complete the full claims and appeal process offered under the Plan before filing a lawsuit.
When filing a claim for benefits, you should file the claim with the Claims Administrator. The Claims Administrator is the third party to whom claims and appeal responsibility has been delegated as permitted under Section 9.1 of the Plan.
The following are not considered claims for benefits under the Plan:
· A claim related to basic eligibility for coverage under the Plan (See Section 12.2 of the Plan).
· A claim related to the Loyalty Conditions contained in Article 8 of the Plan (See Section 12.2 of the Plan).
A request for payment of benefits must be submitted within one year after the date of service or the date the prescription was provided.
When you request payment of benefits from the Plan, you must provide certain information as requested by the Claims Administrator.
Post-service claims are those claims that are filed for payment of benefits after medical care has been received. If your post-service claim is denied, you will receive a written notice from the Claims Administrator within 30 days of receipt of the claim, as long as all needed information identified above and any other information that the Claims Administrator may request in connection with services rendered to you was provided with the claim. The Claims Administrator will notify you within this 30-day period if additional information is needed to process the Claim and may request a one-time extension not longer than 15 days and pend your Claim until all information is received.
Once notified of the extension, you then have 45 days to provide this information. If all of the needed information is received within the 45-day time frame and the claim is denied, the claims Administrator will notify you of the denial within 15 days after the information is received. If you don't provide the needed information within the 45-day period, your claim will be denied.
A denial notice will explain the reason for denial, refer to the part of the Plan on which the denial is based, and provide the claim appeal procedures.
Pre-service claims are those claims that require notification or approval prior to receiving medical care or require notification within a specified time period after service begins as required under the Plan provisions. If your claim is a pre-service claim and is submitted properly with all needed information, you will receive written notice of the claim decision from the Claims Administrator within 15 days of receipt of the claim. If you file a pre-service claim improperly, the Claims Administrator will notify you of the improper filing and how to correct it within five days after the pre-service claim is received. If additional information is needed to process the pre-service claim, the Claims Administrator will notify you of the information needed within 15 days after the claim was received and may request a one-time extension not longer than 15 days and pend your claim until all information is received. Once notified of the extension, you then have 45 days to provide this information. If all of the needed information is received within the 45-day time frame, the Claims Administrator will notify you of the determination
within 15 days after the information is received. If you don't provide the needed information within the 45-day period, your claim will be denied. A denial notice will explain the reason for denial, refer to the part of the Plan on which the denial is based, and provide the claim appeal procedures.
Urgent Care Claims That Require Immediate Action
Urgent care claims are those claims that require notification or approval prior to receiving medical care in which a delay in treatment could seriously jeopardize your life or health or the ability to regain maximum function or, in the opinion of a physician with knowledge of your medical condition, could cause severe pain. In these situations:
· You will receive notice of the benefit determination in writing or electronically within 72 hours after the Claims Administrator receives all necessary information, taking into account the seriousness of your condition.
· Notice of denial may be oral with a written or electronic confirmation to follow within three days.
If you filed an urgent claim improperly, the Claims Administrator will notify you of the improper filing and how to correct it within 24 hours after the urgent claim was received. If additional information is needed to process the claim, the Claims Administrator will notify you of the information needed within 24 hours after the claim was received. You then have 48 hours to provide the requested information.
You will be notified of a determination no later than 48 hours after either:
· The Claims Administrator's receipt of the requested information.
· The end of the 48-hour period within which you were to provide the additional information, if the information is not received within that time.
A denial notice will explain the reason for denial, refer to the part of the Plan on which the denial is based, and provide the claim appeal procedures.
If an ongoing course of treatment was previously approved for a specific period of time or number of treatments, and your request to extend the treatment is an urgent care claim as defined above, your request will be decided within 24 hours, provided your request is made at least 24 hours prior to the end of the approved treatment. The Claims Administrator will make a determination on your request for the extended treatment within 24 hours from receipt of your request.
If your request for extended treatment is not made at least 24 hours prior to the end of the approved treatment, the request will be treated as an urgent care claim and decided according to the time frames described above. If an ongoing course of treatment was previously approved for a specific period of time or number of treatments, and you request to extend treatment in a non-urgent circumstance, your request will be considered a new claim and decided according to post-service or pre-service timeframes, whichever applies.
How to Appeal a Claim Decision
If you disagree with a pre-service or post-service claim determination after following the above steps, you can contact the applicable Claims Administrator in writing to formally request an appeal. Your first appeal request must be submitted to the Claims Administrator within 180 days after you receive the Claim denial.
A qualified individual who was not involved in the decision being appealed will be appointed to decide the appeal. The Claims Administrator may consult with, or seek the participation of, medical experts as part of the appeal resolution process. You must consent to this referral and the sharing of pertinent medical claim information. Upon written request and free of charge you have the right to reasonable access to and copies of all documents, records and other information relevant to your claim for benefits.
Pre-Service and Post-Service Claim Appeals
You will be provided written or electronic notification of the decision on your appeal as follows:
· For appeals of pre-service claims, the first-level appeal will be conducted and you will be notified by the Claims Administrator of the decision within 15 days from receipt of a request for appeal of a denied Claim. The second-level
appeal will be conducted and you will be notified by the Claims Administrator of the decision within 15 days from receipt of a request for review of the first-level appeal decision.
· For appeals of post-service claims, the first-level appeal will be conducted and you will be notified by the Claims Administrator of the decision within 30 days from receipt of a request for appeal of a denied claim. The second-level appeal will be conducted and you will be notified by the Claims Administrator of the decision within 30 days from receipt of a request for review of the first-level appeal decision.
· For procedures associated with urgent Claims, refer to the following "Urgent Claim Appeals That Require Immediate Action" section.
· If you are not satisfied with the first-level appeal decision of the Claims Administrator, you have the right to request a second-level appeal from the Claims Administrator. Your second level appeal request must be submitted to the Claims Administrator in writing within 60 days from receipt of the first-level appeal decision.
· For pre-service and post-service claim appeals, the Plan Administrator has delegated to the Claims Administrator the exclusive right to interpret and administer the provisions of the Plan. The Claims Administrator's decisions are conclusive and binding.
Please note that the Claims Administrator's decision is based only on whether or not benefits are available under the Plan for the proposed treatment or procedure. The determination as to whether the pending health service is necessary or appropriate is between you and your physician.
Urgent Claim Appeals That Require Immediate Action
Your appeal may require immediate action if a delay in treatment could significantly increase the risk to your health or the ability to regain maximum function or cause severe pain.
In these urgent situations, the appeal does not need to be submitted in writing. You or your physician should call the Claims Administrator as soon as possible. The Claims Administrator will provide you with a written or electronic determination within 72 hours following receipt by the Claims Administrator of your request for review of the determination taking into account the seriousness of your condition.
For urgent claim appeals, the Plan Administrator has delegated to the applicable Claims Administrator the exclusive right to interpret and administer the provisions of the Plan. The Claims Administrator's decisions are conclusive and binding.
In any case, a Participant or Beneficiary may have further rights under ERISA. The Plan provisions require that Participants or Beneficiary pursue and exhaust all claim and appeal rights described in this section before they seek any other legal recourse regarding claims for benefits.
APPENDIX C
DISCLOSURE OF GRANDFATHERED STATUS
MODEL NOTICE
AT&T, as plan sponsor, believes this Plan is a “grandfathered health plan” under the Patient Protection and Affordable Care Act (the “Affordable Care Act”). As permitted by the Affordable Care Act, a grandfathered health plan can preserve certain basic health coverage that was already in effect when that law was enacted. Being a grandfathered health plan means that the plan may not include certain consumer protections of the Affordable Care Act that apply to other plans, for example, the requirement for the provision of preventive health services without any cost sharing. However, grandfathered health plans must comply with certain other consumer protections of the Affordable Care Act, for example, the elimination of lifetime limits on benefits.
Questions regarding which protections apply and which protections do not apply to a grandfathered health plan and what might cause a plan to change from grandfathered health plan status can be directed to the plan administrator at P.O. Box 30558, Salt Lake City, Utah 84130-0558. You may also contact the Employee Benefits Security Administration, U.S. Department of labor at 1-866-444-3272 or www.dol.gov/ebsa/healthreform. This website has a table summarizing which protections do and do not apply to grandfathered health plans.
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APPENDIX D
Notwithstanding the provisions and limitations of Section 2.15 of the Plan, the following Officers shall be included in the term “Eligible Employee” and shall be eligible to participate in the Plan (along with any Dependents) subject to all applicable provisions of the Plan:
Name |
Title |
Effective Date of Participation |
David McAtee |
Senior Executive Vice President & General Counsel |
February 1, 2018 |
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Exhibit 10-b
AT&T INC.
STOCK PURCHASE AND DEFERRAL PLAN
Adopted November 19, 2004
As amended through July 25, 2019
The purpose of the Stock Purchase and Deferral Plan (“Plan”) is to increase stock ownership by, and to provide savings opportunities to, a select group of management employees of AT&T Inc. (“AT&T”) and its Subsidiaries.
Article 2 - Definitions
For the purpose of this Plan, the following words and phrases shall have the meanings indicated, unless the context indicates otherwise:
Annual Bonus. The award designated the “Annual Bonus” by AT&T (including but not limited to an award that may be paid in more frequent installments than annually), together with any individual discretionary award made in connection therewith, or comparable awards, if any, determined by AT&T to be used in lieu of these awards.
Base Compensation. The following types of cash-based compensation paid by an Employer (but not including payments made by a non-Employer, such as state disability payments), before reduction due to any contribution pursuant to this Plan or reduction pursuant to any deferral plan of an Employer, including but not limited to a plan that includes a qualified cash or deferral arrangement under Section 401(k) of the Code:
(a) base salary;
(b) lump sum payments in lieu of a base salary increase; and
(c) Annual Bonus.
Payments by an Employer under a disability plan made in lieu of any compensation described above shall be deemed to be a part of the respective form of compensation it replaces for purposes of this definition. Base Compensation does not include zone allowances or any other geographical differential and shall not include payments made in lieu of unused vacation or other paid days off, and such payments shall not be contributed to this Plan.
