TIDM58KN
RNS Number : 5196F
AT & T Inc.
21 March 2022
FORM 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2021
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to
Commission File Number: 001-8610
AT&T INC.
Incorporated under the laws of the State of Delaware
I.R.S. Employer Identification Number 43-1301883
208 S. Akard St., Dallas, Texas, 75202
Telephone Number 210-821-4105
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class Trading Symbol(s) on which registered
Common Shares (Par Value $1.00 Per Share) T New York Stock Exchange
Depositary Shares, each representing a 1/1000th
interest in a share of
5.000% Perpetual Preferred Stock, Series
A T PRA New York Stock Exchange
Depositary Shares, each representing a 1/1000th
interest in a share of
4.750% Perpetual Preferred Stock, Series
C T PRC New York Stock Exchange
AT&T Inc. 2.650% Global Notes due December
17, 2021 T 21B New York Stock Exchange
AT&T Inc. 1.450% Global Notes due June 1,
2022 T 22B New York Stock Exchange
AT&T Inc. 2.500% Global Notes due March 15,
2023 T 23 New York Stock Exchange
AT&T Inc. 2.750% Global Notes due May 19,
2023 T 23C New York Stock Exchange
AT&T Inc. Floating Rate Global Notes due
September 5, 2023 T 23D New York Stock Exchange
AT&T Inc. 1.050% Global Notes due September
5, 2023 T 23E New York Stock Exchange
AT&T Inc. 1.300% Global Notes due September
5, 2023 T 23A New York Stock Exchange
AT&T Inc. 1.950% Global Notes due September
15, 2023 T 23F New York Stock Exchange
AT&T Inc. 2.400% Global Notes due March 15,
2024 T 24A New York Stock Exchange
AT&T Inc. 3.500% Global Notes due December
17, 2025 T 25 New York Stock Exchange
AT&T Inc. 0.250% Global Notes due March 4,
2026 T 26E New York Stock Exchange
Name of each exchange
Title of each class Trading Symbol(s) on which registered
AT&T Inc. 1.800% Global Notes due September
5, 2026 T 26D New York Stock Exchange
AT&T Inc. 2.900% Global Notes due December
4, 2026 T 26A New York Stock Exchange
AT&T Inc. 1.600% Global Notes due May 19,
2028 T 28C New York Stock Exchange
AT&T Inc. 2.350% Global Notes due September
5, 2029 T 29D New York Stock Exchange
AT&T Inc. 4.375% Global Notes due September
14, 2029 T 29B New York Stock Exchange
AT&T Inc. 2.600% Global Notes due December
17, 2029 T 29A New York Stock Exchange
AT&T Inc. 0.800% Global Notes due March
4, 2030 T 30B New York Stock Exchange
AT&T Inc. 2.050% Global Notes due May 19,
2032 T 32A New York Stock Exchange
AT&T Inc. 3.550% Global Notes due December
17, 2032 T 32 New York Stock Exchange
AT&T Inc. 5.200% Global Notes due November
18, 2033 T 33 New York Stock Exchange
AT&T Inc. 3.375% Global Notes due March
15, 2034 T 34 New York Stock Exchange
AT&T Inc. 2.450% Global Notes due March
15, 2035 T 35 New York Stock Exchange
AT&T Inc. 3.150% Global Notes due September
4, 2036 T 36A New York Stock Exchange
AT&T Inc. 2.600% Global Notes due May 19,
2038 T 38C New York Stock Exchange
AT&T Inc. 1.800% Global Notes due September
14, 2039 T 39B New York Stock Exchange
AT&T Inc. 7.000% Global Notes due April
30, 2040 T 40 New York Stock Exchange
AT&T Inc. 4.250% Global Notes due June 1,
2043 T 43 New York Stock Exchange
AT&T Inc. 4.875% Global Notes due June 1,
2044 T 44 New York Stock Exchange
AT&T Inc. 4.000% Global Notes due June 1,
2049 T 49A New York Stock Exchange
AT&T Inc. 4.250% Global Notes due March
1, 2050 T 50 New York Stock Exchange
AT&T Inc. 3.750% Global Notes due September
1, 2050 T50A New York Stock Exchange
AT&T Inc. 5.350% Global Notes due November
1, 2066 TBB New York Stock Exchange
AT&T Inc. 5.625% Global Notes due August
1, 2067 TBC New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None.
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes No
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d)
of the Act. Yes No
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past
90 days. Yes No
Indicate by check mark whether the registrant has submitted
electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T during the preceding 12
months (or for such shorter
period that the registrant was required to submit such files). Yes No
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, a
smaller reporting company, or an emerging growth company. See
definition of "large accelerated filer," "accelerated filer,"
"smaller reporting company," and "emerging growth company" in Rule
12b-2 of the Exchange Act.
Large Accelerated Filer Accelerated Filer
Non-accelerated filer Smaller reporting company
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.
Indicate by check mark whether the registrant has filed a report
on and attestation to its management's assessment of the
effectiveness of its internal control over financial reporting
under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b))
by the registered public accounting firm that prepared or issued
its audit report.
