AT&T Inc. — FY 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. The filing also presents fourth-quarter results. Unless stated otherwise, amounts are in millions of dollars; per-share figures are dollars.
Business context
AT&T operates across communications, media and entertainment, Latin American wireless and video, and advertising. Its four reportable segments are Communications, WarnerMedia, Latin America and Xandr. FY 2019 included a full year of WarnerMedia, acquired in June 2018; therefore, some year-over-year comparisons are not like-for-like.
Key financial metrics
| Metric | FY 2019 | FY 2018 | Change |
|---|---|---|---|
| Operating revenue | $181,193 | $170,756 | +6.1% |
| Operating income | $27,955 | $26,096 | +7.1% |
| Operating margin | 15.4% | 15.3% | +0.1 percentage point |
| Net income attributable to AT&T | $13,903 | $19,370 | -28.2% |
| Diluted EPS | $1.89 | $2.85 | -33.7% |
| Cash from operating activities | $48,668 | $43,602 | +$5,066 |
| Capital expenditures | $19,635 | $21,251 | -$1,616 |
| Total debt at year-end | $163,147 | $176,505 | -$13,358 |
| Cash and cash equivalents at year-end | $12,130 | $5,204 | +$6,926 |
Cash from operations less reported capital expenditures was approximately $29,033. Gross capital investment, including vendor-financing payments and excluding FirstNet reimbursements, was $23,690. The debt ratio was 44.7%, versus 47.7% in 2018; the net debt ratio was 41.4%, versus 46.2%. Cash and current assets were $54,761 against current liabilities of $68,911. AT&T also reported $15 billion of undrawn revolving credit facilities and compliance with its debt covenants.
AT&T declared dividends of $2.05 per common share in 2019 and paid $14,888 in common dividends. The weighted-average interest rate on long-term debt, including derivatives, was 4.4% at year-end.
Material changes versus the prior comparable period
- Revenue growth primarily reflected the inclusion of a full year of WarnerMedia; Communications revenue declined 0.9% as video and legacy services weakened, partly offset by wireless and advanced-data growth.
- WarnerMedia reported $33,499 in revenue and $9,326 in segment operating contribution, but comparisons with 2018 are affected by the partial-year ownership period.
- Communications contribution increased 0.4% to $32,230. Mobility revenue rose 0.8%; Entertainment Group revenue fell 2.9%; Business Wireline revenue fell 2.1%, with contribution down 12.7%.
- Video connections fell 16.7% to 20.4 million. Fiber broadband connections rose 40.7% to 3.9 million, while total broadband connections declined 2.0%.
- Net income fell despite higher revenue and operating income, driven in part by $5,171 of pension and postretirement actuarial losses in other income (expense), compared with actuarial gains of $3,412 in 2018, and higher interest expense.
- Debt declined year over year. AT&T issued $17,039 of long-term debt and repaid $27,592; it also raised $7,876 through preferred interests in subsidiaries and issued $1,164 of preferred stock.
For Q4 2019, revenue was $46,821, operating income $5,321, net income $2,704 and diluted EPS $0.33. Q4 2018 figures were $47,993, $6,160, $5,130 and $0.66, respectively.
Outlook, commentary, risks and unusual items
- Management expected 2020 growth in wireless, broadband, premium content and advertising to offset ongoing pressure in linear video and legacy voice/data. It planned nationwide 5G expansion, continued FirstNet deployment, fiber growth and HBO Max’s May 2020 launch. The filing provides no clear numerical revenue or EPS guidance.
- Management expected 2020 gross capital investment of approximately $20 billion, including capital expenditures and vendor-financing payments and excluding expected FirstNet reimbursements of about $1 billion. 5G, FirstNet and HBO Max spending were expected to pressure expenses; cost reductions, merger synergies and asset sales were intended to help offset costs and reduce debt.
- Important operating risks include intense wireless and streaming competition, continuing video subscriber losses, programming costs, execution and subscriber uptake for HBO Max, network and spectrum investment needs, regulatory and privacy changes, foreign-exchange and political exposure, cybersecurity and service disruptions, and debt and refinancing needs.
- Unusual items included a $1,290 noncash charge to abandon copper assets, a $145 impairment of the SKY Brasil trade name, a $740 gain on the Hulu sale and an approximately $100 loss on the Hudson Yards sale-leaseback. The company agreed to resolve the FTC unlimited-data-plan case; it stated the settlement was not material and did not admit the allegations.
- AT&T agreed to sell its Puerto Rico and U.S. Virgin Islands operations for approximately $1,950, with closing expected in the first half of 2020 subject to customary conditions. It also agreed to sell its interest in CME for approximately $1,100, subject to regulatory approval.
- The auditor issued an unqualified opinion on the financial statements and internal controls. The audit identified pension discount rates, uncertain tax positions and impairment testing of goodwill and indefinite-lived intangible assets as critical audit matters.
Most important facts for investors to verify
- Whether operating cash flow remains strong without relying on receivables sales, supplier-payment timing and other working-capital initiatives.
- Progress in reducing debt, managing upcoming maturities and balancing debt reduction with dividends and share repurchases.
- Whether 5G, FirstNet, fiber and HBO Max investment produces profitable customer growth and offsets video and legacy-service declines.
- The pace of video subscriber losses, broadband trends, wireless churn and margins, and WarnerMedia performance on a comparable basis.
- Outcomes and timing of planned asset sales, pension and postretirement assumptions, and material tax or regulatory proceedings.