Determinations by AT&T (the Committee with respect to Officer Level Employees) of the items that make up Base Compensation shall be final. The Committee may, from time to time, add or subtract types of compensation to or from the definition of “Base Compensation” provided, however, any such addition or subtraction shall be effective only with respect to the next period in which a Participant may make an election to establish a Share Deferral Account. Base Compensation that was payable in a prior Plan Year but paid in a later Plan Year shall not be used to determine Employee Contributions or Matching Contributions in such later Plan Year.
Business Day. Any day during regular business hours that AT&T is open for business.
Change in Control. With respect to AT&T’s direct and indirect ownership of an Employer, a “Change in the effective control of a Corporation,” as defined in Treasury Regulation Section 1.409A-3(i)(5)(vi)(A)(1), regardless of whether the Employer is a corporation or non corporate entity as permitted by the regulation, and using “50 percent” in lieu of “30 percent” in such regulation. A Change in Control will not apply to AT&T itself.
Chief Executive Officer. The Chief Executive Officer of AT&T Inc.
Code. References to the Code shall be to provisions of the Internal Revenue Code of 1986, as amended, including regulations promulgated thereunder and successor provisions. Similarly, references to regulations shall include amendments
1
Committee. The Human Resources Committee of the Board of Directors of AT&T Inc.
Disability. Absence of an Employee from work with an Employer under the relevant Employer's disability plan.
Eligible Employee. An Employee who:
(a) is a full or part time, salaried Employee of AT&T or an Employer in which AT&T has a direct or indirect 100% ownership interest and who is on active duty or Leave of Absence (but only while such Employee is deemed by the Employer to be an Employee of such Employer);
(b) is, as determined by AT&T, a member of Employer's “select group of management or highly compensated employees” within the meaning of the Employee Retirement Income Security Act of 1974, as amended, and regulations thereunder (“ERISA”), which is deemed to include each Officer Level Employee; and
(c) has an employment status which has been approved by AT&T to be eligible to participate in this Plan or is an Officer Level Employee.
Notwithstanding the foregoing, AT&T (the Committee with respect to Officer Level Employees) may, from time to time, exclude any Employee or group of Employees from being deemed an “Eligible Employee” under this Plan.
In the event a court or other governmental authority determines that an individual was improperly excluded from the class of persons who would be permitted to make Employee Contributions during a particular time for any reason, that individual shall not be permitted to make such contributions for purposes of the Plan for the period of time prior to such determination.
Employee. Any person employed by an Employer and paid on an Employer’s payroll system, excluding persons hired for a fixed maximum term and excluding persons who are neither citizens nor permanent residents of the United States, all as determined by AT&T. For purposes of this Plan, a person on Leave of Absence who otherwise would be an Employee shall be deemed to be an Employee.
Employee Contributions. Amounts credited to a Share Deferral Account pursuant to Section 4.1 (Election to Make Contributions) of the Plan.
Employer. AT&T Inc. or any of its Subsidiaries.
Exercise Price. The price per share of Stock purchasable under an Option.
Fair Market Value or FMV. In valuing Stock or any other item subject to valuation under this Plan, the Committee may use such index or measurement as the Committee may reasonably determine from time to time, and such index or measurement shall be the FMV of such Stock or other item, provided that for purposes of determining the Exercise Price of Stock Options, the Committee shall use a value consistent with the requirements of Section 409A. In the absence of such action by the Committee, FMV means, with respect to Stock, the closing price on the New York Stock Exchange (“NYSE”) of the Stock on the relevant date, or if on such date the Stock is not traded on the NYSE, then the closing price on the immediately preceding date such Stock is so traded.
Leave of Absence. Where a person is absent from employment with an Employer on a leave of absence, military leave, sick leave, or Disability where the leave is given in order to prevent a break in the continuity of term of employment, and permission for such leave is granted (and not revoked) in conformity with the rules of the Employer that employs the individual, as adopted from time to time, and the Employee is reasonably expected to return to service. Except as set forth below, the leave shall not exceed six (6) months for purposes of this Plan, and the Employee shall Terminate Employment upon termination of such leave if the Employee does not return to work prior to or upon expiration of such six (6) month period, unless the individual retains a right to reemployment under law or by contract. A twenty-nine (29) month limitation shall apply in lieu of such six (6) month limitation if the leave is due to the Employee being "disabled" (within the meaning of Treasury Regulation §1.409A-3(i)(4)). A Leave of Absence shall not commence or shall be deemed to cease under the Plan where the Employee has incurred a Termination of Employment.
Officer Level Employee. Any executive officer of AT&T, as that term is used under the Securities Exchange Act of
2
1934, as amended, and any Employee that is an “officer level” Employee for compensation purposes as shown on the records of AT&T.
Options or Stock Options. Options to purchase Stock issued pursuant to this Plan.
Participant. An Employee or former Employee who participates in this Plan.
Plan Year. Each of the following shall be a Plan Year: the period January 1, 2005, through January 15, 2006; the period January 16, 2006, through December 31, 2006; and, for all later Plan Years, it is defined as the period from January 1 through December 31.
Retirement or Retire. Termination of Employment on or after the earlier of the following dates, unless otherwise provided by the Committee: (a) for Officer Level Employees, the date the Participant is at least age 55 and has five (5) years of Net Credited Service; or (b) the date the Participant has attained one of the following combinations of age and Net Credited Service:
Net Credited Service Age
10 years or more 65 or older
20 years or more 55 or older
25 years or more 50 or older
30 years or more Any age
For purposes of this Plan only, Net Credited Service shall be calculated in the same manner as “Pension Eligibility Service” under the AT&T Pension Benefit Plan – Nonbargained Program (“Pension Plan”), as amended from time to time, except that service with an Employer shall be counted as though the Employer were a “Participating Company” under the Pension Plan and the Employee was a participant in the Pension Plan.
Senior Manager. Any Employee who is a “senior manager” for compensation purposes as shown on the records of AT&T.
Shares or Share Units. An accounting entry representing the right to receive an equivalent number of shares of Stock.
Share Deferral Account or Account. The Account or Accounts established annually by an election by a Participant to make Employee Contributions to the Plan, with each Account relating to a Plan Year. For each Plan Year after 2008, there shall be (1) a separate Share Deferral Account for Share Units purchased with Employee Contributions of Base Compensation (excluding Annual Bonus) and related Matching Share Units and (2) a separate Share Deferral Account for Share Units purchased with Employee Contributions of Short Term Incentive Award and/or Annual Bonus and any related Matching Share Units. Earnings on Share Units and Matching Share Units shall accrue to the respective Share Deferral Accounts where they are earned.
Short Term Incentive Award. A cash award paid by an Employer (and not by a non-Employer, such as state disability payments) under the Short Term Incentive Plan or any successor plan, together with any individual discretionary award made in connection therewith; an award under a similar plan intended by the Committee to be in lieu of an award under such Short Term Incentive Plan, including, but not limited to, Performance Units granted under the 2006 Incentive Plan or any successor plan. It shall also include any other award that the Committee designates as a Short Term Incentive Award specifically for purposes of this Plan (regardless of the purpose of the award) provided the deferral election is made in accordance with Section 409A.
Specified Employee. Any Participant who is a “Key Employee” (as defined in Code Section 416(i) without regard to paragraph (5) thereof), as determined by AT&T in accordance with its uniform policy with respect to all arrangements subject to Code Section 409A, based upon the 12-month period ending on each December 31st (such 12-month period is referred to below as the “identification period”). All Participants who are determined to be Key Employees under Code Section 416(i) (without regard to paragraph (5) thereof) during the identification period shall be treated as Key Employees for purposes of the Plan during the 12-month period that begins on the first day of the 4th month following the close of such identification period.
Stock. The common stock of AT&T Inc.
Subsidiary. Any corporation, partnership, venture or other entity or business with which AT&T would be considered a single employer under Sections 414(b) and (c) of the Code, using 50% as the ownership threshold as provided under Section 409A of the Code.
Termination of Employment. References herein to “Termination of Employment," “Terminate Employment” or a similar reference, shall mean the event where the Employee has a “separation from service,” as defined under Section 409A, with all Employers. For purposes of this Plan, a Termination of Employment with respect to an Employer shall be deemed to also occur when such Employer incurs a Change in Control.
Article 3 - Administration of the Plan
3.1 The Committee.
Except as delegated by this Plan or by the Committee, the Committee shall be the administrator of the Plan and will administer the Plan, interpret, construe and apply its provisions and determine all questions of administration, interpretation and application of the Plan, including, without limitation, questions and determinations of eligibility, entitlement to benefits and payment of benefits, all in its sole and absolute discretion. The Committee may further establish, adopt or revise such rules and regulations and such additional terms and conditions regarding participation in the Plan as it may deem necessary or advisable for the administration of the Plan. References in this Plan to determinations or other actions by AT&T, herein, shall mean actions authorized by the Committee, the Chief Executive Officer, the Senior Executive Vice President of AT&T in charge of Human Resources, or their respective successors or duly authorized delegates, in each case in the discretion of such person. All decisions by the Committee, its delegate or AT&T, as applicable, shall be final and binding.
3.2 Authorized Shares of Stock.
(a) Except as provided below, the number of shares of Stock which may be distributed pursuant to the Plan, exclusive of Article 8 - Options, is 76,000,000. The number of shares of Stock which may be issued pursuant to the exercise of Stock Options is 34,000,000 (together with an equal number of Stock Options). In determining the number of authorized shares remaining available for issuance, shares withheld for taxes in a distribution shall not be considered issued and shall not reduce the number of authorized shares. When an Option is exercised, the authorized shares of Stock that may be issued pursuant to an Option exercise shall be reduced by the number of Options so exercised. To the extent an Option issued under this Plan is canceled, terminates, expires, or lapses for any reason, such Option shall again be available for issuance under the Plan. Conversions of Stock awards into Share Units and their eventual distribution (excluding the effects of any dividends on such Share Units) shall count only against the limits of the plans from which they originated and shall not be applied against the limits in this Plan. To the extent Share Units are credited through deferrals of Stock or Employee Contributions where the distribution of which would be deductible by AT&T under Section 162(m) of the Code without regard to the size of the distribution, and such deductible Share Units are available for distribution, such Share Units shall be distributed first.