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act).
Yes No
Based on the closing price of $28.78 per share on June 30, 2021,
the aggregate market value of our voting and non-voting common
stock held by non-affiliates was $205 billion.
At February 11, 2022, common shares outstanding were
7,142,892,741.
DOCUMENTS INCORPORATED BY REFERENCE
(1)Portions of AT&T Inc.'s Notice of 2021 Annual Meeting and
Proxy Statement dated on or about April 1, 2022 to be filed within
the period permitted under General Instruction G(3) (Parts III and
IV).
TABLE OF CONTENTS
Item Page
PART I
1. Business 1
1A. Risk Factors 13
2. Properties 25
3. Legal Proceedings 25
4. Mine Safety Disclosures 25
Information about our Executive Officers 26
PART II
Market for Registrant's Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity
5. Securities 27
6. Item 6. [Reserved] 29
Management's Discussion and Analysis of Financial Condition and
7. Results of Operations 29
7A. Quantitative and Qualitative Disclosures about Market Risk 52
8. Financial Statements and Supplementary Data 59
Changes in and Disagreements with Accountants on Accounting and
9. Financial Disclosure 124
9A. Controls and Procedures 124
9B. Other Information 124
PART III
10. Directors, Executive Officers and Corporate Governance 125
11. Executive Compensation 125
Security Ownership of Certain Beneficial Owners and Management
12. and Related Stockholder Matters 126
13. Certain Relationships and Related Transactions, and Director Independence 127
14. Principal Accountant Fees and Services 127
PART IV
15. Exhibits and Financial Statement Schedules 127
16. Form 10-K Summary 130
AT&T Inc.
Dollars in millions except per share amounts
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PART I
ITEM 1. BUSINESS
GENERAL
AT&T Inc. ("AT&T," "we" or the "Company") is a holding
company incorporated under the laws of the State of Delaware in
1983 and has its principal executive offices at 208 S. Akard St.,
Dallas, Texas, 75202 (telephone number 210-821-4105). We maintain
an internet website at www.att.com. (This website address is for
information only and is not intended to be an active link or to
incorporate any website information into this document.) We file
electronically with the Securities and Exchange Commission (SEC)
required reports on Form 8-K, Form 10-Q and Form 10-K; proxy
materials; registration statements on Forms S-3 and S-8, as
necessary; and other forms or reports as required. The SEC
maintains a website (www.sec.gov) that contains reports, proxy and
information statements, and other information regarding issuers
that file electronically with the SEC. We make available, free of
charge, on our website our annual report on Form 10-K, our
quarterly reports on Form 10-Q, current reports on Form 8-K and all
amendments to those reports as soon as reasonably practicable after
such reports are electronically filed with, or furnished to, the
SEC. We also make available on that website, and in print, if any
stockholder or other person so requests, our "Code of Ethics"
applicable to all employees and Directors, our "Corporate
Governance Guidelines," and the charters for all committees of our
Board of Directors, including Audit, Human Resources and Corporate
Governance and Nominating. Any changes to our Code of Ethics or
waiver of our Code of Ethics for senior financial officers,
executive officers or Directors will be posted on that website.
A reference to a "Note" refers to the Notes to Consolidated
Financial Statements in Item 8.
History
AT&T, formerly known as SBC Communications Inc. (SBC), was
formed as one of several regional holding companies created to hold
AT&T Corp.'s (ATTC) local telephone companies. On January 1,
1984, we were spun-off from ATTC pursuant to an anti-trust consent
decree, becoming an independent publicly traded telecommunications
services provider. At formation, we primarily operated in five
southwestern states.
Following our formation, we have expanded our communications
footprint and operations and invested in entertainment businesses,
most significantly:
--Our subsidiaries merged with Pacific Telesis Group in 1997,
Southern New England Telecommunications Corporation in 1998 and
Ameritech Corporation in 1999, thereby expanding our wireline
operations as the incumbent local exchange carrier (ILEC) into a
total of 13 states.
--In 2005, we merged one of our subsidiaries with ATTC, creating
one of the world's leading telecommunications providers. In
connection with the merger, we changed the name of our company from
"SBC Communications Inc." to "AT&T Inc."
--In 2006, we merged one of our subsidiaries with BellSouth
Corporation (BellSouth) making us the ILEC in an additional nine
states. With the BellSouth acquisition, we also acquired
BellSouth's 40 percent economic interest in AT&T Mobility LLC
(AT&T Mobility), formerly Cingular Wireless LLC, resulting in
100 percent ownership of AT&T Mobility.
--In 2014, we completed the acquisition of wireless provider
Leap Wireless International, Inc. and sold our ILEC operations in
Connecticut, which we had previously acquired in 1998.
--In 2015, we acquired wireless properties in Mexico, and
acquired DIRECTV, a leading provider of digital television
entertainment services in both the United States and Latin America.
In 2018, the Latin American operations of DIRECTV was renamed
Vrio.
