Form 8-K AT&T INC. For: Oct 22

October 22, 2020 6:29 AM
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AT&T Reports Third-Quarter Results

Solid wireless and fiber subscriber gains reflect resiliency of core connectivity businesses; free cash flow guidance updated; debt reduction continues

Consolidated revenues of $42.3 billion
Cash from operations of $12.1 billion
Capital expenditures of $3.9 billion; gross capital investment of $4.5 billion1
Free cash flow of $8.3 billion; total dividend payout ratio of 45%2
Diluted EPS of $0.39 as reported compared to $0.50 in the year-ago quarter
Adjusted EPS of $0.76 compared to $0.94 in the year-ago quarter
Includes COVID-19 impacts of ($0.21): ($0.02) of incremental costs and ($0.19) of estimated revenues

Note: AT&T’s third-quarter earnings conference call will be webcast at 8:30 a.m. ET on Thursday, October 22, 2020. The webcast and related materials will be available on AT&T’s Investor Relations website at https://investors.att.com.

DALLAS, October 22, 2020 — AT&T Inc. (NYSE:T) reported third-quarter results that showed solid subscriber growth in the company’s market focus areas of wireless and fiber broadband while continuing to reflect strong cash flows, financial strength and business resiliency. The company also updated guidance and now expects 2020 free cash flow of $26 billion or higher, with a dividend payout ratio in the high 50s%.2

Third-Quarter Highlights

Communications
Mobility:
More than 5 million total domestic wireless net adds
More than 1 million postpaid net adds, including 645,000 postpaid phones (phones include 151,000 Keep Americans Connected Pledge (KACP) paying accounts)
245,000 prepaid net adds, including 131,000 prepaid phone net adds
Postpaid phone churn of 0.69%, significant improvement year over year (0.77% when excluding KACP paying accounts)
Service revenues down 0.3% due to decline in international roaming; equipment revenues up year over year
Fastest nationwide 5G network and, for the 7th consecutive quarter in a row, the fastest network in the nation3



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Entertainment Group:
A record high 357,000 AT&T Fiber net adds and 158,000 total broadband net adds (includes 28,000 and 104,000 KACP paying accounts, respectively).
Solid IP broadband and video ARPU gains
AT&T TV gains helped offset premium TV loss
590,000 net loss, the result of lower churn and higher quality base (includes 116,000 KACP paying accounts)

WarnerMedia
Total domestic HBO and HBO Max subscribers4 top 38 million and 57 million5 worldwide, respectively
38 million exceeds previously announced year-end target of 36 million
HBO Max activations more than doubled from second-quarter levels
HBO Max advertising-supported service on track to launch in 2021
Industry-leading 38 Primetime and 15 News and Documentary Emmy Awards
Results impacted by the COVID-19 disruption and return of sports programming in the quarter

“We delivered a solid quarter with good subscriber momentum in our market focus areas of connectivity and software-based entertainment,” said John Stankey, AT&T chief executive officer. “Wireless postpaid growth was the strongest that it’s been in years with one million net additions, including 645,000 phones. We added more than 350,000 fiber broadband customers and are on track to grow our fiber base by more than 25% this year. And we continue to grow and scale HBO Max, with total domestic HBO and HBO Max subscribers topping 38 million — well ahead of our expectations for the full year. Our strong cash flow in the quarter positions us to continue investing in our growth areas and pay down debt. We now expect 2020 free cash flow of $26 billion or higher with a full-year dividend payout ratio in the high 50s%.”

Consolidated Financial Results
AT&T’s consolidated revenues for the third quarter totaled $42.3 billion versus $44.6 billion in the year-ago quarter. The COVID-19 pandemic impacted revenues across all businesses, particularly WarnerMedia and also domestic wireless service revenues, primarily from lower international roaming. For the quarter, revenue declines included domestic video, Warner Bros. television and theatrical products, legacy wireline services and Latin America due to foreign exchange pressure. These declines were partly offset by higher wireless equipment revenues and higher advertising revenues associated with timing shift of sports from the first half of 2020.