(b) In the event the Committee determines that continuing the issuance of Share Units under the Plan or Stock Options under the Plan may cause the number of shares of Stock that are to be distributed under this Plan or the number of Stock Options (as determined pursuant to subsection (a), above) to exceed the number of authorized shares of Stock, then in lieu of distributing Stock, the Committee may provide after such determination and only with respect to Share Units that have not theretofore been credited to a Share Deferral Account, that such Share Units may be settled in cash equal to the value of the Stock that would otherwise be distributed based on the FMV of the Stock on the date of the distribution of such Share Unit. The Committee may also provide after such determination and only with respect to Stock Options that have not theretofore been issued that such Stock Options may only be settled on a Net-Settled basis in cash equal to the value of the Stock that would otherwise be distributed based on the FMV of the Stock on the day of exercise.
(c) In the event of a merger, reorganization, consolidation, recapitalization, separation, liquidation, stock dividend, stock split, share combination, or other change in the corporate structure of AT&T affecting the shares of Stock (including a conversion of Stock into cash or other property), such adjustment shall be made to the number and class of the shares of Stock which may be delivered under the Plan (including but not limited to individual limits), and in the number and class of and/or price of shares of Stock subject to outstanding Options granted under the Plan, and/or in the number of outstanding Options and Share Units, or such other adjustment determined by the Committee, in each case as may be determined to be appropriate and equitable by the Committee, in its sole discretion, to prevent dilution or enlargement of rights.
3.3 Claims and Appeals.
(a) Claims. A person who believes that he or she is being denied a benefit to which he or she is entitled under this Plan (hereinafter referred to as a “Claimant”) may file a written request for such benefit with the Executive Compensation Administration Department, setting forth his or her claim. The request must be addressed to the AT&T Executive Compensation Administration Department at its then principal place of business.
(b) Claim Decision. Upon receipt of a claim, the AT&T Executive Compensation Administration Department shall review the claim and provide the Claimant with a written notice of its decision within a reasonable period of time, not to exceed ninety (90) days, after the claim is received. If the AT&T Executive Compensation Administration Department determines that special circumstances require an extension of time beyond the initial ninety (90)- day claim review period, the AT&T Executive Compensation Administration Department shall notify the Claimant in writing within the initial ninety (90)-day period and explain the special circumstances that require the extension and state the date by which the AT&T Executive Compensation Administration Department expects to render its decision on the claim. If this notice is provided, the AT&T Executive Compensation Administration Department may take up to an additional ninety (90) days (for a total of one hundred eighty (180) days after receipt of the claim) to render its decision on the claim.
If the claim is denied by the AT&T Executive Compensation Administration Department, in whole or in part, the AT&T Executive Compensation Administration Department shall provide a written decision using language calculated to be understood by the Claimant and setting forth: (i) the specific reason or reasons for such denial; (ii) specific references to pertinent provisions of this Plan on which such denial is based; (iii) a description of any additional material or information necessary for the Claimant to perfect his or her claim and an explanation of why such material or such information is necessary; (iv) a description of the Plan’s procedures for review of denied claims and the steps to be taken if the Claimant wishes to submit the claim for review; (v) the time limits for requesting a review of a denied claim under this section and for conducting the review under this section; and (vi) a statement of the Claimant’s right to bring a civil action under Section 502(a) of ERISA if the claim is denied following review under this section.
(c) Request for Review. Within sixty (60) days after the receipt by the Claimant of the written decision on the claim provided for in this section, the Claimant may request in writing that the Committee review the determination of the AT&T Executive Compensation Administration Department. Such request must be addressed to the Committee at the address for giving notice in this Plan. To assist the Claimant in deciding whether to request a review of a denied claim or in preparing a request for review of a denied claim, a Claimant shall be provided, upon written request to the Committee and free of charge, reasonable access to, and copies of, all documents, records and other information relevant to the claim. The Claimant or his or her duly authorized representative may, but need not, submit a statement of the issues and comments in writing, as well as other documents, records or other information relating to the claim for consideration by the Committee. If the Claimant does not request a review by the Committee of the AT&T Executive Compensation Administration Department’s decision within such sixty (60)-day period, the Claimant shall be barred and stopped from challenging the determination of the AT&T Executive Compensation Administration Department.
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(d) Review of Decision. Within sixty (60) days after the Committee’s receipt of a request for review, the Administrator will review the decision of the AT&T Executive Compensation Administration Department. If the Committee determines that special circumstances require an extension of time beyond the initial sixty (60)-day review period, the Committee shall notify the Claimant in writing within the initial sixty (60)-day period and explain the special circumstances that require the extension and state the date by which the Committee expects to render its decision on the review of the claim. If this notice is provided, the Committee may take up to an additional sixty (60) days (for a total of one hundred twenty (120) days after receipt of the request for review) to render its decision on the review of the claim.
During its review of the claim, the Committee shall:
(1) Take into account all comments, documents, records, and other information submitted by the Claimant relating to the claim, without regard to whether such information was submitted or considered in the initial review of the claim conducted pursuant to this section;
(2) Follow reasonable procedures to verify that its benefit determination is made in accordance with the applicable Plan documents; and
(3) Follow reasonable procedures to ensure that the applicable Plan provisions are applied to the Participant to whom the claim relates in a manner consistent with how such provisions have been applied to other similarly-situated Participants.
After considering all materials presented by the Claimant, the Committee will render a decision, written in a manner designed to be understood by the Claimant. If the Committee denies the claim on review, the written decision will include (i) the specific reasons for the decision; (ii) specific references to the pertinent provisions of this Plan on which the decision is based; (iii) a statement that the Claimant is entitled to receive, upon request to the Committee and free of charge, reasonable access to, and copies of, all documents, records, and other information relevant to the claim; and (iv) a statement of the Claimant’s right to bring a civil action under Section 502(a) of ERISA.
The Committee shall serve as the final review committee under the Plan and shall have sole and complete discretionary authority to administer, interpret, construe and apply the Plan provisions, and determine all questions of administration, interpretation, construction, and application of the Plan, including questions and determinations of eligibility, entitlement to benefits and the type, form and amount of any payment of benefits, all in its sole and absolute discretion. The Committee shall further have the authority to determine all relevant facts and related issues, and all documents, records and other information relevant to a claim conclusively for all parties, and in accordance with the terms of the documents or instruments governing the Plan. Decisions by the Committee shall be conclusive and binding on all parties and not subject to further review.
In any case, a Participant or Beneficiary may have further rights under ERISA. The Plan provisions require that Participants or Beneficiary pursue all claim and appeal rights described in this section before they seek any other legal recourse regarding claims for benefits.
Article 4 - Contributions
4.1 Election to Make Contributions.
(a) The Committee shall establish dates and other conditions for participation in the Plan and making contributions as it deems appropriate. Except as otherwise provided by the Committee, each year an Employee who is an Eligible Employee as of September 30 may thereafter make an election on or prior to the last Business Day of the immediately following November (such election shall be cancelled if the Employee is not an Eligible Employee on the last day such an election may be made) to contribute on a pre-tax basis, through payroll deductions, any combination of the following:
(1) From 6% to 30% (in whole percentage increments) of the Participant’s monthly Base Compensation, other than Annual Bonus, during the calendar year (the Plan Year for such contributions) following the calendar year of such election. The Employee Contributions shall be used to acquire Share Units to be credited to the Share Deferral Account for that Plan Year.
(2) Up to 95% (in whole percentage increments or limited to the target amount) of a Short Term Incentive Award, or from 6% to 30% (in whole percentage increments) of Annual Bonus, in each case such contributions shall be made
during the second calendar year (which is the Plan Year for such contributions) following the year of such election, except that in 2008 a separate election may be made with respect to contributions to be made in 2009. An Employee may make such an election with respect to the type of
Award (Short Term Incentive Award or Annual Bonus) that the Employee is under as of the time the Employee’s eligibility to make such election is determined. If because of a promotion or otherwise, the Employee receives a different type of Award instead of, or in partial or full replacement for, the type of Award subject to the Employee’s election for the relevant Plan Year, the election will apply to the other Award as well, including but not limited to any individual discretionary award related thereto.
(b) The Committee may permit an Eligible Employee to make an election to purchase Share Units under this Plan with compensation other than Base Compensation or Short Term Incentive Awards on such terms and conditions as such Committee may permit from time to time, provided that any such election is made in accordance with Section 409A of the Code. In no event shall an acquisition of Share Units pursuant to this paragraph (b) or pursuant to the conversion of a right to receive Stock into Share Units (such as through a distribution of Stock under the 2001 Incentive Plan) result in the crediting of an AT&T Matching Contribution or Options.
(c) Notwithstanding anything to the contrary in this Plan, no election shall be effective to the extent it would permit an Employee Contribution or distribution to be made that is not in compliance with Section 409A of the Code. To the extent such election related to Employee Contributions that complied with such statute and regulations thereunder, that portion of the election shall remain valid, except as otherwise provided under this Plan.
(d) To the extent permitted by Section 409A of the Code, AT&T may refuse or terminate, in whole or in part, any election to purchase Share Units in the Plan at any time; provided, however, that only the Committee may take such action with respect to persons who are Officer Level Employees.
(e) In the event the Participant takes a hardship withdrawal pursuant to Treasury Regulation §1.401(k)-1 from a benefit plan qualified under the Code and sponsored by an Employer, any election to make Employee Contributions of Annual Bonus or Short Term Incentive Award during 2020 by such Participant shall be cancelled on a prospective basis.
4.2 Purchase of Share Units.
(a) Employee Contributions (as well as any corresponding AT&T Matching Contributions) shall be made pursuant to a proper election, only during the Participant’s lifetime; provided, however, with respect to Employee Contribution elections made prior to 2007, the Employee must remain an Eligible Employee while making any such contributions. In the event of a Change in Control of an Employer, subsequent compensation from the Employer may not be contributed to the Plan. The Employer may continue the then current elections of the participants under a subsequent plan in order to comply with applicable tax laws.