--In June 2018, we acquired Time Warner Inc. (Time Warner), a
leader in media and entertainment that operated the Turner, Home
Box Office (HBO) and Warner Bros. divisions. We also acquired Otter
Media Holdings (substantially disposed of in 2021) and advertising
platform AppNexus in August 2018 (agreement to sell signed in
December 2021). In May 2021, we entered into an agreement to
combine our WarnerMedia segment, subject to certain exceptions,
with a subsidiary of Discovery, Inc. (Discovery). The transaction
is expected to close in the second quarter of 2022, subject to
approval by Discovery shareholders and customary closing
conditions, including receipt of regulatory approvals.
--In October 2020, we sold our wireless and wireline operations
in Puerto Rico and the U.S. Virgin Islands.
--In July 2021, we closed our transaction with TPG Capital (TPG)
to form a new company named DIRECTV Entertainment Holdings, LLC
(DIRECTV). With the close of the transaction, we separated our
Video business, comprised of our U.S. video operations, and began
accounting for our investment in DIRECTV under the equity
method.
1
AT&T Inc.
Dollars in millions except per share amounts
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--In November 2021, we sold our Vrio business unit, which
provided video services primarily to residential customers using
satellite technology in Latin America and the Caribbean.
General
We are a leading provider of telecommunications, media and
technology services globally. The services and products that we
offer vary by market and utilize various technology platforms in a
range of geographies. Our reportable segments are organized as
follows:
The Communications segment provides services to businesses and
consumers located in the U.S. and businesses globally. Our business
strategies reflect bundled product offerings that cut across
product lines and utilize shared assets. This segment contains the
following business units:
--Mobility provides nationwide wireless service and equipment.
--Business Wireline provides advanced IP-based services, as well
as traditional voice and data services to business customers.
--Consumer Wireline provides internet, including broadband
fiber, and legacy telephony voice communication services to
residential customers.
The WarnerMedia segment develops, produces and distributes
feature films, television, gaming and other content in various
physical and digital formats globally. WarnerMedia content is
distributed through basic networks, Direct-to-Consumer (DTC) or
theatrical, TV content and games licensing. Segment results also
include Xandr advertising and Otter Media Holdings (Otter Media).
We disposed of substantially all Otter Media assets in the third
quarter of 2021.
On May 17, 2021, we entered into an agreement to combine our
WarnerMedia segment, subject to certain exceptions, with a
subsidiary of Discovery, Inc. (Discovery). On December 21, 2021, we
entered into an agreement to sell the marketplace component of
Xandr to Microsoft Corporation (Microsoft). (See Note 6)
The Latin America segment provides wireless services and
equipment in Mexico, and prior to the November 2021 disposition of
Vrio, video services in Latin America and the Caribbean.
Corporate and Other reconciles our segment results to
consolidated operating income and income before income taxes, and
includes:
--Corporate , which consists of: (1) businesses no longer
integral to our operations or which we no longer actively market,
(2) corporate support functions, (3) impacts of corporate-wide
decisions for which the individual operating segments are not being
evaluated, and (4) the reclassification of the amortization of
prior service credits, which we continue to report with segment
operating expenses, to consolidated "Other income (expense) - net."
Costs previously allocated to the Video business that were retained
after the transaction, net of reimbursements from DIRECTV under
transition service agreements, are reported in Corporate following
the transaction through 2022, to maintain comparability of our
operating segment results, and while operational plans and
continued cost reduction initiatives are implemented.
--Video, which consists of our former U.S. video operations that
were contributed to DIRECTV on July 31, 2021 and also includes our
share of DIRECTV's earnings as equity in net income of affiliates
(see Note 10).
--Acquisition-related items , which consists of items associated
with the merger and integration of acquired or divested businesses,
including amortization of intangible assets.
--Certain significant items , which includes (1) employee
separation charges associated with voluntary and/or strategic
offers, (2) asset impairments and abandonments, and (3) other items
for which the segments are not being evaluated.
--Eliminations and consolidations , which (1) removes
transactions involving dealings between our segments, including
channel distribution between WarnerMedia and Video prior to its
separation, and (2) includes adjustments for our reporting of the
advertising business.
2
AT&T Inc.
Dollars in millions except per share amounts
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Areas of Focus
The importance of world-class connectivity and content come
together in our three market focus areas: 5G, fiber and HBO Max.
Fiber underpins the connectivity we deliver, both wired and
wireless. Building on that fiber foundation is our solid spectrum
portfolio, strengthened through recent Federal Communications
Commission (FCC) auction acquisitions and 5G deployment. We believe
our hybrid fixed and mobile approach will differentiate our
services and provide us with additional growth opportunities in the
future as bandwidth demands continue to grow, with user-generated
content growing at an ever-increasing pace. With HBO Max, we've
developed a next-generation entertainment distribution platform
built for growth in direct-to-consumer subscription and
advertising-based relationships. We will continue to demonstrate
our commitment to ensure management attention is sharply focused on
growth areas and operational efficiencies.
Communications
Our integrated telecommunications network utilizes different
technological platforms to provide instant connectivity at the
higher speeds made possible by our fiber network expansion and
wireless network enhancements. Streaming, augmented reality,
"smart" technologies and user generated content is expected to
drive greater demand for broadband and capitalize on our fiber and
5G deployments. During 2022, we will continue to develop and
provide high-value, integrated mobile and broadband solutions.
