Form 8-K AT&T INC. For: May 01

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

Date of report (Date of earliest event reported) May 1, 2019

AT&T INC.

(Exact Name of Registrant as Specified in Charter)

Registrant’s telephone number, including area code (210) 821-4105

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company  ☐

If an emerging growth company, indicate by check mark 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.  ☐

CAUTIONARY LANGUAGE CONCERNING FORWARD-LOOKING STATEMENTS

Information set forth in this filing contains financial estimates and other forward-looking statements that are subject to risks and uncertainties, and actual results may differ materially. A discussion of factors that may affect future results is contained in AT&T Inc.’s (“AT&T”) filings with the Securities and Exchange Commission. AT&T disclaims any obligation to update or revise statements contained in this filing based on new information or otherwise.

The following information is attached hereto as Exhibit 99.1 and incorporated herein by reference:

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 hereunto duly authorized.

Exhibit 99.1

AT&T INC.

Unaudited Pro Forma Condensed Combined Statement of Income and Accompanying Notes

Dollars in millions except per share amounts

The Unaudited Pro Forma Condensed Combined Statement of Income (Pro Forma Statement of Income) presented below is derived from the historical consolidated financial statements of AT&T Inc. (AT&T) and Time Warner Inc. (Time Warner). The Pro Forma Statement of Income does not give effect to (a) the consolidation of Otter Media Holdings, which we we acquired the remaining interest in and (b) the acquisitions of AppNexus and AlienVault, which were also acquired during 2018. The Pro Forma Statement of Income is prepared as a business combination reflecting AT&T’s acquisition of Time Warner as if it had been completed on January 1, 2018. For a summary of the business combination, see “the Transaction” included in the AT&T Form S-4 filed with the Securities and Exchange Commission (SEC) on November 18, 2016 (File No. 333-214712), including all amendments and supplements to it.

The Pro Forma Statement of Income is developed from (a) the audited consolidated financial statements of AT&T contained in its Annual Report on Form 10-K for the year ended December 31, 2018, and (b) the unaudited consolidated financial information of Time Warner derived from their accounting records for the period from January 1, 2018 through June 14, 2018 (the Pre-Acquisition Period).

Under accounting for business combinations, the assets and liabilities of Time Warner were recorded at their respective fair values as of the date of the acquisition, June 14, 2018, and have been included in the AT&T consolidated balance sheet at December 31, 2018. AT&T has performed preliminary valuations of property, plant and equipment, intangible assets, debt and certain other assets and liabilities with the assistance of third-party valuation experts. These preliminary values, as allowed by U.S. generally accepted accounting principles, are subject to adjustment as we complete our analyses. We cannot provide any assurance that such adjustments will not result in a material change.

The Pro Forma Statement of Income has been prepared to reflect adjustments to AT&T’s historical consolidated financial information that are (i) directly attributable to the acquisition of Time Warner, (ii) factually supportable and (iii) expected to have a continuing impact on AT&T’s results.

The Pro Forma Statement of Income is provided for illustrative purposes only and does not purport to represent what the actual consolidated results of operations of AT&T would have been had the Time Warner acquisition occurred on the dates assumed, nor is it necessarily indicative of future consolidated results of operations.

The Pro Forma Statement of Income does not include the realization of cost savings from operating efficiencies, revenue synergies or other integration costs expected to result from the Time Warner acquisition.

The Pro Forma Statement of Income and accompanying notes should be read in conjunction with the separate historical consolidated financial statements and accompanying notes of AT&T and Time Warner.

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AT&T INC.

Pro Forma Condensed Combined Statement of Income

Dollars in millions except per share amounts

AT&T INC.

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME

FOR THE YEAR ENDED DECEMBER 31, 2018

The accompanying notes are an integral part of the Unaudited Pro Forma Condensed Combined Statement of Income.

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AT&T INC.

Notes to Pro Forma Condensed Combined Statement of Income

Dollars in millions except per share amounts

Note 1. Basis of Presentation

On October 22, 2016, AT&T and Time Warner entered into the merger agreement, pursuant to which AT&T would acquire Time Warner. At the closing of the merger, each share of Time Warner common stock was exchanged for (1) $53.75 per share in cash plus (2) a number of shares of AT&T common stock equal to the exchange ratio described below. If the AT&T average stock price was between (or equal to) $37.411 and $41.349 per share, the exchange ratio was to be obtained by dividing $53.75 by the average stock price. If the average stock price was greater than $41.349, the exchange ratio was to be 1.300. If the average stock price was less than $37.411, the exchange ratio would be 1.437. On June 14, 2018, each share of Time Warner stock was exchanged for $53.75 cash plus 1.437 shares of AT&T common stock. Based on AT&T’s $32.52 per share closing stock price on June 14, 2018, Time Warner shareholders received a total of $36,599 in AT&T stock and $42,100 in cash. Total consideration, including share-based payment arrangements and other adjustments totaled $79,358, excluding Time Warner’s net debt at acquisition. Subsequent to June 14, 2018, Time Warner is a wholly-owned subsidiary of AT&T.