(b) The number of Share Units purchased by a Participant during a calendar month shall be found by dividing the Participant's Employee Contributions during the month by the FMV of a share of Stock on the last day of such month.
(c) A contribution to the Plan shall be made when the compensation – from which the contribution is to be deducted – is to be paid (“paid,” as used in this Plan, includes amounts contributed to the Plan that would have been paid were it not for an election under this Plan), as determined by the relevant Employer. The Committee may modify or change this paragraph (c) from time to time.
4.3 Reinvestment of Dividends.
In the month containing a record date for a cash dividend on Stock, each Share Deferral Account shall be credited with that number of Share Units equal to the declared dividend per share of Stock, multiplied by the number of Share Units held in such Share Deferral Account as of such record date, and dividing the product by the FMV of a share of Stock on the last day of such month.
Article 5 - AT&T Matching Contributions
5.1 AT&T Match.
(a) Each month AT&T shall credit the Participant's relevant Share Deferral Account with the number of “Matching Share Units” found by taking the percentage of company matching contribution that the Employee is eligible to receive under the AT&T Retirement Savings Plan (or such other 401(k) plan of an Employer that the Employee is eligible to participate in)
multiplied by the Participant's Employee Contributions from Base Compensation made to this Plan and to the Cash Deferral Plan during the month with respect to the first six percent (6%) of the Participant’s monthly Match Eligible Compensation (as defined below) and dividing the resulting figure by the FMV of the Stock on the last day of such month (such resulting amount shall be the “Matching Contribution”). The monthly “Match Eligible Compensation” shall be the sum of:
(1) the monthly Employee Contributions from Base Compensation to this Plan and the Cash Deferral Plan (in the aggregate, “Deferred BC”), plus
(2) the amount of the Participant’s monthly Base Compensation in excess of the Deferred BC (“Non-Deferred BC”) but only to the extent such monthly Non-Deferred BC, when aggregated with the Participant’s total Non-Deferred BC for prior months in such Plan Year, as determined by the relevant Employer, exceeds the limit in effect under Section 401(a)(17) of the Code applicable with respect to such Plan Year.
The foregoing formula shall apply regardless of whether or not the Participant makes contributions to a 401(k) plan.
A Participant may receive Matching Share Units in a Share Deferral Account for a particular form of compensation only if the Participant is then making contributions to the same Share Deferral Account; provided, however, this condition shall not apply for purposes of determining under Section 5.1(a)(2) whether the limit described therein has been reached.
As provided in the definition of Share Deferral Account, Matching Share Units shall be credited to the respective Share Deferral Account that is related to the same form of Employee Contributions (either (1) Base Compensation excluding Annual Bonus or (2) Annual Bonus).
(b) In the sole discretion of the Committee, in the event the Committee reduces the number of Options that AT&T issues for each Share Unit purchased, the Committee may provide for the contribution of a Bonus Matching Contribution on such terms as the Committee determines. Such Bonus Matching Contribution may not exceed 20% of the Participant’s Employee Contributions for the month. The Bonus Matching Contribution shall be subject to such terms and conditions as required by the Committee and, unless otherwise provided by the Committee, to the same distribution requirements as Matching Contributions. Pursuant to the foregoing authority and until otherwise provided by the Committee, effective for Share Accounts created pursuant to Employee Contribution elections where such elections are made after January 1, 2010, AT&T shall make Bonus Matching Contributions equal to 20% of the Participant’s monthly Employee Contributions from each of Base Compensation and Short Term Incentive Award (not to exceed the target amount of such award, which limit shall be pro rated for any partial year award). Such Bonus Matching Contribution shall be used to purchase that number of Matching Share Units found by dividing the relevant Bonus Matching Contribution for the month by the FMV of the Stock on the last day of such month.
5.2 Distribution of Share Units Acquired with Matching Contributions.
A Participant's Matching Share Units shall be distributed in a lump sum, in accordance with the Plan's distribution provisions, in the earlier of: (a) the calendar year following the calendar year of the Termination of Employment of the Participant, or (b) the calendar year in which the Participant reaches age 55, in each case only with respect to Matching Share Units relating to Share Deferral Accounts for Plan Years before such distribution calendar year.
Matching Share Units acquired as part of a Share Deferral Account that commences in or after the calendar year the Employee reaches age 55 or after the calendar year in which the Employee Terminates Employment will be distributed in the same manner and time as other Share Units in such Share Deferral Account.
Notwithstanding anything to the contrary in this section, Matching Share Units acquired in 2008 and later shall be distributed at the same time as other Share Units (including those acquired with Employee Contributions) in the same Share Deferral Account.
Article 6 - Distributions
6.1 Distributions of Share Units.
(a) Initial Election with Respect to a Share Deferral Account. At the time the Participant makes an election to make Employee Contributions with respect to a Share Deferral Account, the Participant shall also elect the calendar year the Share Deferral Account shall be distributed, which may be from the first through fifth calendar years after the Plan Year the Account commenced (except as otherwise provided in this Plan with respect to Matching Share Units). For example, if an Account
commenced in 2005, the Participant may elect to commence the distribution in any calendar year from and including 2006 to and including 2010. If no timely distribution election is made by the Participant, then the Participant will be deemed to have made an election to have the Share Deferral Account distributed in a single installment in the first calendar year after the calendar year the Account commenced.
(b) Election to Delay a Scheduled Distribution.
(i) An Employee may elect to defer a scheduled distribution of a Share Deferral Account for five (5) additional calendar years beyond that previously elected (except as otherwise provided in this Plan with respect to Matching Share Units). Unless otherwise provided by AT&T, the election to defer the distribution must be made on or after October 16, and on or before the last Business Day of the next following December, of the calendar year that is the second calendar year preceding the calendar year of the relevant scheduled distribution.
(ii) To make this election, the Participant must be an Employee that is, as determined by AT&T, a member of Employer’s “select group of management or highly compensated employees” within the meaning of ERISA on the September 30 immediately preceding such election and on the day of such election.
(iii) An election to defer the distribution of a Share Deferral Account may not be made in the same calendar year that the election to establish the Share Deferral Account is made. Notwithstanding anything to the contrary in this Plan:
a. an election to defer the distribution of a Share Deferral Account must be made at least 12 months prior to the date of the first scheduled payment under the prior distribution election, and
b. the election shall not take effect until at least 12 months after the date on which the election is made.
(c) A Participant’s Share Deferral Account shall be distributed to the Participant on March 10 (or as soon thereafter as administratively practicable as determined by AT&T) of the calendar year elected by the Participant for that Account. In the event the distribution is to be made to a “Specified Employee” as a result of the Participant’s Termination of Employment (other than as a result of a Change in Control), the distribution shall not occur until the later of such March 10 or six (6) months after the Termination of Employment, except it shall be distributed upon the Participant’s earlier death in accordance with this Plan.
6.2 Death of the Participant.
In the event of the death of a Participant, notwithstanding anything to the contrary in this Plan, all undistributed Share Deferral Accounts shall be distributed to the Participant's beneficiary in accordance with the AT&T Rules for Employee Beneficiary Designations, as the same may be amended from time to time, within the later of 90 days following such determination or the end of the calendar year in which determination was made.
6.3 Unforeseeable Emergency Distribution.
If a Participant experiences an “Unforeseeable Emergency,” the Participant may submit a written petition to AT&T (the Committee in the case of Officer Level Employees), to receive a partial or full distribution of his Share Deferral Account(s). In the event that AT&T (the Committee in the case of Officer Level Employees), upon review of the written petition of the Participant, determines in its sole discretion that the Participant has suffered an “Unforeseeable Emergency,” AT&T shall make a distribution to the Participant from the Participant’s Share Deferral Accounts (other than Matching Share Units), on a pro-rata basis, within the later of 90 days following such determination or the end of the calendar year in which determination was made, subject to the following:
(a) “Unforeseeable Emergency” shall mean a severe financial hardship to the Participant resulting from an illness or accident of the Participant, the Participant’s legal spouse, the Participant’s beneficiary, or the Participant’s dependent (as defined in Code Section 152, without regard to Code Section 152(b)(1), (b)(2), and (d)(1)(B)); loss of the Participant’s property due to casualty; or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant, all as determined in the sole discretion of the Committee. Whether a Participant is faced with an Unforeseeable Emergency permitting a distribution is to be determined based on the relevant facts and circumstances of each case, but, in any case, a distribution on account of Unforeseeable Emergency shall not be made to the extent that such emergency is or may be relieved through reimbursement or compensation from insurance or otherwise, by liquidation of the Participant’s assets, to the extent the liquidation of such assets would not cause severe financial hardship, or by cessation of deferrals under the Plan.
(b) The amount of a distribution to be made because of an Unforeseeable Emergency shall not exceed the lesser of
(i) the FMV of the Participant's vested Share Deferral Account, calculated as the date on which the amount becomes payable, as determined by AT&T (the Committee in the case of Officer Level Employees) in its sole discretion, and (ii) the amount reasonably necessary, as determined by the AT&T (the Committee in the case of Officer Level Employees) in its sole discretion, to satisfy the emergency need (which may include amounts necessary to pay any Federal, state, local, or foreign income taxes or penalties reasonably anticipated to result from the distribution). Determinations of the amount reasonably necessary to satisfy the emergency need shall take into account any additional compensation that is available if the plan provides for cancellation of a deferral election upon a payment due to an Unforeseeable Emergency. The determination of amounts reasonably necessary to satisfy the Unforeseeable Emergency need is not required to, but may, take into account any additional compensation that, due to the Unforeseeable Emergency, is available under another nonqualified deferred compensation plan but has not actually been paid, or that is available due to the Unforeseeable Emergency under another plan that would provide for deferred compensation except due to the application of the effective date provisions under Treasury Regulation §1.409A-6.