Wireless Service We are experiencing rapid growth in data usage
as consumers are demanding seamless access across their wireless
and wired devices, and businesses and municipalities are connecting
more and more equipment and facilities to the internet. The
deployment of 5G, which allows for faster connectivity, lower
latency and greater bandwidth requires modifications of existing
cell sites to add equipment supporting new frequencies, like the
C-Band and the newly auctioned 3.45 GHz band. Our 5G service went
nationwide in July 2020, and with that availability, the
introduction of 5G handsets and devices has contributed to a
renewed interest in equipment upgrades. The increased speeds and
network operating efficiency expected with 5G technology should
enable massive deployment of devices connected to the internet as
well as faster delivery of data services. In January 2022, we began
to deploy our C-band spectrum, subject to certain voluntary
limitations.
In North America, our network covers over 434 million people
with 4G LTE and over 250 million with 5G technology. In the United
States, our network covers all major metropolitan areas and more
than 330 million people with our LTE technology and more than 250
million people with our 5G technology. Our 3G network provides
services to customers using older handsets and connected devices.
We will discontinue services on our 3G network on February 22, 2022
and expect to redeploy that spectrum in our transition to 5G. As of
December 31, 2021, about 1 percent of our postpaid subscribers were
using 3G handsets, and we expect them to transition to newer
technologies. We do not expect this transition to have a material
impact on our consolidated operating results.
As the wireless industry has matured, future wireless growth
will increasingly depend on our ability to offer innovative data
services on a wireless network that has sufficient spectrum and
capacity to support these innovations. We continue to invest
significant capital in expanding our network capacity, as well as
obtaining additional spectrum that meets our long-term needs. We
participate in FCC spectrum auctions and have been redeploying
spectrum previously used for more basic services to support more
advanced mobile internet services.
Broadband Technology In 2020, we identified fiber as a core
priority for our business, working to expand our footprint and
accelerating our historical rate of customer growth. At December
31, 2021, we had nearly 6 million fiber broadband customers, adding
more than 1 million during the year. The expansion builds on our
recent years' investment to convert to a software-based network,
managing the migration of wireline customers to services using our
fiber infrastructure to provide broadband technology.
Software-based technologies align with our global leadership in
software defined network (SDN) and network function virtualization
(NFV). This network approach delivers a demonstrable cost advantage
in the deployment of next-generation technology over the
traditional, hardware-intensive network approach. Our virtualized
network is able to support next-generation applications like 5G and
broadband-based services quickly and efficiently.
3
AT&T Inc.
Dollars in millions except per share amounts
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Media
We produce and distribute high-quality video content to take
advantage of growing global demand. Our media businesses use their
strong brands, distinctive intellectual property and global scale
to produce and distribute quality content. As the television
industry continues to evolve from a distribution system using
satellite and cable offerings to internet streaming video services,
we are well-positioned to address and capitalize on these changes,
but we face financial risks and new sources of competition
associated with these developments. In 2022, we plan to continue
providing more personalized services offered directly to consumers
through our own distribution and distribution partner channels,
including expanding our streaming platform, HBO Max, in certain
international territories. AT&T customers in the U.S. that are
on certain mobile and broadband plans can bundle with HBO Max
included at no additional charge.
Latin America
We believe that the wireless model in the U.S., with
accelerating demand for mobile internet service and the associated
economic benefits, will be repeated around the world as companies
invest in high-speed mobile networks. We acquired Mexican wireless
operations in 2015 to establish a seamless, cross-border North
American wireless network which now covers an area with over 434
million people and businesses in the United States and Mexico. With
the increased capacity from our LTE network, we also expect
additional wholesale revenue in the coming years. Our 4G LTE
network in Mexico now covers approximately 104 million people and
businesses.
BUSINESS OPERATIONS
OPERATING SEGMENTS
Our segments are strategic business units that offer different
products and services over various technology platforms and/or in
different geographies that are managed accordingly. We analyze our
operating segments based on segment contribution, which consists of
operating income, excluding acquisition-related costs and other
significant items, and equity in net income (loss) of affiliates
for investments managed within each operating segment. We have
three reportable segments: (1) Communications, (2) WarnerMedia and
(3) Latin America.
Additional information about our segments, including financial
information, is included under the heading "Segment Results" in
Item 7. and in Note 4 of Item 8.
COMMUNICATIONS
Our Communications segment provides wireless and wireline
telecom and broadband services to consumers located in the U.S. and
businesses globally. Our Communications services and products are
marketed under the AT&T, Cricket, AT&T PREPAID SM and
AT&T Fiber brand names. The Communications segment provided
approximately 74% of 2021 segment operating revenues and 81% of our
2021 total segment contribution. This segment contains the
Mobility, Business Wireline and Consumer Wireline business
units.