The accompanying Pro Forma Statement of Income presents the pro forma combined results of operations of the combined company based upon the historical financial statements of AT&T and Time Warner, after giving effect to the acquisition of Time Warner and adjustments described in these footnotes, and is intended to reflect the impact on AT&T of the acquisition.

The assets and liabilities of Time Warner were appraised for inclusion in the opening balance sheet and have been included in the AT&T consolidated balance sheet at December 31, 2018. Long-lived assets such as property, plant and equipment reflect a value that a market participant would spend to replace the assets, which takes into account changes in technology, usage, and relative obsolescence and depreciation of the assets. This approach often results in differences, sometimes material, from recorded book values even if, absent the acquisition, the assets would be neither increased in value nor impaired. In addition, assets and liabilities that would not usually be recorded in ordinary operations will be recorded at their acquisition values (e.g., intellectual property such as film and television content and brands developed by the acquired company). Debt instruments and investments are valued in relation to current market conditions and other assets and liabilities are valued based on the acquiring company’s estimates. After all identifiable assets and liabilities are valued, the remainder of the purchase price is recorded as goodwill. These values are subject to adjustment for up to one year after the close of the transaction as additional information is obtained.

The accompanying Pro Forma Statement of Income is presented for illustrative purposes only and does not give effect to any cost savings, revenue synergies or costs for the integration of AT&T’s and Time Warner’s operations. The accompanying Pro Forma Statement of Income has been adjusted to reflect changes to reclassify certain Time Warner items to conform to the AT&T presentation. The Unaudited Pro Forma Statement of Income reflects the Time Warner acquisitions as if it had been completed on January 1, 2018.

For more information on estimated cost savings and revenue synergies, see “The Transaction – AT&T’s Reasons for the Transaction” and “The Transaction – Time Warner’s Reasons for the Transaction” included in the AT&T Form S-4 filed with the SEC on November 18, 2016 (File No. 333-214712), including all amendments and supplements to it.

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AT&T INC.

Notes to Pro Forma Condensed Combined Statement of Income - Continued

Dollars in millions except per share amounts

Note 2. Pro Forma Adjustments

(a5a) Straight-line method

The following table reflects the intangible assets that are amortized using the straight-line method of amortization and their respective average estimated useful lives:

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AT&T INC.

Notes to Pro Forma Condensed Combined Statement of Income - Continued

Dollars in millions except per share amounts

The following table is presented for illustrative purposes and provides the estimated annual impact on pro forma net income for every decremental or incremental $1,000 assigned to these intangibles. Amortization of these assets is calculated utilizing the straight-line method over the lives shown.

(a5b) Film forecast computation method

AT&T has preliminarily identified “Other Intangibles – Net,” of approximately $10,806 for released television and film content. The asset lives range from two to twenty years. Time Warner utilizes the film forecast computation method to amortize film and television production costs; similarly, amortization of these intangibles is reflected in the Pro Forma Statement of Income using the film forecast computation method. This method amortizes associated costs in the same ratio that current gross revenues bear to anticipated total gross revenues.

The illustrative incremental amortization expense included in our Pro Forma Statement of Income was calculated by applying the historical production cost amortization rates utilized by Time Warner (see note (a6) below) to the step-up in fair value. For amortization of film and television costs discussed in (a5b) and (a6) below, the assumed rates may be materially different than the actual results. A 10% change in the rate assumed would result in approximately $1,000 of additional amortization expense recognized in the first year.

The following table is presented for illustrative purposes and provides the estimated annual impact on pro forma net income for every decremental or incremental $1,000 assigned to property, plant and equipment (excluding land) of Time Warner. Depreciation of these assets is calculated utilizing the straight-line method over estimated lives.

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AT&T INC.

Notes to Pro Forma Condensed Combined Statement of Income - Continued

Dollars in millions except per share amounts

Pro forma combined weighted average shares outstanding with dilution are calculated as follows (shares in millions):

Note 3. Federal Income Tax Consequences of the Transaction

The Pro Forma Statement of Income assumes that the transaction qualifies as a tax-free reorganization for federal income tax purposes.

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