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Operating expenses were $36.2 billion versus $36.7 billion in the year-ago quarter. Expenses decreased from lower Entertainment Group costs, lower Warner Bros. film and television production costs associated with lower revenues, and foreign exchange impacts on Latin America expenses. These decreases were partly offset by higher Turner programming costs due to the shift of sports from the first half of the year, higher HBO Max investments, incremental COVID-19 costs and higher subscriber acquisition and fulfillment costs.
Operating income was $6.1 billion versus $7.9 billion in the year-ago quarter, due to the impact of lower revenues and operating expenses and incremental COVID-19 costs. Operating income margin was 14.5% versus 17.7% in the year-ago quarter. When adjusted for amortization and other items, operating income was $8.2 billion versus $9.9 billion in the year-ago quarter, and operating income margin was 19.4% versus 22.2% in the year-ago quarter.
Third-quarter net income attributable to common stock was $2.8 billion, or $0.39 per diluted common share, versus $3.7 billion, or $0.50 per diluted common share, in the year-ago quarter. Adjusting for $0.37, which includes merger-amortization costs, debt redemption premiums and other items, earnings per diluted common share was $0.76 compared to an adjusted $0.94 in the year-ago quarter. The company did not adjust for ($0.21) of impacts from COVID-19, including ($0.02) of incremental costs and ($0.19) of estimated revenues.

Cash from operating activities was $12.1 billion, and capital expenditures were $3.9 billion. Gross capital investment – which consists of capital expenditures plus cash payments of more than $600 million for vendor payments – totaled $4.5 billion. Free cash flow – cash from operating activities minus capital expenditures – was $8.3 billion for the quarter. Net debt declined by $2.9 billion sequentially in the quarter, and net debt to adjusted EBITDA at the end of the third quarter was 2.66x.6

Guidance
The company expects 2020 free cash flow of $26 billion or higher with a full-year dividend payout ratio in the high 50s%.2 The company also continues to expect gross capital investment in the $20 billion range in 2020.1

1Gross capital investment includes capital expenditures and cash payments for vendor financing and excludes expected FirstNet reimbursements; in 2020, vendor financing is expected to be about in the $3 billion range and FirstNet reimbursements are expected to be about $1 billion.
2 Free cash flow dividend payout ratio is total dividends paid divided by free cash flow. Free cash flow is cash from operating activities minus capital expenditures. Due to high variability and difficulty in predicting items that impact cash from operating activities and capital expenditures, the company is not able to provide a reconciliation between projected free cash flow and the most comparable GAAP metric without unreasonable effort.







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3 Fastest Nationwide 5G network based on AT&T analysis of Ookla® of Speedtest Intelligence® data median 5G download speeds for Q3 2020 comparing only networks offering “nationwide” 5G coverage. 5G Coverage analysis based on carrier’s public statements. Fastest network based on analysis by Ookla® of Speedtest Intelligence® data of average download speeds for Q1, Q2, Q3 and Q4 2019, and median download speeds for Q1, Q2 and Q3 2020. Ookla trademarks used under license and reprinted with permission.
4 Domestic HBO and HBO Max subscribers do not include customers that are part of a free trial.
5 Worldwide HBO/HBO Max subscribers consist of domestic and international HBO subscribers and domestic HBO Max subscribers and excludes Cinemax subscribers.
6Net Debt to adjusted EBITDA ratios are non-GAAP financial measures that are frequently used by investors and credit rating agencies to provide relevant and useful information. Our Net Debt to Adjusted EBITDA ratio is calculated by dividing the Net Debt by the sum of the most recent four quarters of Adjusted EBITDA.

*About AT&T
AT&T Inc. (NYSE:T) is a diversified, global leader in telecommunications, media and entertainment, and technology. WarnerMedia is a leading media and entertainment company that creates and distributes premium and popular content to global audiences through its consumer brands, including: HBO, HBO Max, Warner Bros., TNT, TBS, truTV, CNN, DC Entertainment, New Line, Cartoon Network, Adult Swim and Turner Classic Movies. Xandr, now part of WarnerMedia, provides marketers with innovative and relevant advertising solutions for consumers around premium video content and digital advertising through its platform. AT&T Communications provides more than 100 million U.S. consumers with entertainment and communications experiences across TV, mobile and broadband. Plus, it serves high-speed, highly secure connectivity and smart solutions to nearly 3 million business customers. AT&T Latin America provides pay-TV services across 10 countries and territories in Latin America and the Caribbean and wireless services to consumers and businesses in Mexico.