(c) Upon such distribution on account of an Unforeseeable Emergency under this Plan, any election to make Employee Contributions by such Participant shall be immediately cancelled, and the Participant shall not be permitted to make a new election with respect to Employee Contributions that would be contributed during the then current and immediately following calendar year.
6.4 Ineligible Participant.
Notwithstanding any other provisions of this Plan to the contrary, if AT&T receives an opinion from counsel selected by AT&T, or a final determination is made by a Federal, state or local government or agency, acting within its scope of authority, to the effect that an individual’s continued participation in the Plan would violate applicable law, then such person shall not make further contributions to the Plan to the extent permitted by Section 409A of the Code.
6.5 Conflict of Interest Distribution.
AT&T may in its sole discretion accelerate a distribution(s) to the Participant, provided he or she is no longer actively employed by AT&T: (a) to the extent necessary for any Federal officer or employee in the executive branch to comply with an ethics agreement with the Federal government or (b) to the extent reasonably necessary to avoid the violation of an applicable
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Federal, state, local, or foreign ethics law or conflicts of interest law (including where such payment is reasonably necessary to permit the service provider to participate in activities in the normal course of his or her position in which the service provider would otherwise not be able to participate under an applicable rule). Any such distribution may only be made in accordance with Section 409A of the Code and the regulations thereunder.
6.6 Distribution Process.
A Share Deferral Account shall be distributed under this Plan by taking the number of Share Units comprising the Account to be distributed and converting them into an equal number of shares of Stock. (Once distributed, a Share Unit shall be canceled.)
Article 7 - Transition Provisions
7.1 Stockholder Approval
The Plan was approved by Stockholders at the 2005 Annual Meeting of Stockholders.
7.2 2005 Share Deferral Accounts.
Notwithstanding Article 4 to the contrary, if an Employee is an Eligible Employee on September 30, 2004, the Employee may make an election under Article 4 on or prior to December 15, 2004, with respect to the establishment of a Share Deferral Account for the (i) contribution of Base Compensation and/or Short Term Incentive Awards paid during the period from January 1, 2005, through January 15, 2006, which shall be the Plan Year for such Share Deferral Account; and/or (ii) the conversion of a distribution of Stock that would be made during the same Plan Year pursuant to the 2001 Incentive Plan into an equal number of Share Units, so long as such conversion would not cause the recognition of income for Federal income tax purposes in respect of such distribution of Stock prior to distribution of Share Units under this Plan.
7.3 2007 Amendments.
(a) Amendments made to the Plan on November 15, 2007, shall be effective January 1, 2008. except for amendments to this Article 7, which shall be effective upon adoption. Any Participants electing prior to November 15, 2007, to make Employee Contributions in 2008 shall have their elections canceled if they do not consent by December 14, 2007, to all prior amendments to this Plan and to the Cash Deferral Plan. Subject to the foregoing consent requirements, all Employee Contribution elections made prior to 2008, including but not limited to elections to contribute Stock that would be distributed under the 2001 Incentive Plan or a successor plan, shall remain in force, subject to all other terms of the amended Plan. In addition, all unvested but not forfeited Matching Share Units shall vest on November 15, 2007. Matching Shares that have been forfeited shall not be reinstated, and no amendment to this Plan shall be interpreted as reinstating such forfeitures.
(b) Not withstanding anything to the contrary in this Plan, a Participant who as of December 29, 2006, was eligible for an additional payment pursuant to Section 4A of the BellSouth Corporation Executive Incentive Award Deferral Plan shall not, with respect to the 2008 Plan Year, receive Matching Share Units on Base Compensation that exceeds $230,000.
7.4 2008 Amendments.
For Plan Years prior to 2009, Participants who, at the time of the determination of their eligibility to participate in an Account, are paid through a “sales plan” involving the use of commissions may elect to contribute up to 40% of Base Compensation. For the 2008 Plan Year, only Salary and Short Term Incentive Awards paid after Termination of Employment may be contributed to the Plan.
Article 8 - Options
8.1 Grants.
Options may be issued in definitive form or recorded on the books and records of AT&T for the account of the Participant, at the discretion of AT&T. If AT&T elects not to issue the Options in definitive form, they shall be deemed issued, and the Participants shall have all rights incident thereto as if they were issued on the dates provided herein, without further action on the part of AT&T or the Participant. In addition to the terms herein, all Options shall be subject to such additional provisions and limitations as provided in any Administrative Procedures adopted by the Committee prior to the issuance of such Options. The number of Options issued to a Participant shall be reflected on the Participant's annual statement of account.
8.2 Term of Options.
The Options may only be exercised: (a) after the earlier of (i) the expiration of one (1) year from date of issue or (ii) the Participant's Termination of Employment, and (b) no later than the tenth (10th) anniversary of their issue; and Options shall
be subject to earlier termination as provided herein.
8.3 Exercise Price.
The Exercise Price of an Option shall be the FMV of the Stock on the date of issuance of the Option, and an Option may not be repriced.
8.4 Issuance of Options.
(a) For each Share Deferral Account established by a Participant pursuant to an Employee Contribution election where such election was made prior to January 1, 2010:
(1) on June 15 of the Plan Year for the Share Deferral Account, the Participant shall receive two (2) Options for each Share Unit acquired by the Participant as part of such Share Deferral Account during the immediately preceding January through May period with Employee Contributions of Base Compensation and/or Short Term Incentive Award. A fractional number of Options shall be rounded up to the next whole number.
(2) on the February 15 immediately following the Plan Year for the Share Deferral Account, a Participant shall receive:
(i) two (2) Options for each Share Unit acquired by the Participant as part of such Share Deferral Account during the immediately preceding June through the remainder of the relevant Plan Year with Employee Contributions of Base Compensation and/or Short Term Incentive Award; and
(ii) two (2) Options for each Share Unit acquired prior to such date by the Participant with dividend equivalents that were derived, directly or indirectly (such as dividend equivalents paid on Share Units acquired with dividend equivalents), from Share Units acquired with Employee Contributions as part of such Share Deferral Account.
(b) A fractional number of Options shall be rounded up to the next whole number.
(c) If Stock is not traded on the NYSE on any of the foregoing Option issuance dates, then the Options shall not be issued until the next such day on which Stock is so traded.
(d) If a Participant Terminates Employment other than (i) while Retirement eligible or (ii) because of death or Disability, no further Options shall be issued to or with respect to such Participant. In the event of re-Employment following a Termination of Employment, the preceding sentence shall not apply to those Options resulting from participation in the Plan after such re-Employment until a subsequent Termination of Employment.
(e) No more than 400,000 Options shall be issued to any individual under this Plan during a calendar year. No Share Unit may be counted more than once for the issuance of Options.
(f) The Committee may, in its sole discretion, at any time, increase or lower the number of Options that are to be issued for each Share Unit acquired, not to exceed two (2) Options per Share Unit purchased. However, if the Committee lowers the number of Options, then such change shall only be effective with respect to the next Share Deferral Account a Participant may elect to establish.
(g) The Committee may also, at any time and in any manner, limit the number of Options which may be acquired as a result of the Short Term Incentive Award being contributed to the Plan. Further, except as otherwise provided by the Committee, in determining the number of Options to be issued to a Participant with respect to a Participant's contribution of a Short Term Incentive Award to the Plan and subsequent crediting of Share Units, Options may be issued only with respect to an amount which does not exceed the target amount of such award (or such other portion of the award as may be determined by the Committee). Where a Participant’s election to contribute a Short Term Incentive Award to the Plan becomes applicable to Annual Bonus, the above limitation on options shall apply to the contribution of Annual Bonus as though it were a Short Term Incentive Award.
(h) No options shall be issued to or in respect of a Participant for a particular issuance, unless at least ten (10) Options will be issued to that Participant.
8.5 Exercise and Payment of Options.
Options shall be exercised by providing notice to the designated agent selected by AT&T (if no such agent has been designated, then to AT&T), in the manner and form determined by AT&T, which notice shall be irrevocable, setting forth the exact number of shares of Stock with respect to which the Option is being exercised and including with such notice payment of the Exercise Price. When Options have been transferred, AT&T or its designated agent may require appropriate documentation that the person or persons exercising the Option, if other than the Participant, has the right to exercise the Option. No Option may be exercised with respect to a fraction of a share of Stock.
Exercises of Options may be effected only on days and during the hours that the New York Stock Exchange is open for regular trading or as otherwise provided or limited by AT&T. If an Option expires on a day or at a time when exercises are not permitted, then the Options may be exercised no later than the immediately preceding date and time that the Options were exercisable.
The Exercise Price shall be paid in full at the time of exercise. No Stock shall be issued or transferred until full payment has been received therefore.
Payment may be made:
(a) in cash, or
(b) unless otherwise provided by the Committee at any time, and subject to such additional terms and conditions and/or modifications as AT&T may impose from time to time, and further subject to suspension or termination of this provision by AT&T at any time, by:
(i) electing a Stock-Settled Exercise on or after February 1, 2013. Upon exercise of Options through a Stock-Settled Exercise, the Participant shall receive that number of shares of Stock found by (1) subtracting the Exercise Price of an Option being exercised (on a per share basis) from the FMV of the Stock as of the immediately preceding day that the Stock was traded on the NYSE, (2) multiplying the difference by the number of Options being exercised, and (3) dividing the result by the same FMV. For example, a Participant exercises 1,000 Options with an Exercise Price of $30 (exercises may only occur on a day when the NYSE is open for regular trading) and the FMV for the immediately preceding trading day was $40. In that case, the Participant would receive his $10,000 profit in the form of 250 shares of Stock, subject to tax withholding and any other costs provided under this Plan.
or;
(ii) if AT&T has designated a stockbroker to act as AT&T's agent to process Option exercises, issuance of an exercise notice to such stockbroker together with instructions irrevocably instructing the stockbroker: (A) to immediately sell (which shall include an exercise notice that becomes effective upon execution of a sell order) a sufficient portion of the Stock to pay the Exercise Price of the Options being exercised and the required tax withholding, and (B) to deliver on the settlement date the portion of the proceeds of the sale equal to the Exercise Price and tax withholding to AT&T. In the event the stockbroker sells any Stock on behalf of a Participant, the stockbroker shall be acting solely as the agent of the Participant, and AT&T disclaims any responsibility for the actions of the stockbroker in making any such sales. No Stock shall be issued until the settlement date and until the proceeds (equal to the Exercise Price and tax withholding) are paid to AT&T.
