8-KOther EventsExhibits & Filings

AT&T INC. 8-K Report, Corporate Update (Jul 24, 2018)

Filed July 24, 2018For Securities:TT-PCTBBT-PA

Summary

AT&T Inc. (T) filed an 8-K on July 24, 2018, reporting its second-quarter 2018 financial results. The most significant development for investors is the inclusion of Time Warner (now WarnerMedia) results for the 16 days following its acquisition on June 15, 2018. While total revenues for the quarter were down 2.1% to $39.0 billion, this decline was primarily attributed to the adoption of new revenue accounting standards (ASC 606), which notably excluded Universal Service Fund (USF) fees from revenue, impacting revenues and expenses by approximately $900 million. Net income attributable to AT&T was $5.1 billion, or $0.81 per diluted share, showing an increase from the prior year's $3.9 billion ($0.63 per diluted share), benefiting from U.S. corporate tax reform and the new accounting rules.

Key Highlights

  • 1Acquisition of Time Warner (now WarnerMedia) is included in Q2 2018 results for 16 days, contributing $1.3 billion in revenue and a 35.4% operating margin to the new WarnerMedia segment.
  • 2Total Q2 2018 revenue of $39.0 billion decreased 2.1% year-over-year, largely due to the adoption of new revenue accounting standards (ASC 606) and the decision to no longer record USF fees in revenue.
  • 3Net income increased to $5.1 billion ($0.81/share) from $3.9 billion ($0.63/share) in Q2 2017, aided by U.S. corporate tax reform and new accounting rules.
  • 4Wireless subscriber growth remains strong, with 3.8 million net adds in North America, bringing the total customer base to approximately 163.3 million.
  • 5The video segment saw a modest increase of 219,000 total video subscribers, driven by 1.8 million DIRECTV NOW subscribers, though traditional video revenues continue to face pressure.
  • 6Broadband connections remained relatively stable, with total connections at 15.8 million, and IP broadband adding 72,000 subscribers in the quarter.
  • 7AT&T updated its 2018 guidance, forecasting adjusted earnings per share in the high $3.50 range and capital investment of approximately $25 billion ($22 billion net of reimbursements).

Frequently Asked Questions

The acquisition of Time Warner (now WarnerMedia) closed on June 14, 2018. Therefore, its operations and balance sheet are included in AT&T's second-quarter 2018 results for the last 16 days of June. The new WarnerMedia segment reported $1.3 billion in revenue and had an operating income margin of 35.4% during this period. The acquisition also contributed to higher cash from operating activities.

The reported decrease in total revenue (2.1% to $39.0 billion) is primarily due to AT&T's adoption of new revenue accounting standards (ASC 606). A key element of this adoption was the policy to no longer record Universal Service Fund (USF) fees in revenue, which reduced reported revenues and expenses by approximately $900 million in the quarter. Declines in video and legacy services also contributed to the revenue decrease, partially offset by growth in WarnerMedia, wireless equipment, and strategic services.

AT&T added a strong 3.8 million net wireless subscribers in North America during the quarter, reaching a total of approximately 163.3 million. The Business Solutions segment added 219,000 branded wireless subscribers and 3.0 million connected devices. The Entertainment Group's video subscriber base saw a net increase of 80,000, largely due to its DIRECTV NOW service, though traditional video continues to decline. Broadband connections remained stable.

AT&T has updated its full-year 2018 guidance. The company expects adjusted earnings per share to be in the high $3.50 range. Capital investment is projected to be around $25 billion, or $22 billion after accounting for FirstNet reimbursements and vendor financing. The company notes that certain adjusting items, such as noncash mark-to-market benefit plan adjustments, are difficult to estimate and therefore a reconciliation of adjusted EPS to GAAP EPS is not provided.