AT&T products and services are provided or offered by subsidiaries and affiliates of AT&T Inc. under the AT&T brand and not by AT&T Inc. Additional information is available at about.att.com. © 2020 AT&T Intellectual Property. All rights reserved. AT&T, the Globe logo and other marks are trademarks and service marks of AT&T Intellectual Property and/or AT&T affiliated companies. All other marks contained herein are the property of their respective owners.

Cautionary Language Concerning Forward-Looking Statements
Information set forth in this news release contains financial estimates and other forward-looking statements that are subject to risks and uncertainties, and actual results might differ materially. A discussion of factors that may affect future results is contained in AT&T’s filings with the Securities and Exchange Commission. AT&T disclaims any obligation to update and revise statements contained in this news release based on new information or otherwise.

This news release may contain certain non-GAAP financial measures. Reconciliations between the non-GAAP financial measures and the GAAP financial measures are available on the company’s website at https://investors.att.com.




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For more information, contact:
Fletcher Cook
AT&T Inc.
Phone: 214-912-8541
Email: fletcher.cook@att.com

Daphne Avila
AT&T Inc.
Phone: (972) 266-3866
Email: daphne.avila@att.com



AT&T Inc.   
Financial Data   
Consolidated Statements of Income
Dollars in millions except per share amounts
UnauditedThird QuarterPercentNine-Month PeriodPercent
20202019Change20202019Change
Operating Revenues
Service$37,782 $40,317 (6.3)%$113,716 $122,024 (6.8)%
Equipment4,558 4,271 6.7 %12,353 12,348 — %
Total Operating Revenues42,340 44,588 (5.0)%126,069 134,372 (6.2)%
Operating Expenses
Cost of revenues
Equipment4,552 4,484 1.5 %12,622 13,047 (3.3)%
Broadcast, programming and operations6,912 7,066 (2.2)%19,555 22,448 (12.9)%
Other cost of revenues (exclusive of
depreciation and amortization shown
separately below)
8,375 8,604 (2.7)%24,833 25,910 (4.2)%
Selling, general and administrative9,266 9,584 (3.3)%27,857 29,077 (4.2)%
Asset impairments and abandonments73 — — %2,515 — — %
Depreciation and amortization7,030 6,949 1.2 %21,537 21,256 1.3 %
Total Operating Expenses36,208 36,687 (1.3)%108,919 111,738 (2.5)%
Operating Income6,132 7,901 (22.4)%17,150 22,634 (24.2)%
Interest Expense1,972 2,083 (5.3)%6,031 6,373 (5.4)%
Equity in Net Income (Loss) of Affiliates5 66.7 %(11)36 — %
Other Income (Expense) — Net(231)(935)(75.3)%1,589 (967)— %
Income Before Income Taxes3,934 4,886 (19.5)%12,697 15,330 (17.2)%
Income Tax Expense766 937 (18.2)%3,003 3,059 (1.8)%
Net Income3,168 3,949 (19.8)%9,694 12,271 (21.0)%
Less: Net Income Attributable to
    Noncontrolling Interest
(352)(249)(41.4)%(987)(762)(29.5)%
Net Income Attributable to AT&T$2,816 $3,700 (23.9)%$8,707 $11,509 (24.3)%
Less: Preferred Stock Dividends(54)— — %(138)— — %
Net Income Attributable to Common Stock$2,762 $3,700 (25.4)%$8,569 $11,509 (25.5)%
Basic Earnings Per Share Attributable
   to Common Stock
$0.39 $0.50 (22.0)%$1.19 $1.57 (24.2)%
Weighted Average Common
    Shares Outstanding (000,000)
7,147 7,327 (2.5)%7,160 7,321 (2.2)%
Diluted Earnings Per Share Attributable
    to Common Stock
$0.39 $0.50 (22.0)%$1.19 $1.57 (24.2)%
Weighted Average Common 
    Shares Outstanding with Dilution (000,000)
7,173 7,356 (2.5)%7,186 7,350 (2.2)%
1