Mobility - Our Mobility business unit provides nationwide
wireless services to consumers and wholesale and resale wireless
subscribers located in the United States by utilizing our network
to provide voice and data services, including high-speed internet
over wireless devices. We classify our subscribers as either
postpaid, prepaid, connected device or reseller. At December 31,
2021, we served 202 million Mobility subscribers, including 82
million postpaid (67 million phone), 19 million prepaid, 6 million
reseller and 95 million connected devices. Our Mobility business
unit revenue includes the following categories: service and
equipment.
Wireless Services
We offer a comprehensive range of high-quality nationwide
wireless voice and data communications services in a variety of
pricing plans to meet the communications needs of targeted customer
categories. Through our FirstNet services, we also provide a
nationwide wireless broadband network dedicated to public
safety.
Consumers continue to require increasing availability of
data-centric services and a network to connect and control those
devices. An increasing number of our subscribers are using more
advanced integrated and data-centric devices, including embedded
computing systems and/or software, commonly called the Internet of
Things (IoT). We offer plans that include unlimited features
allowing for the sharing of voice, text and data across multiple
devices, which attracts subscribers from other providers and helps
minimize subscriber churn. Customers in our "connected device"
category (e.g., users of monitoring devices and automobile systems)
generally purchase those devices from third-party suppliers that
buy data access supported by our network. We continue to upgrade
our network and coordinate with equipment manufacturers and
application developers to further capitalize on the continued
growing demand for wireless data services.
4
AT&T Inc.
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We also offer nationwide wireless voice and data communications
to certain customers who prefer to pay in advance. These services
are offered under the Cricket and AT&T PREPAID brands and are
typically monthly prepaid services.
Equipment
We sell a wide variety of handsets, wireless data cards and
wireless computing devices manufactured by various suppliers for
use with our voice and data services. We also sell accessories,
such as carrying cases and hands-free devices. We sell through our
own company-owned stores, agents and third-party retail stores. We
provide our customers the ability to purchase handsets on an
installment basis and the opportunity to bring their own device.
Subscribers have been bringing their own devices or retaining their
handsets for longer periods, which could continue to impact upgrade
activity. Like other wireless service providers, we also provide a
limited number of postpaid contract subscribers substantial
equipment subsidies to initiate, renew or upgrade service.
Business Wireline - Our Business Wireline business unit provides
services to business customers, including multinational
corporations, small and mid-sized businesses, governmental and
wholesale customers. Our Business Wireline business unit revenue
includes the following categories: services and equipment.
Business Services
Business services include data, voice, security, cloud
solutions, outsourcing, and managed and professional services. Our
more advanced business products allow our customers to create and
manage their own internal networks and to access external data
networks, and include Virtual Private Networks (VPN), AT&T
Dedicated Internet (ADI), and Ethernet and broadband services. We
provide collaboration services that utilize our IP infrastructure
and allow our customers to utilize the most advanced technology to
improve their productivity. We also provide state-of-the-art
security solutions like threat management, intrusion detection and
other business security applications.
We continue to reconfigure our wireline network to take
advantage of the latest technologies and services. We have
developed services that rely on our SDN and NFV to enhance business
customers' digital agility in a rapidly evolving environment.
Equipment
Equipment revenues include customer premises equipment.
Consumer Wireline - Our Consumer Wireline business unit provides
internet, including broadband fiber, and legacy telephony voice
communication to customers in the United States by utilizing our
IP-based and copper wired network. Our Consumer Wireline business
unit revenue includes the following categories: broadband, legacy
voice and data services and other service and equipment.
Broadband
We offer broadband and internet services to approximately 16
million customer locations, with 6 million fiber broadband
connections at December 31, 2021. With changes in video viewing
preferences and the recent work and learn from home trends, we are
experiencing increasing demand for high-speed broadband services.
Our investment in expanding our industry-leading fiber network
positions us to be a leader in wired connectivity.
We believe that our flexible platform with a broadband and
wireless connection is the most efficient way to transport
direct-to-consumer video experiences both at home and on mobile
devices. Through this integrated approach, we can optimize the use
of storage in the home as well as in the cloud, while also
providing a seamless service for consumers across screens and
locations. Our WarnerMedia streaming platform, HBO Max, provides an
attractive offering of video options and is driving our
direct-to-consumer strategy.
Legacy Voice and Data Services
Revenues from our traditional voice services continue to decline
as customers switch to wireless or VoIP services provided by us,
cable companies or other internet-based providers. We have
responded by offering packages of combined voice and data services,
including broadband and video, and intend to continue this strategy
during 2022.
Other Services and Equipment
Other service revenues include AT&T U-verse voice services
(which use VoIP technology), customer fees and equipment.
Additional information on our Communications segment is
contained in the "Overview" section of Item 7.
5
AT&T Inc.
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WARNERMEDIA
Our WarnerMedia segment is comprised of a global media and
entertainment company that develops, produces and acquires feature
films, television, gaming and other content for monetization in
various media outlets including theatrical, its own and third-party
basic and premium pay television, free-to-air television,
direct-to-consumer services and physical / digital retail.