8.6 Restrictions on Exercise and Transfer.
No Option shall be transferable except: (a) upon the death of a Participant in accordance with AT&T's Rules for Employee Beneficiary Designations, as the same may be amended from time to time; and (b) in the case of any holder after the Participant's death, only by will or by the laws of descent and distribution. During the Participant's lifetime, the Participant's Options shall be exercisable only by the Participant or by the Participant's guardian or legal representative. After the death of the Participant, an Option shall only be exercised by the holder thereof (including but not limited to an executor or administrator of a decedent's estate) or his or her guardian or legal representative. In each such case the Option holder shall be considered a Participant for the limited purpose of exercising such Options.
8.7 Termination of Employment.
(a) Not Retirement Eligible. Unless otherwise provided by the Committee, if a Participant Terminates Employment while not Retirement eligible, a Participant's Options may be exercised, to the extent then exercisable:
(i) if such Termination of Employment is by reason of death or Disability, then for a period of three (3) years from the date of such Termination of Employment or until the expiration of the stated term of such Option, whichever period is shorter; or
(ii) if such Termination of Employment is for any other reason, then for a period of one (1) year from the date of such Termination of Employment or until the expiration of the stated term of such Option, whichever period is shorter.
(b) Retirement Eligible. Unless otherwise provided by the Committee, if a Participant Terminates Employment while Retirement eligible, the Participant's Option may be exercised, to the extent then exercisable: (i) for a period of five (5) years from the date of Retirement or (ii) until the expiration of the stated term of such Option, whichever period is shorter.
(c) Re-Employment of a Participant after a Termination of Employment shall have no effect on the periods during which Options resulting from the prior Employment may be exercised. For example, if the Option exercise period has been shortened because of the prior Termination of Employment, it shall not be extended because of the re-Employment.
(d) Notwithstanding any other definition of Termination of Employment under this Plan, for purposes of this Article 8 – Options only, a Termination of Employment shall mean the cessation of the Employee being employed by any corporation, partnership, venture or other entity in which AT&T holds, directly or indirectly, a 50% or greater ownership interest, including but not limited to where AT&T ceases to hold such interest in the employing company. In addition, the definition of Retirement for purposes of this Article 8 shall use the immediately foregoing definition of Termination of Employment in lieu of any other definition.
Article 9 - Discontinuation, Termination, Amendment.
9.1 AT&T's Right to Discontinue Offering Share Units.
The Committee may at any time discontinue offerings of Share Units under the Plan. Any such discontinuance shall have no effect upon existing Share Units or the terms or provisions of this Plan as applicable to such Share Units.
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9.2 AT&T's Right to Terminate Plan.
The Committee may terminate the Plan at any time. Upon termination of the Plan, contributions shall no longer be made under the Plan.
After termination of the Plan, Participants shall continue to earn dividend equivalents in the form of Share Units on undistributed Share Units and shall continue to receive all distributions under this Plan at such time as provided in and pursuant to the terms and conditions of Participant's elections and this Plan. Notwithstanding the foregoing, the termination of the Plan shall be made solely in accordance with Section 409A of the Code and in no event shall cause the accelerated distribution of any Account unless such termination is effected in accordance with Section 409A of the Code.
9.3 Amendment.
The Committee may at any time amend the Plan in whole or in part including but not limited to changing the formulas for determining the amount of AT&T Matching Contributions under Article 5 or decreasing the number of Options to be issued under Article 8; provided, however, that no amendment, including but not limited to an amendment to this section, shall be effective, without the consent of a Participant, to alter, to the material detriment of such Participant, a Share Deferral Account of the Participant, other than as provided elsewhere in this section. For purposes of this section, an alteration to the material detriment of a Participant shall include, but not be limited to, a material reduction in the period of time over which Stock may be distributed to a Participant, any reduction in the Participant's number of vested Share Units or Options, or an increase in the Exercise Price or decrease in the term of an Option. Any such consent may be in a writing, telecopy, or e-mail or in another electronic format. An election to acquire Share Units with Employee Contributions shall be conclusively deemed to be the consent of the Participant to any and all amendments to the Plan prior to such election, and such consent shall be a condition to making any election with respect to Employee Contributions.
Notwithstanding anything to the contrary contained in this section of the Plan, the Committee may modify this Plan with respect to any person subject to the provisions of Section 16 of the Securities Exchange Act of 1934, as amended (“Exchange Act”) to place additional restrictions on the exercise of any Option or the transfer of any Stock not yet issued under the Plan.
The Plan is established in order to provide deferred compensation to a select group of management and highly compensated employees with in the meaning of Sections 201(2) and 301(a)(3) of ERISA. To the extent legally required, the Code and ERISA shall govern the Plan, and if any provision hereof is in violation of an applicable requirement thereof, the Company reserves the right to retroactively amend the Plan to comply therewith to the extent permitted under the Code and ERISA. The Company also reserves the right to make such other changes as may facilitate implementation of Section 409A of the Code. Provided, however, that in no event shall any such amendments be made in violation of the requirements of Section 409A of the Code.
Article 10 – Miscellaneous.
10.1 Tax Withholding.
Upon distribution of Stock, including but not limited to, shares of Stock issued upon the exercise of an Option, AT&T shall withhold shares of Stock sufficient in value, using the FMV on the date determined by AT&T to be used to value the Stock for tax purposes, to satisfy the minimum amount of Federal, state, and local taxes required by law to be withheld as a result of such distribution. Employment taxes incurred by a Participant on Employee Contributions and on Matching Contributions shall be withheld from the Participant’s regular wages or paid in cash by the Participant as they become due.
Any fractional share of Stock payable to a Participant shall be withheld as additional Federal withholding, or, at the option of AT&T, paid in cash to the Participant.
Unless otherwise determined by the Committee, when the method of payment for the Exercise Price is from the sale by a stockbroker pursuant to Section 8.5, hereof, of the Stock acquired through the Option exercise, then the tax withholding shall be satisfied out of the proceeds. For administrative purposes in determining the amount of taxes due, the sale price of such Stock shall be deemed to be the FMV of the Stock.
10.2 Elections and Notices.
Notwithstanding anything to the contrary contained in this Plan, all elections and notices of every kind under this Plan shall be made (1) on forms prepared by AT&T or the General Counsel, Secretary or Assistant Secretary, or their respective delegates, or (2) in such other manner as permitted or required by AT&T or the General Counsel, Secretary or Assistant Secretary, or their respective delegates, including through electronic means, over the Internet or otherwise. An election shall
be deemed made when received by AT&T (or its designated agent, but only in cases where the designated agent has been appointed for the purpose of receiving such election), which may waive any defects in form. Unless made irrevocable by the electing person, each election with regard to making Employee Contributions or distributions of Share Deferral Accounts shall become irrevocable at the close of business on the last day the Employee is permitted to make such election. Notwithstanding anything to the contrary in this Plan, AT&T may place additional limits on the times during which elections may be made to make contribution(s) or to delay distribution(s).
If not otherwise specified by this Plan or AT&T, any notice or filing required or permitted to be given to AT&T under the Plan shall be delivered to the principal office of AT&T, directed to the attention of the Senior Executive Vice President in charge of Human Resources for AT&T or his or her successor. Such notice shall be deemed given on the date of delivery.
Notice to the Participant shall be deemed given when mailed (or sent by telecopy) to the Participant's work or home address as shown on the records of AT&T or, at the option of AT&T, to the Participant's e-mail address as shown on the records of AT&T. It is the Participant's responsibility to ensure that the Participant's addresses are kept up to date on the records of AT&T. In the case of notices affecting multiple Participants, the notices may be given by general distribution at the Participants' work locations.
By participating in the Plan, each Participant agrees that AT&T may provide any documents required or permitted under the Federal or state securities laws, including but not limited to the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, by e-mail, by e-mail attachment, or by notice by e-mail of electronic delivery through AT&T's Internet Web site or by other electronic means.
10.3 Unsecured General Creditor.
Participants and their beneficiaries, heirs, successors, and assigns shall have no legal or equitable rights, interest, or claims in any property or assets of any Employer. No assets of any Employer shall be held under any trust for the benefit of Participants, their beneficiaries, heirs, successors, or assigns, or held in any way as collateral security for the fulfilling of the obligations of any Employer under this Plan. Any and all of each Employer's assets shall be, and remain, the general, unpledged, unrestricted assets of such Employer. The only obligation of an Employer under the Plan shall be merely that of an unfunded and unsecured promise of AT&T to distribute shares of Stock corresponding to Share Units and Options, under the Plan.
10.4 Non-Assignability.
Neither a Participant nor any other person shall have any right to commute, sell, assign, transfer, pledge, anticipate, mortgage, or otherwise encumber, transfer, hypothecate or convey in advance of actual receipt, shares of Stock corresponding to Share Units under the Plan, if any, or any part thereof, which are, and all rights to which are, expressly declared to be unassignable and non-transferable. No part of the Stock distributable shall, prior to actual distribution, be subject to seizure or sequestration for the payment of any debts, judgments, alimony or separate maintenance owed by a Participant or any other person, nor be transferable by operation of law in the event of a Participant's or any other person's bankruptcy or insolvency.
10.5 Employment Not Guaranteed.
Nothing contained in this Plan nor any action taken hereunder shall be construed as a contract of employment or as giving any employee any right to be retained in the employ of an Employer or to serve as a director.
10.6 Errors.
At any time AT&T or an Employer may correct any error made under the Plan without prejudice to AT&T or any Employer. Neither AT&T nor any Employer shall be liable for any damages resulting from failure to timely allow any contribution to be made to the Plan or for any damages resulting from the correction of, or a delay in correcting, any error made under the Plan. In no event shall AT&T or any Employer be liable for consequential or incidental damages arising out of a failure to comply with the terms of the Plan.