AT&T Inc.  
Financial Data  
Consolidated Balance Sheets
Dollars in millions
UnauditedSep. 30,Dec. 31,
20202019
Assets
Current Assets
Cash and cash equivalents$9,758 $12,130 
Accounts receivable — net of related allowances for credit loss of $1,386 and $1,23519,379 22,636 
Prepaid expenses1,420 1,631 
Other current assets19,414 18,364 
Total current assets49,971 54,761 
Noncurrent Inventories and Theatrical Film and Television Production Costs13,948 12,434 
Property, Plant and Equipment — Net128,722 130,128 
Goodwill143,688 146,241 
Licenses — Net98,397 97,907 
Trademarks and Trade Names — Net23,575 23,567 
Distribution Networks — Net14,249 15,345 
Other Intangible Assets — Net17,523 20,798 
Investments in and Advances to Equity Affiliates2,325 3,695 
Operating Lease Right-Of-Use Assets24,546 24,039 
Other Assets21,609 22,754 
Total Assets$538,553 $551,669 
Liabilities and Stockholders’ Equity
Current Liabilities
Debt maturing within one year$5,898 $11,838 
Accounts payable and accrued liabilities42,728 45,956 
Advanced billings and customer deposits5,862 6,124 
Accrued taxes1,336 1,212 
Dividends payable3,741 3,781 
Total current liabilities59,565 68,911 
Long-Term Debt152,980 151,309 
Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes60,448 59,502 
Postemployment benefit obligation17,928 18,788 
Operating lease liabilities22,056 21,804 
Other noncurrent liabilities30,520 29,421 
Total deferred credits and other noncurrent liabilities130,952 129,515 
Stockholders’ Equity
Preferred stock — 
Common stock7,621 7,621 
Additional paid-in capital130,139 126,279 
Retained earnings55,094 57,936 
Treasury stock(17,950)(13,085)
Accumulated other comprehensive income649 5,470 
Noncontrolling interest19,503 17,713 
Total stockholders’ equity195,056 201,934 
Total Liabilities and Stockholders’ Equity$538,553 $551,669 
2


AT&T Inc.  
Financial Data  
Consolidated Statements of Cash Flows
Dollars in millions
UnauditedNine-Month Period
20202019
Operating Activities
Net income$9,694 $12,271 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization21,537 21,256 
Amortization of television and film costs6,448 7,059 
Undistributed earnings from investments in equity affiliates108 81 
Provision for uncollectible accounts1,611 1,855 
Deferred income tax expense2,248 1,039 
Net (gain) loss on investments, net of impairments(689)(1,014)
Pension and postretirement benefit expense (credit)(2,245)(1,297)
Actuarial (gain) loss on pension and postretirement benefits63 4,048 
Asset impairments and abandonments2,515 — 
Changes in operating assets and liabilities:
Receivables2,321 2,503 
Other current assets, inventories and theatrical film and television production costs(7,836)(9,337)
Accounts payable and other accrued liabilities(4,905)(936)
Equipment installment receivables and related sales(148)848 
Deferred customer contract acquisition and fulfillment costs453 (796)
Postretirement claims and contributions(409)(635)
Other - net2,282 (220)
Total adjustments23,354 24,454 
Net Cash Provided by Operating Activities33,048 36,725 
Investing Activities
Capital expenditures, including $(92) and $(160) of interest during construction(13,283)(15,843)
Acquisitions, net of cash acquired(1,215)(1,124)
Dispositions428 3,775 
(Purchases), sales and settlements of securities and investments, net444 523 
Advances to and investments in equity affiliates, net(100)(333)
Net Cash Used in Investing Activities(13,726)(13,002)
Financing Activities
Net change in short-term borrowings with original maturities of three months or less(17)(22)
Issuance of other short-term borrowings9,440 4,012 
Repayment of other short-term borrowings(7,710)(4,702)
Issuance of long-term debt31,987 15,034 
Repayment of long-term debt(37,583)(24,368)
Payment of vendor financing(1,965)(2,601)
Issuance of preferred stock3,869 — 
Purchase of treasury stock(5,483)(409)
Issuance of treasury stock88 576 
Issuance of preferred interests in subsidiary1,979 1,488 
Dividends paid(11,215)(11,162)
Other(5,158)(187)
Net Cash Used in Financing Activities(21,768)(22,341)
Net (decrease) increase in cash and cash equivalents and restricted cash(2,446)1,382 
Cash and cash equivalents and restricted cash beginning of year12,295 5,400 
Cash and Cash Equivalents and Restricted Cash End of Period$9,849 $6,782 