WarnerMedia is organized as an integrated content organization that
operates as a single segment. Content creation, distribution, and
programming are centrally managed to ensure the highest quality
content is available to consumers on the optimal platform or format
on a worldwide basis. The WarnerMedia segment provided
approximately 23% of 2021 segment operating revenues and 21% of our
2021 total segment contribution. WarnerMedia revenues include the
following categories: subscription, content and other and
advertising.
On May 17, 2021, we entered into an agreement to combine our
WarnerMedia segment, subject to certain exceptions, with a
subsidiary of Discovery. The transaction is expected to close in
the second quarter of 2022, subject to approval by Discovery
shareholders and customary closing conditions, including receipt of
regulatory approvals. No vote is required by AT&T
shareholders.
On December 21, 2021, we entered into an agreement to sell the
marketplace component of Xandr, primarily representing the AppNexus
business, to Microsoft. The transaction is expected to close in
2022, subject to customary closing conditions.
Subscription
Subscription revenue consists principally of subscriber-based
revenue from HBO networks (both traditional linear and legacy
streaming on-demand offerings) and the HBO Max streaming platform,
as well as its WarnerMedia basic networks. HBO's networks
(including Cinemax) are available in the United States and
internationally to subscribers through traditional and digital
distributors on a premium pay basis and, in certain territories, in
the basic television tier, as well as directly to consumers. The
HBO Max platform is made available on an over-the-top subscription
basis through the internet directly to consumers and through
third-party distribution partners. HBO Max launched in the United
States in May 2020 with an advertising-free service, in Latin
America and the Caribbean in June 2021 and in Sweden, Norway,
Denmark, Finland, Spain and Andorra in October 2021, with further
international expansion planned for 2022. The WarnerMedia basic
television networks are primarily delivered by traditional
television distributors, such as cable, satellite, and
telecommunications service providers, as well as digital
distributors, and are available to subscribers of the distributors
for viewing live and on demand through the distributors' services
and companion network apps. WarnerMedia's domestic license
agreements with distributors are multi-year arrangements that
typically provide for packaging and marketing support. Revenues
depend on the specific terms of the applicable agreement, which may
include subscriber thresholds, volume discounts and other
performance-based discounts.
As of December 31, 2021, we had nearly 74 million HBO Max and
HBO subscribers worldwide, including nearly 47 million domestic
subscribers. Global HBO Max and HBO subscribers consist of domestic
and international HBO Max and HBO subscribers, and exclude free
trials, basic and Cinemax subscribers. Domestic HBO Max and HBO
subscribers consist of U.S. accounts with access to HBO Max
(including wholesale subscribers and subscribers receiving access
through bundled services with affiliates that may not have signed
in) and HBO accounts, and exclude free trials and Cinemax
subscribers.
Content and Other
Content revenue consists principally of licensing feature films
for initial theatrical exhibition, and films and television
programs for traditional television broadcast and distribution via
digital platforms, including via free-to-air, basic and premium
pay-TV; television syndication; and streaming services. Content
revenue also includes home entertainment sales and rentals of film
and television products (physical and digital, including premium
video-on-demand, transactional video-on-demand and electronic
sell-through), publishing and distribution of interactive games
entertainment (physical and digital) across all platforms, comic
book and other book publishing, and consumer products
licensing.
The content produced by WarnerMedia is used across its various
branded programming services and distribution platforms, including
its traditional linear networks and the HBO Max platform. The
television and film programming content produced is also licensed
to third parties for use as part of their various video services
and platforms. WarnerMedia also acquires television and film
programming content from third parties to include as part of its
branded services and platforms. Decisions relating to content
development and production are dependent upon finding optimal
audiences and distribution outlets. In response to the general
disruptions to consumer behavior and entertainment options caused
by the COVID-19 pandemic, we have adapted by trying variations on
traditional theatrical distribution models, such as "day and date"
release windowing for certain films for on-demand and theatrical
availability and the shortening of the traditional theatrical
window for others, and exploring other hybrid models. As consumers
demand more and different optionality over how and when to consume
their favorite content, traditional distribution models for our
business can be expected to continue to adapt and evolve
responsively.
6
AT&T Inc.
Dollars in millions except per share amounts
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Advertising
Advertising revenue consists primarily of advertising
arrangements for its basic pay-TV networks and related properties,
and includes the advertising-supported tier of HBO Max, which
launched in the United States in June 2021. In the United States
and internationally, advertising revenues generally depend on the
size and demographics of a network's audience delivered to an
advertiser, the number of units of time sold and the price per
unit. The price per unit of advertising is determined considering
factors such as the type of program or network, the level of
targeting and/or the time of day the advertising is to be run.
Certain advertising inventory is sold in the "upfront" market in
advance each year and other inventory is sold in the "scatter"
market closer to the time that a program airs. Outside the U.S.,
advertising is generally sold at a fixed rate for the unit of time
sold, determined by the time of day and network.
WarnerMedia's digital properties consist of owned assets and
those managed and/or operated for sports leagues where our basic
networks hold the related programming rights. Digital properties
managed or operated for sports leagues include NBA.com, NBA Mobile
and NCAA.com.
Additional information on our WarnerMedia segment is contained
in the "Overview" section of Item 7.