10.7 Captions.
The captions of the articles, sections, and paragraphs of this Plan are for convenience only and shall not control nor affect the meaning or construction of any of its provisions.
10.8 Governing Law.
To the extent not preempted by Federal law, the Plan, and all benefits and agreements hereunder, and any and all disputes in connection therewith, shall be governed by and construed in accordance with the substantive laws of the State of Texas, without regard to conflict or choice of law principles which might otherwise refer the construction, interpretation or
16
enforceability of this Plan to the substantive law of another jurisdiction.
Because benefits under the Plan are granted in Texas, records relating to the Plan and benefits thereunder are located in Texas, and the Plan and benefits thereunder are administered in Texas, AT&T and the Participant under this Plan, for themselves and their successors and assigns, irrevocably submit to the exclusive and sole jurisdiction and venue of the state or Federal courts of Texas with respect to any and all disputes arising out of or relating to this Plan, the subject matter of this Plan or any benefits under this Plan, including but not limited to any disputes arising out of or relating to the interpretation and enforceability of any benefits or the terms and conditions of this Plan. To achieve certainty regarding the appropriate forum in which to prosecute and defend actions arising out of or relating to this Plan, and to ensure consistency in application and interpretation of the Governing Law to the Plan, the parties agree that (a) sole and exclusive appropriate venue for any such action shall be an appropriate Federal or state court in Dallas County, Texas, and no other, (b) all claims with respect to any such action shall be heard and determined exclusively in such Texas court, and no other, (c) such Texas court shall have sole and exclusive jurisdiction over the person of such parties and over the subject matter of any dispute relating hereto and (d) that the parties waive any and all objections and defenses to bringing any such action before such Texas court, including but not limited to those relating to lack of personal jurisdiction, improper venue or forum non conveniens.
10.9 Plan to Comply with Section 409A.
In the event any provision of this Plan is held invalid, void, or unenforceable, the same shall not affect, in any respect whatsoever, the validity of any other provision of this Plan. Notwithstanding any provision to the contrary in this Plan, each provision in this Plan shall be interpreted to permit the deferral of compensation in accordance with Section 409A of the Code and any provision that would conflict with such requirements shall not be valid or enforceable.
10.10 Successors and Assigns.
This Plan shall be binding upon AT&T and its successors and assigns.
10.11 Loyalty Conditions for Officer Level Employees and Senior Managers
Each Officer Level Employee or a Senior Manager who elects to make Employee Contributions under Section 4.1 of this Plan shall be subject to the agreements and conditions of this section.
(a) By making an Employee Contribution election under Section 4.1 of this Plan after September 1, 2009, a Participant acknowledges that AT&T would be unwilling to provide for such an election but for the loyalty conditions and covenants set forth in this section, and that the conditions and covenants herein are a material inducement to AT&T’s willingness to sponsor the Plan and to offer Plan benefits for the Participants. Accordingly, as a condition to making an Employee Contribution election under Section 4.1 of this Plan after September 1, 2009, each such electing Participant is deemed to agree that he shall not, without obtaining the written consent of the Committee in advance, participate in activities that constitute engaging in competition with AT&T or engaging in conduct disloyal to AT&T, as those terms are defined in this section.
(b) Definitions. For purposes of this section and of the Plan generally:
(i) an “Employer Business” shall mean AT&T Inc. and any of its Subsidiaries, or any business in which they or any affiliate of theirs has a substantial ownership or joint venture interest;
(ii) “engaging in competition with AT&T” shall mean, while employed by AT&T or any of its Subsidiaries, or within two (2) years after Participant’s Termination of Employment, engaging by the Participant in any business or activity in all or any portion of the same geographical market where the same or substantially similar business or activity is being carried on by an Employer Business. “Engaging in competition with AT&T” shall not include owning a non-substantial publicly traded interest as a shareholder in a business that competes with an Employer Business. “Engaging in competition with AT&T” shall include representing or providing consulting services to, or being an employee of, any person or entity that is engaged in competition with any Employer Business or that takes a position adverse to any Employer Business.
(iii) “engaging in conduct disloyal to AT&T” means, while employed by AT&T or any of its Subsidiaries, or within two (2) years after Participant’s Termination of Employment, (i) soliciting for employment or hire, whether as an employee or as an independent contractor, for any business in competition with an Employer Business, any person employed by AT&T or any of its Subsidiaries during the one (1) year prior to the Participant’s Termination of Employment, whether or not acceptance of such position would
constitute a breach of such person’s contractual obligations to AT&T or any of its Subsidiaries; (ii) soliciting, encouraging, or inducing any vendor or supplier with which Participant had business contact on behalf of any Employer Business during the two (2) years prior to the Participant’s Termination of Employment (regardless of the reason for that termination) to terminate, discontinue, renegotiate, reduce, or otherwise cease or modify its relationship with AT&T or any of its Subsidiaries; or (iii) soliciting, encouraging, or inducing any customer or active prospective customer with whom Participant had business contact, whether in person or by other media (“Customer”), on behalf of any Employer Business during the two (2) years prior to the Participant’s Termination of Employment (regardless of the reason for that termination), to terminate, discontinue, renegotiate, reduce, or otherwise cease or modify its relationship with any Employer Business, or to purchase competing goods or services from a business competing with any Employer Business, or accepting or servicing business from such Customer on behalf of himself or any other business. “Engaging in conduct disloyal to AT&T” shall also mean, disclosing Confidential Information to any third party or using Confidential Information, other than for an Employer Business, or failing to return any Confidential Information to the Employer Business following termination of employment.
(iv) “Confidential Information” shall mean all information belonging to, or otherwise relating to, an Employer Business, which is not generally known, regardless of the manner in which it is stored or conveyed to Participant, and which the Employer Business has taken reasonable measures under the circumstances to protect from unauthorized use or disclosure. Confidential Information includes trade secrets as well as other proprietary knowledge, information, know-how, and non-public intellectual property rights, including unpublished or pending patent applications and all related patent rights, formulae, processes, discoveries, improvements, ideas, conceptions, compilations of data, and data, whether or not patentable or copyrightable and whether or not it has been conceived, originated, discovered, or developed in whole or in part by Participant. For example, Confidential Information includes, but is not limited to, information concerning the Employer Business’ business plans, budgets, operations, products, strategies, marketing, sales, inventions, designs, costs, legal strategies, finances, employees, customers, prospective customers, licensees, or licensors; information received from third parties under confidential conditions; or other valuable financial, commercial, business, technical or marketing information concerning the Employer Business, or any of the products or services made, developed or sold by the Employer Business. Confidential Information does not include information that (i) was generally known to the public at the time of disclosure; (ii) was lawfully received by Participant from a third party; (iii) was known to Participant prior to receipt from the Employer Business; or (iv) was independently developed by Participant or independent third parties; in each of the foregoing circumstances, this exception applies only if such public knowledge or possession by an independent third party was without breach by Participant or any third party of any obligation of confidentiality or non-use, including but not limited to the obligations and restrictions set forth in this Plan.
(c) Equitable Relief. The parties recognize that any Participant’s breach of any of the covenants in this section will cause irreparable injury to the AT&T, will represent a failure of the consideration under which AT&T (in its capacity as creator and sponsor of the Plan) agreed to provide the Participant with the opportunity to receive Plan benefits, and that monetary damages would not provide AT&T with an adequate or complete remedy that would warrant AT&T’s continued sponsorship of the Plan (including the accrual or granting of Share Units, Matching Share Units and Options) for all Participants. Accordingly, in the event of a Participant’s actual or threatened breach of the covenants in this section, the Committee, in addition to all other rights and acting as a fiduciary under ERISA on behalf of all Participants, shall have a fiduciary duty (in order to assure that AT&T receives fair and promised consideration for its continued Plan sponsorship and funding) to seek an injunction restraining the Participant from breaching the covenants in this Section. AT&T shall pay for any Plan expenses that the Committee incurs hereunder, and shall be entitled to recover from the Participant its reasonable attorneys’ fees and costs incurred in obtaining such injunctive remedies.
(d) Uniform Enforcement. In recognition of AT&T’s need for nationally uniform standards for the Plan administration, it is an absolute condition in consideration of any Participant’s ability to make Employee Contribution elections under Section 4.1 of this Plan after September 1, 2009, that each and all of the following conditions apply to all such electing Participants:
(i) ERISA shall control all issues and controversies hereunder, and the Committee shall serve for purposes hereof as a “fiduciary” of the Plan and its “named fiduciary” within the meaning of ERISA.
(ii) All litigation between the parties relating to this section shall occur in federal court, which shall have exclusive jurisdiction; any such litigation shall be held in the United States District Court for the
Northern District of Texas, and the only remedies available with respect to the Plan shall be those provided under ERISA.
Exhibit 31.1
CERTIFICATION
I, Randall Stephenson, certify that:
1. I have reviewed this report on Form 10-Q of AT&T Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: November 4, 2019
/s/ Randall Stephenson .
Randall
Stephenson
Chairman of the Board and
Chief Executive Officer
Exhibit 31.2
CERTIFICATION
I, John J. Stephens, certify that:
1. I have reviewed this report on Form 10-Q of AT&T Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: November 4, 2019
/s/ John J. Stephens ..
John J.
Stephens
Senior Executive Vice President
and Chief Financial Officer
Exhibit 32
Certification of Periodic Financial Reports
Pursuant to 18 U.S.C. Section 1350, each of the undersigned officers of AT&T Inc. (the “Company”) hereby certifies that the Company’s Quarterly Report on Form 10-Q for the three months ended September 30, 2019 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
November 4, 2019 November 4, 2019
By: /s/ Randall Stephenson . By: /s/ John J. Stephens ..
Randall Stephenson John J. Stephens
Chairman of the Board Senior Executive Vice President
and Chief Executive Officer and Chief Financial Officer
The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Report or as a separate disclosure document. This certification shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 (“Exchange Act”) or otherwise subject to liability under that section. This certification shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act except to the extent this Exhibit 32 is expressly and specifically incorporated by reference in any such filing.