3


AT&T Inc.
Consolidated Supplementary Data
Supplementary Financial Data
Dollars in millions except per share amounts
UnauditedThird QuarterPercentNine-Month PeriodPercent
20202019Change20202019Change
Capital expenditures
Purchase of property and equipment$3,819 $5,141 (25.7)%$13,191 $15,683 (15.9)%
Interest during construction32 48 (33.3)%92 160 (42.5)%
Total Capital Expenditures$3,851 $5,189 (25.8)%$13,283 $15,843 (16.2)%
Dividends Declared per Common Share$0.52 $0.51 2.0 %$1.56 $1.53 2.0 %
End of Period Common Shares Outstanding (000,000)7,125 7,303 (2.4)%
Debt Ratio44.9 %45.9 %(100) BP
Total Employees234,630 251,840 (6.8)%
Supplementary Operating Data
Subscribers and connections in thousands
UnauditedSeptember 30,Percent
20202019Change
Broadband Connections
IP14,761 14,786 (0.2)%
DSL614 789 (22.2)%
Total Broadband Connections15,375 15,575 (1.3)%
Voice Connections
Network Access Lines7,562 8,831 (14.4)%
U-verse VoIP Connections3,942 4,539 (13.2)%
Total Retail Voice Connections11,504 13,370 (14.0)%
Third QuarterPercentNine-Month PeriodPercent
20202019Change20202019Change
Broadband Net Additions
IP213 (74)— %102 33 — %
DSL(39)(49)20.4 %(116)(160)27.5 %
Total Broadband Net Additions174 (123)— %(14)(127)89.0 %

4


COMMUNICATIONS SEGMENT

The Communications segment provides wireless and wireline telecom, video and broadband services to consumers located in the U.S. and businesses globally. The Communications segment contains three reporting units: Mobility, Entertainment Group, and Business Wireline.
Segment Results
Dollars in millions
UnauditedThird QuarterPercentNine-Month PeriodPercent
20202019Change20202019Change
Segment Operating Revenues
Mobility$17,894 $17,701 1.1 %$52,445 $52,356 0.2 %
Entertainment Group10,053 11,197 (10.2)%30,637 33,893 (9.6)%
Business Wireline6,340 6,503 (2.5)%19,046 19,588 (2.8)%
Total Segment Operating Revenues34,287 35,401 (3.1)%102,128 105,837 (3.5)%
Segment Operating Contribution
Mobility5,691 5,742 (0.9)%17,284 16,818 2.8 %
Entertainment Group779 1,084 (28.1)%3,144 4,076 (22.9)%
Business Wireline1,178 1,210 (2.6)%3,535 3,824 (7.6)%
Total Segment Operating Contribution$7,648 $8,036 (4.8)%$23,963 $24,718 (3.1)%