LATIN AMERICA
Our Latin America segment provides wireless services in Mexico,
and prior to the November 2021 sale of Vrio, video services in
Latin America. The Latin America segment provided approximately 3%
of 2021 segment operating revenues. Our Latin America services and
products are marketed under the AT&T and Unefon brand names.
This segment contains the Mexico business unit.
Mexico - We utilize our regional and national wireless networks
in Mexico to provide consumer and business customers with wireless
data and voice communication services. We divide our revenue into
the following categories: service and equipment.
We provide postpaid and prepaid wireless services in Mexico to
approximately 20 million subscribers under the AT&T and Unefon
brands. Postpaid services allow for (1) no annual service contract
for subscribers who bring their own device or purchase a device on
installment (the device must be paid in full if the customer
chooses to drop their service from AT&T) and (2) service
contracts for periods up to 36 months for subscribers who purchase
their equipment under the traditional device subsidy model. Plans
offer no roaming charges in the United States or Canada, unlimited
minutes and messages to the extended AT&T community and
unlimited data access to social networking. We also offer prepaid
services to customers who prefer to pay in advance.
We sell a wide variety of handsets, including smartphones
manufactured by various suppliers for use with our voice and data
services. We sell through our own company-owned stores, agents and
third-party retail stores.
Additional information on our Latin America segment is contained
in the "Overview" section of Item 7.
7
AT&T Inc.
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MAJOR CLASSES OF SERVICE
The following table sets forth the percentage of total
consolidated reported operating revenues by any class of service
that accounted for 10% or more of our consolidated total operating
revenues in any of the last three fiscal years:
Percentage of Total
Consolidated Operating Revenues
2021 2020 2019
------------- -------------
Communications Segment
Wireless service 1 34 % 32 % 30 %
Business service 14 14 14
Equipment 13 10 9
Latin America Segment
Video Services 2 2 2 2
Wireless service 1 1 1
Equipment 1 1 1
Corporate and Other
Video services 2,3 9 16 17
---- ---------- --------- ---------
1 Excludes advertising revenues included as Wireless service in our Mobility
business unit of $330, $291 and $292 in 2021, 2020 and 2019, respectively.
2 U.S. video operations were separated in July 2021 and Vrio was sold in November
2021. See Note 6
3 Excludes advertising revenues included as Video in our sold U.S. video operations
of $909, $1,718 and $1,672 in 2021, 2020 and 2019, respectively.
Additional information on our geographical distribution of
revenues is contained in Note 4 of Item 8.
GOVERNMENT REGULATION
Wireless communications providers in the United States must be
licensed by the FCC to provide communications services at specified
spectrum frequencies within defined geographic areas and must
comply with the rules and policies governing the use of the
spectrum as adopted by the FCC. The FCC's rules have a direct
impact on whether the wireless industry has sufficient spectrum
available to support the high-quality, innovative services our
customers demand. Wireless licenses are issued for a fixed time
period, typically ten years, and we must seek renewal of these
licenses. While the FCC has generally renewed licenses given to
operating companies such as us, the FCC has authority to both
revoke a license for cause and to deny a license renewal if a
renewal is not in the public interest. Additionally, while wireless
communications providers' prices and service offerings are
generally not subject to regulation, the federal government and
various states periodically consider new regulations and
legislation relating to various aspects of wireless services.
The Communications Act of 1934 and other related acts give the
FCC broad authority to regulate the U.S. operations of our
satellite services, which are licensed by the FCC, and some of
WarnerMedia's businesses are also subject to obligations under the
Communications Act and related FCC regulations. We continue to
support regulatory and legislative measures and efforts at both the
federal and state levels to minimize and/or moderate regulatory
burdens that are no longer appropriate in a competitive
communications market and that inhibit our ability to compete more
effectively and offer services wanted and needed by our customers,
including initiatives to transition services from traditional
networks to all IP-based networks. At the same time, we also seek
to ensure that legacy regulations are not further extended to
broadband or wireless services, which are subject to vigorous
competition.
8
AT&T Inc.
Dollars in millions except per share amounts
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Our ILEC subsidiaries are subject to regulation by state
governments, which have the power to regulate intrastate rates and
services, including local, long-distance and network access
services, provided such state regulation is consistent with federal
law. Some states have eliminated or reduced regulations on our
retail offerings. In addition, many states have adopted legislation
that enables us to provide IP-based video service through a single
statewide or state-approved franchise to offer a competitive video
product. These subsidiaries are also subject to the jurisdiction of
the FCC with respect to intercarrier compensation, interconnection,
and interstate and international rates and services, including
interstate access charges. Access charges are a form of
intercarrier compensation designed to reimburse our wireline
subsidiaries for the use of their networks by other carriers.
Our subsidiaries operating outside the United States are subject
to the jurisdiction of national and supranational regulatory
authorities in the market where service is provided.
