AT&T INC. annual report, FY2018

Full document

AT&T Inc. — 2018 Form 10-K

Reporting period: Fiscal year ended December 31, 2018. Although the request references 2018 Q4, this is an annual filing, not a standalone fourth-quarter report. The filing incorporates the full financial statements and MD&A by reference to AT&T’s 2018 Annual Report; the supplied text does not provide clear consolidated annual or quarterly values for revenue, net income, cash flow, margins, debt, or liquidity.

Business context

AT&T reports four segments: Communications, WarnerMedia, Latin America, and Xandr. Its 2018 acquisition of Time Warner closed on June 14; WarnerMedia results are included only for the post-acquisition period. AT&T also acquired Otter Media Holdings and advertising platform AppNexus during 2018.

Key metrics and comparisons

  • Communications accounted for approximately 84% of 2018 segment operating revenues and segment contribution; WarnerMedia contributed approximately 11% and 15%, respectively. Latin America represented approximately 4% of segment operating revenues, and Xandr approximately 1% of revenues and 3% of contribution.
  • AT&T reported 153 million Mobility subscribers at year-end: 77 million postpaid, 17 million prepaid, 8 million reseller, and 51 million connected devices. It served 13.7 million residential high-speed internet subscribers and approximately 24 million video subscribers.
  • WarnerMedia reported approximately 50 million domestic HBO subscribers, including HBO NOW, and approximately 90 million international subscribers, including joint-venture subscribers. Latin America video had approximately 14 million subscribers; Mexico wireless had approximately 18 million.
  • Research and development expense was $1.194 billion in 2018, down from $1.503 billion in 2017 and $1.649 billion in 2016.
  • Common dividends declared were $2.01 per share in 2018, versus $1.97 in 2017. AT&T repurchased 13 million shares for employee benefit plans in 2018, totaling $419 million.
  • Wireless service represented 32% of consolidated operating revenues in 2018, compared with 36% in 2017 and 2016; subscription revenue was 19%, versus 23% and 22%. These mix shifts include the effect of the new WarnerMedia business and the filing’s specified exclusions.

Financial-data limitation: The supplied filing text refers readers to the Annual Report for consolidated financial statements, segment results, cash flows, debt, liquidity, and margins, but does not reproduce those figures. No clear values are available here for those measures.

Outlook, commentary, and risks

  • For 2019, management planned to continue developing integrated video, mobile, and broadband offerings; expand network capacity and 5G; and pursue more direct-to-consumer media services. AT&T planned nationwide expansion of its initial 5G deployment by early 2020. It expected to discontinue 3G service in early 2022 and did not expect the transition to materially affect consolidated operating results.
  • AT&T said it had largely completed building a 4G LTE network in Mexico, covering approximately 100 million people and businesses, and targeted virtualization of 75% of its network by 2020.
  • Key risks include intense competition in wireless, broadband, video, and streaming; the cost and availability of spectrum and network investment; changing viewing and advertising markets; regulatory and privacy changes; foreign-exchange and political exposure; intellectual-property claims and piracy; and labor negotiations. The filing also identifies the risk that the U.S. Department of Justice could prevail on its appeal concerning the Time Warner acquisition, as well as integration challenges.
  • A putative stockholder class action filed in February 2019 alleges misstatements or omissions in the Time Warner acquisition registration materials concerning trends in the former Entertainment Group, particularly DIRECTV NOW subscribers. AT&T said it believed the claims were without merit and intended to defend itself.
  • For 2019 financing, AT&T said it expected to focus on refinancing or repaying debt and paying dividends, subject to Board approval, using operating cash, debt issuance, and asset sales.

Important facts for investors to verify

  • Consolidated 2018 and comparative financial results, including cash from operations, capital expenditures, free cash flow, margins, and segment performance, in the incorporated Annual Report.
  • Year-end debt, maturities, interest expense, liquidity, and progress on post-Time Warner acquisition deleveraging.
  • Subscriber trends, churn, and profitability in wireless, pay TV, and DIRECTV NOW, alongside the effect of competition and programming costs.
  • Time Warner integration results and the status and potential consequences of the DOJ appeal and stockholder litigation.
  • Execution of 5G and network investment plans, regulatory developments, and the impact of privacy requirements and labor negotiations.