5


Mobility

Mobility provides nationwide wireless service and equipment.
Mobility Results
Dollars in millions
UnauditedThird QuarterPercentNine-Month PeriodPercent
20202019Change20202019Change
Operating Revenues
Service$13,883 $13,930 (0.3)%$41,520 $41,383 0.3 %
Equipment4,011 3,771 6.4 %10,925 10,973 (0.4)%
Total Operating Revenues17,894 17,701 1.1 %52,445 52,356 0.2 %
Operating Expenses
Operations and support10,182 9,948 2.4 %29,083 29,511 (1.5)%
Depreciation and amortization2,021 2,011 0.5 %6,078 6,027 0.8 %
Total Operating Expenses12,203 11,959 2.0 %35,161 35,538 (1.1)%
Operating Income5,691 5,742 (0.9)%17,284 16,818 2.8 %
Equity in Net Income (Loss) of Affiliates — — % — — %
Operating Contribution$5,691 $5,742 (0.9)%$17,284 $16,818 2.8 %
Operating Income Margin31.8 %32.4 %(60) BP33.0 %32.1 %90  BP
Supplementary Operating Data
Subscribers and connections in thousands
UnauditedSeptember 30,Percent
20202019Change
Mobility Subscribers
Postpaid75,969 75,152 1.1 %
Prepaid18,100 17,740 2.0 %
Reseller6,708 7,120 (5.8)%
Connected Devices75,967 62,288 22.0 %
Total Mobility Subscribers176,744 162,300 8.9 %
Third QuarterPercentNine-Month PeriodPercent
20202019Change20202019Change
Mobility Net Additions
Postpaid Phone Net Additions1
645 101 — %657 254 — %
Total Phone Net Additions1
776 255 — %880 780 12.8 %
Postpaid1, 2
1,081 (217)— %954 (570)— %
Prepaid2,3
245 227 7.9 %365 669 (45.4)%
Reseller2
(4)(231)98.3 %(252)(677)62.8 %
Connected Devices4,203 3,900 7.8 %9,976 10,947 (8.9)%
Total Mobility Net Additions5,525 3,679 50.2 %11,043 10,369 6.5 %
Postpaid Churn1
0.85 %1.19 %(34)BP0.99 %1.14 %(15) BP
Postpaid Phone-Only Churn1
0.69 %0.95 %(26)BP0.80 %0.91 %(11) BP
1The third quarter ended September 30, 2020 includes 233 (151 phone) "Keep Americans Connected Pledge" paying accounts. The third quarter and nine-month period ended September 30, 2020 exclude 121 (97 phone) customers who we have agreed not to terminate service under the "Keep Americans Connected Pledge." The third quarter and nine-month period ended September 30, 2020 postpaid churn excluding "Keep Americans Connected Pledge" paying accounts was 0.95% (0.77% phone) and 1.02% (0.82% phone), respectively.
2The third quarter and nine-month period ended September 30, 2020, exclude subscribers transferred in connection with business dispositions.
3The third quarter and nine-month period ended September 30, 2020, exclude 188 subscriber disconnections resulting from updating our prepaid activation policy.
6


Entertainment Group

Entertainment Group provides video, including over-the-top (OTT) services, broadband and voice communication services primarily to residential customers. This business unit also sells advertising on video distribution platforms.
Entertainment Group Results
Dollars in millions
UnauditedThird QuarterPercentNine-Month PeriodPercent
20202019Change20202019Change
Operating Revenues
Video entertainment$6,964 $7,933 (12.2)%$21,335 $24,042 (11.3)%
High-speed internet2,128 2,117 0.5 %6,329 6,296 0.5 %
Legacy voice and data services538 628 (14.3)%1,679 1,969 (14.7)%
Other service and equipment423 519 (18.5)%1,294 1,586 (18.4)%
Total Operating Revenues10,053 11,197 (10.2)%30,637 33,893 (9.6)%
Operating Expenses
Operations and support7,997 8,797 (9.1)%23,618 25,839 (8.6)%
Depreciation and amortization1,277 1,316 (3.0)%3,875 3,978 (2.6)%
Total Operating Expenses9,274 10,113 (8.3)%27,493 29,817 (7.8)%
Operating Income779 1,084 (28.1)%3,144 4,076 (22.9)%
Equity in Net Income (Loss) of Affiliates — — % — — %
Operating Contribution$779 $1,084 (28.1)%$3,144 $4,076 (22.9)%
Operating Income Margin7.7 %9.7 %(200) BP10.3 %12.0 %(170) BP
    
Supplementary Operating Data
Subscribers and connections in thousands
UnauditedSeptember 30,Percent
20202019Change
Video Connections
Premium TV17,100 20,418 (16.3)%
AT&T TV Now683 1,145 (40.3)%
Total Video Connections17,783 21,563 (17.5)%
Broadband Connections
Total Broadband Connections14,102 14,301 (1.4)%
Fiber Broadband Connections4,678 3,696 26.6 %
Voice Connections
Retail Consumer Switched Access Lines2,977 3,467 (14.1)%
U-verse Consumer VoIP Connections3,361 3,973 (15.4)%
Total Retail Consumer Voice Connections6,338 7,440 (14.8)%
Third QuarterPercentNine-Month PeriodPercent
20202019Change20202019Change
Video Net Additions
Premium TV1
(590)(1,163)49.3 %(2,373)(2,485)4.5 %
AT&T TV Now(37)(195)81.0 %(243)(446)45.5 %
Total Video Net Additions(627)(1,358)53.8 %(2,616)(2,931)10.7 %
Broadband Net Additions
Total Broadband Net Additions1
158 (119)— %(17)(108)84.3 %
Fiber Broadband Net Additions1
357 318 12.3 %791 933 (15.2)%
1The third quarter ended September 30, 2020 includes 116 premium TV and 104 broadband (28 fiber) "Keep Americans Connected Pledge" paying accounts. The third quarter and nine-month period ended September 30, 2020 excludes 7 premium TV and 13 broadband (4 fiber) connections who we have agreed not to terminate service under the "Keep Americans Connected Pledge."
7