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to AT&T Inc. and will be retained by AT&T Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
Sale Of Equipment Installment Receivables (Finance Receivables) (Details) - Finance Receivables [Member] - USD ($) $ in Millions |
3 Months Ended | 9 Months Ended | ||||
---|---|---|---|---|---|---|
Sep. 30, 2019 |
Sep. 30, 2018 |
Sep. 30, 2019 |
Sep. 30, 2018 |
|||
Accounts, Notes, Loans and Financing Receivable [Line Items] | ||||||
Gross receivables sold | $ 2,098 | $ 2,161 | $ 7,043 | $ 7,077 | ||
Net receivables sold | [1] | 2,014 | 2,064 | 6,693 | 6,670 | |
Cash proceeds received | 1,700 | 1,752 | 5,895 | 5,679 | ||
Deferred purchase price recorded | 352 | 335 | 922 | 1,161 | ||
Guarantee obligation recorded | $ 67 | $ 75 | $ 261 | $ 270 | ||
|
Fair Value Measurement and Disclosure (Gain and Losses on Equity Securities) (Details) - Equity Securities [Member] - USD ($) $ in Millions |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Sep. 30, 2019 |
Sep. 30, 2018 |
Sep. 30, 2019 |
Sep. 30, 2018 |
|
Schedule of Available-for-sale Securities [Line Items] | ||||
Total gains (losses) recognized on equity securities | $ 21 | $ 80 | $ 231 | $ 88 |
Gains (Losses) recognized on equity securities sold | 8 | (2) | 101 | (4) |
Unrealized gains (losses) recognized on equity securities held at end of period | $ 13 | $ 82 | $ 130 | $ 92 |
Accumulated Other Comprehensive Income |
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Accumulated Other Comprehensive Income | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accumulated Other Comprehensive Income [Text Block] | 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.
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Fair Value Measurements And Disclosure |
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Fair Value Measurements And Disclosure [Text Block] | NOTE 7. FAIR VALUE MEASUREMENTS AND DISCLOSURE
The Fair Value Measurement and Disclosure framework in ASC 820, “Fair Value Measurement,” provides a three-tiered fair value hierarchy based on the reliability of the inputs used to determine fair value. Level 1 refers to fair values determined based on quoted prices in active markets for identical assets. Level 2 refers to fair values estimated using significant other observable inputs and Level 3 includes fair values estimated using significant unobservable inputs.
The level of an asset or liability within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Our valuation techniques maximize the use of observable inputs and minimize the use of unobservable inputs.
The valuation methodologies described above may produce a fair value calculation that may not be indicative of future net realizable value or reflective of future fair values. We believe our valuation methods are appropriate and consistent with other market participants. The use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date. There have been no changes in the methodologies used since December 31, 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:
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.
The following tables present the fair value leveling for investment securities and derivatives that are measured at fair value as of September 30, 2019 and December 31, 2018. Derivatives designated as hedging instruments are reflected as “Other assets,” “Other noncurrent liabilities” and, for a portion of interest rate swaps, “Other current assets” on our consolidated balance sheets.
Investment Securities Our investment securities include both equity and debt securities that are measured at fair value, as well as equity securities without readily determinable fair values. A substantial portion of the fair values of our investment securities is estimated based on quoted market prices. Investments in equity securities not traded on a national securities exchange are valued at cost, less any impairment, and adjusted for changes resulting from observable, orderly transactions for identical or similar securities. Investments in debt securities not traded on a national securities exchange are valued using pricing models, quoted prices of securities with similar characteristics or discounted cash flows.
The components comprising total gains and losses in the period on equity securities are as follows:
At September 30, 2019, available-for-sale debt securities totaling $1,380 have maturities as follows - less than one year: $102; one to three years: $177; three to five years: $164; five or more years: $937.
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 nine months ended September 30, 2019 and 2018, no ineffectiveness was measured on fair value hedges.
Cash Flow Hedging We designate our cross-currency swaps as cash flow hedges. We have entered into multiple cross-currency swaps to hedge our exposure to variability in expected future cash flows that are attributable to foreign currency risk generated from the issuance of our foreign-denominated debt. These agreements include initial and final exchanges of principal from fixed foreign currency denominated amounts to fixed U.S. dollar denominated amounts, to be exchanged at a specified rate that is usually determined by the market spot rate upon issuance. They also include an interest rate swap of a fixed or floating foreign currency-denominated interest rate to a fixed U.S. dollar denominated interest rate.
We also designate some of our foreign exchange contracts as cash flow hedges. The purpose of these contracts is to hedge currency risk associated with variability in anticipated foreign-currency-denominated cash flows, such as unremitted or forecasted royalty and license fees owed to WarnerMedia’s domestic companies for the sale or anticipated sale of U.S. copyrighted products abroad or cash flows for certain film production costs denominated in a foreign currency.
Unrealized gains on derivatives designated as cash flow hedges are recorded at fair value as assets, and unrealized losses are recorded at fair value as liabilities. For derivative instruments designated as cash flow hedges, the effective portion is reported as a component of accumulated OCI until reclassified into the consolidated statements of income in the same period the hedged transaction affects earnings. The gain or loss on the ineffective portion is recognized as “Other income (expense) – net” in the consolidated statements of income in each period. We evaluate the effectiveness of our cash flow hedges each quarter. In the nine months ended September 30, 2019 and 2018, no ineffectiveness was measured on cash flow hedges.
Periodically, we enter into and designate interest rate locks to partially hedge the risk of changes in interest payments attributable to increases in the benchmark interest rate during the period leading up to the probable issuance of fixed-rate debt. We designate our interest rate locks as cash flow hedges. Gains and losses from the settlement of our interest rate locks are amortized into income over the life of the related debt, except where a material amount is deemed to be ineffective, which would be immediately reclassified to “Other income (expense) – net” in the consolidated statements of income. Over the next 12 months, we expect to reclassify $62 from accumulated OCI to interest expense due to the amortization of net losses on historical interest rate locks.
Net Investment Hedging We have designated €1,450 million aggregate principal amount of debt as a hedge of the variability of some of the Euro-denominated net investments of our subsidiaries. The gain or loss on the debt that is designated as, and is effective as, an economic hedge of the net investment in a foreign operation is recorded as a currency translation adjustment within accumulated OCI, net on the consolidated balance sheet. Net gains on net investment hedges recognized in accumulated OCI in the third quarter and for the first nine months of 2019 was $ .
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 September 30, 2019, we had posted collateral of $407 (a deposit asset) and held collateral of $38 (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 September, we would have been required to post additional collateral of $122. 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 $4,502. 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 $288. At December 31, 2018, we had posted collateral of $1,675 (a deposit asset) and held collateral of $103 (a receipt liability). We do not offset the fair value of collateral, whether the right to reclaim cash collateral (a receivable) or the obligation to return cash collateral (a payable) exists, against the fair value of the derivative instruments.
Following are the notional amounts of our outstanding derivative positions:
In addition, the net swap settlements that accrued and settled in the quarter ended September 30 were offset against interest expense.
The following table presents information for our cash flow hedging relationships:
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Earnings Per Share (Details) - USD ($) $ / shares in Units, shares in Millions, $ in Millions |
3 Months Ended | 9 Months Ended | ||
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Earnings Per Share | ||||
Net income | $ 3,949 | $ 4,816 | $ 12,271 | $ 14,823 |
Less: Net income attributable to noncontrolling interest | (249) | (98) | (762) | (311) |
Net Income attributable to AT&T | 3,700 | 4,718 | 11,509 | 14,512 |
Share-based payment | 6 | 4 | 16 | 13 |
Numerator for diluted earnings per share | $ 3,706 | $ 4,722 | $ 11,525 | $ 14,525 |
Weighted average number of common shares outstanding | 7,327 | 7,284 | 7,321 | 6,603 |
Share-based payment (in shares) | 29 | 36 | 29 | 27 |
Denominator for diluted earnings per share | 7,356 | 7,320 | 7,350 | 6,630 |
Basic Earnings Per Share Attributable to AT&T | $ 0.50 | $ 0.65 | $ 1.57 | $ 2.19 |
Diluted Earnings Per Share Attributable to AT&T | $ 0.50 | $ 0.65 | $ 1.57 | $ 2.19 |
Sale of Equipment Installment Receivables (Tables) |
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Finance Receivables [Table Text Block] |
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Transfer of Financial Assets Accounted for as Sales [Table Text Block] |
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Finance Receivables [Table Text Block] |
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Label | Element | Value |
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Noncontrolling Interest [Member] | ||
Cumulative effect of accounting changes, net of taxes | us-gaap_CumulativeEffectOfNewAccountingPrincipleInPeriodOfAdoption | $ 0 |
Cumulative effect of accounting changes, net of taxes | us-gaap_CumulativeEffectOfNewAccountingPrincipleInPeriodOfAdoption | 0 |
Cumulative effect of accounting changes, net of taxes | us-gaap_CumulativeEffectOfNewAccountingPrincipleInPeriodOfAdoption | 35,000,000 |
Cumulative effect of accounting changes, net of taxes | us-gaap_CumulativeEffectOfNewAccountingPrincipleInPeriodOfAdoption | 29,000,000 |
Retained Earnings [Member] | ||
Cumulative effect of accounting changes, net of taxes | us-gaap_CumulativeEffectOfNewAccountingPrincipleInPeriodOfAdoption | 3,000,000,000 |
Cumulative effect of accounting changes, net of taxes | us-gaap_CumulativeEffectOfNewAccountingPrincipleInPeriodOfAdoption | 0 |
Cumulative effect of accounting changes, net of taxes | us-gaap_CumulativeEffectOfNewAccountingPrincipleInPeriodOfAdoption | 316,000,000 |
Cumulative effect of accounting changes, net of taxes | us-gaap_CumulativeEffectOfNewAccountingPrincipleInPeriodOfAdoption | $ 0 |
Pension And Postretirement Benefits (Tables) |
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Pension and postretirement benefit costs included in operating expenses [Table Text Block] |
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