Business Wireline

Business Wireline unit provides advanced IP-based services, as well as traditional data services to business customers.
Business Wireline Results
Dollars in millions
UnauditedThird QuarterPercentNine-Month PeriodPercent
20202019Change20202019Change
Operating Revenues
Strategic and managed services$3,967 $3,900 1.7 %$11,789 $11,513 2.4 %
Legacy voice and data services2,031 2,252 (9.8)%6,227 6,973 (10.7)%
Other service and equipment342 351 (2.6)%1,030 1,102 (6.5)%
Total Operating Revenues6,340 6,503 (2.5)%19,046 19,588 (2.8)%
Operating Expenses    
Operations and support3,833 4,022 (4.7)%11,563 12,029 (3.9)%
Depreciation and amortization1,329 1,271 4.6 %3,948 3,735 5.7 %
Total Operating Expenses5,162 5,293 (2.5)%15,511 15,764 (1.6)%
Operating Income1,178 1,210 (2.6)%3,535 3,824 (7.6)%
Equity in Net Income (Loss) of Affiliates — — % — — %
Operating Contribution$1,178 $1,210 (2.6)%$3,535 $3,824 (7.6)%
Operating Income Margin18.6 %18.6 %—  BP18.6 %19.5 %(90) BP

Business Solutions

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 fixed 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. Results have been recast to conform to the current period's classification of consumer and business wireless subscribers.
Business Solutions Results
Dollars in millions
UnauditedThird QuarterPercentNine-Month PeriodPercent
20202019Change20202019Change
Operating Revenues
Wireless service$1,951 $1,888 3.3 %$5,784 $5,546 4.3 %
Strategic and managed services3,967 3,900 1.7 %11,789 11,513 2.4 %
Legacy voice and data services2,031 2,252 (9.8)%6,227 6,973 (10.7)%
Other service and equipment342 351 (2.6)%1,030 1,102 (6.5)%
Wireless equipment662 692 (4.3)%1,957 1,899 3.1 %
Total Operating Revenues8,953 9,083 (1.4)%26,787 27,033 (0.9)%
    
Operating Expenses    
Operations and support5,508 5,645 (2.4)%16,642 16,771 (0.8)%
Depreciation and amortization1,650 1,573 4.9 %4,912 4,643 5.8 %
Total Operating Expenses7,158 7,218 (0.8)%21,554 21,414 0.7 %
Operating Income1,795 1,865 (3.8)%5,233 5,619 (6.9)%
Equity in Net Income (Loss) of Affiliates — — % — — %
Operating Contribution$1,795 $1,865 (3.8)%$5,233 $5,619 (6.9)%
Operating Income Margin20.0 %20.5 %(50) BP19.5 %20.8 %(130) BP
8



WARNERMEDIA SEGMENT

The WarnerMedia segment develops, produces and distributes feature films, television, gaming and other content in various physical and digital formats globally, and also includes our Xandr business, which utilizes data analytics to provide targeted advertising services. Results from Turner, Home Box Office (HBO) and Warner Bros. businesses are combined with AT&T's Regional Sports Network (RSN), Otter Media Holdings and Xandr in the WarnerMedia segment. All previously reported periods have been recast to include Xandr, which was a separate reportable segment prior to the second quarter of 2020.
Segment Results
Dollars in millions
UnauditedThird QuarterPercentNine-Month PeriodPercent
20202019Change20202019Change
Segment Operating Revenues
Turner$3,176 $3,007 5.6 %$9,326 $9,860 (5.4)%
HBO1,781 1,819 (2.1)%4,905 5,045 (2.8)%
Warner Bros.2,411 3,333 (27.7)%8,907 10,240 (13.0)%
Eliminations and other146 191 (23.6)%(962)845 — %
Total Segment Operating Revenues7,514 8,350 (10.0)%22,176 25,990 (14.7)%
Cost of revenues
Turner1,689 1,036 63.0 %3,974 4,512 (11.9)%
HBO1,244 847 46.9 %3,155 2,356 33.9 %
Warner Bros.1,600 2,261 (29.2)%6,179 7,183 (14.0)%
Selling, general and administrative1,364 1,278 6.7 %4,152 3,994 4.0 %
Eliminations and other(313)(93)— %(1,455)(127)— %
Depreciation and amortization171 165 3.6 %501 425 17.9 %
Total Operating Expenses5,755 5,494 4.8 %16,506 18,343 (10.0)%
Operating Income1,759 2,856 (38.4)%5,670 7,647 (25.9)%
Equity in Net Income of Affiliates11 15 (26.7)%30 137 (78.1)%
Total Segment Operating Contribution$1,770 $2,871 (38.3)%$5,700 $7,784 (26.8)%

9


Turner

Turner creates and programs branded news, entertainment, sports and kids multi-platform content that is sold to various distribution affiliates. Turner also sells advertising on its networks and digital properties.
Turner Results
Dollars in millions
UnauditedThird QuarterPercentNine-Month PeriodPercent
20202019Change20202019Change
Operating Revenues
Subscription$1,840 $1,927 (4.5)%$5,693 $5,835 (2.4)%
Advertising1,077 913 18.0 %2,830 3,440 (17.7)%
Content and other259 167 55.1 %803 585 37.3 %
Total Operating Revenues3,176 3,007 5.6 %9,326 9,860 (5.4)%
Operating Expenses
Cost of revenues1,689 1,036 63.0 %3,974 4,512 (11.9)%
Selling, general and administrative399 424 (5.9)%1,171 1,301 (10.0)%
Depreciation and amortization69 68 1.5 %207 167 24.0 %
Total Operating Expenses2,157 1,528 41.2 %5,352 5,980 (10.5)%
Operating Income1,019 1,479 (31.1)%3,974 3,880 2.4 %
Equity in Net Income (Loss) of Affiliates(6)10 — % 46 — %
Operating Contribution$1,013 $1,489 (32.0)%$3,974 $3,926 1.2 %
Operating Income Margin32.1 %49.2 %(1,710) BP42.6 %39.4 %320  BP

Home Box Office

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.
Home Box Office Results
Dollars in millions
UnauditedThird QuarterPercentNine-Month PeriodPercent
20202019Change20202019Change
Operating Revenues
Subscription$1,624 $1,533 5.9 %$4,403 $4,383 0.5 %
Content and other157 286 (45.1)%502 662 (24.2)%
Total Operating Revenues1,781 1,819 (2.1)%4,905 5,045 (2.8)%
Operating Expenses
Cost of revenues1,244 847 46.9 %3,155 2,356 33.9 %
Selling, general and administrative450 225 — %1,081 768 40.8 %
Depreciation and amortization27 33 (18.2)%73 67 9.0 %
Total Operating Expenses1,721 1,105 55.7 %4,309 3,191 35.0 %
Operating Income60 714 (91.6)%596 1,854 (67.9)%
Equity in Net Income of Affiliates 10 — %15 40 (62.5)%
Operating Contribution$60 $724 (91.7)%$611 $1,894 (67.7)%
Operating Income Margin3.4 %39.3 %(3,590) BP12.2 %36.7 %(2,450) BP

10


Warner Bros.

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.
Warner Bros. Results
Dollars in millions
UnauditedThird QuarterPercentNine-Month PeriodPercent
20202019Change20202019Change
Operating Revenues
Theatrical product$1,068 $1,375 (22.3)%$3,203 $4,408 (27.3)%
Television product960 1,461 (34.3)%4,605 4,384 5.0 %
Video games and other383 497 (22.9)%1,099 1,448 (24.1)%
Total Operating Revenues2,411 3,333 (27.7)%8,907 10,240 (13.0)%
Operating Expenses