The following discussion highlights significant regulatory
issues directly affecting our operations:
Communications Segment
Wireless
The industry-wide deployment of 5G technology, which is needed
to meet exploding demand for wireless data, involves modifications
of existing cell sites to add equipment supporting new frequencies,
like the C-Band and the newly auctioned 3.45 GHz band, increasing
the importance of local permitting processes that allow for
approving those modifications on reasonable timelines and terms. In
June and November 2020, the FCC issued a Declaratory Ruling
clarifying the limits on state and local authority to deny
applications to modify existing structures to accommodate wireless
facilities. Those clarifications facilitate quicker deployment of
next-generation wireless equipment and services. The FCC Order was
appealed to the Ninth Circuit Court of Appeals, where it remains
pending, following multiple requests by the FCC to hold the appeal
in abeyance until the Senate confirms a fifth FCC Commissioner. In
addition, to date, 31 states and Puerto Rico have adopted
legislation to facilitate small cell deployment.
In March 2020, the FCC released its order setting rules for
certain spectrum bands (C-band) for 5G operations. In that order,
the FCC concluded that C-band 5G services that met the agency's
technical limits on power and emissions would not cause harmful
interference with aircraft operations. In reliance on that order,
AT&T bid a total of $23,406 and was awarded 1,621 C-band
licenses, including 40 MHz nationwide available for deployment in
December 2021, with the remainder available for deployment in
December 2023. In late 2021, the Federal Aviation Administration
(FAA) questioned whether the C-band launch could impact radio
altimeter equipment on airplanes, which operate on spectrum bands
over 400 MHz away from the spectrum AT&T is launching in 2022.
In response, to allow the FAA more time to evaluate, AT&T and
Verizon delayed their planned December 2021 5G C-band launch by six
weeks and voluntarily committed to a series of temporary,
precautionary measures, in addition to deferring turning on a
limited number of towers around certain airports. On January 19,
2022, we launched 5G C-band services, subject to these voluntary
temporary measures.
Internet
In February 2015, the FCC released an order classifying both
fixed and mobile consumer broadband internet access services as
telecommunications services, subject to Title II of the
Communications Act. The Order, which represented a departure from
longstanding bipartisan precedent, significantly expanded the FCC's
authority to regulate broadband internet access services, as well
as internet interconnection arrangements. In December 2017, the FCC
reversed its 2015 decision by reclassifying fixed and mobile
consumer broadband services as information services and repealing
most of the rules that were adopted in 2015. In lieu of broad
conduct prohibitions, the order requires internet service providers
to disclose information about their network practices and terms of
service, including whether they block or throttle internet traffic
or offer paid prioritization. On October 1, 2019, the D.C. Circuit
issued a unanimous opinion upholding the FCC's reclassification of
broadband as an information service, and its reliance on
transparency requirements and competitive marketplace dynamics to
safeguard net neutrality. Because no party sought Supreme Court
review of the D.C. Circuit's decision to uphold the FCC's
classification of broadband as an information service, that
decision is final. While the court vacated the FCC's express
preemption of any state regulation of net neutrality, it stressed
that its ruling did not prevent the FCC or ISPs from relying on
conflict preemption to invalidate particular state laws that are
inconsistent with the FCC's regulatory objectives and framework.
The court also remanded the matter to the FCC for further
consideration of the impact of reclassifying broadband services as
information services on public safety, the Lifeline program, and
pole attachment regulation. In October 2020, the FCC adopted an
order concluding that those issues did not justify reversing its
decision to reclassify broadband services as information services.
An appeal of the FCC's remand decision is pending.
9
AT&T Inc.
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Following the FCC's 2017 decision to reclassify broadband
internet access services as information services, a number of
states adopted legislation to reimpose the very rules the FCC
repealed. In some cases, state legislation imposes requirements
that go beyond the FCC's February 2015 order. Additionally, some
state governors have issued executive orders that effectively
reimpose the repealed requirements. Suits have been filed
concerning laws in California and Vermont. Both lawsuits were
stayed pursuant to agreements by those states not to enforce their
laws pending final resolution of all appeals of the FCC's December
2017 order. Because that order is now final, the California suit
returned to active status, but the Vermont litigation remained
stayed pending resolution of a request in the California suit to
enjoin enforcement of the California legislation pending resolution
of the California litigation. In January 2021, a U.S. District
Court in California denied that request and as a consequence, the
California statute now is in effect. The trade associations
challenging the statute have appealed the denial of their request
for preliminary injunction to the Ninth Circuit, which reached a
decision denying that appeal on January 28, 2022. On February 11,
2022, the trade association filed a petition for rehearing with the
Ninth Circuit. As a consequence, the agreement of Vermont and the
other parties to the Vermont lawsuit to stay that litigation will
continue until the Ninth Circuit appeal is resolved or April 15,
2022, whichever is earlier. We expect that going forward additional
states may seek to impose net neutrality requirements. We will
continue to support congressional action to codify a set of
standard consumer rules for the internet.
On November 15, 2021, President Biden signed the Infrastructure
Investment and Jobs Act (IIJA) into law. The legislation
appropriates $65,000 to support broadband deployment and adoption.
The National Telecommunications and Information Agency (NTIA) is
responsible for distributing more than $48,000 of this funding,
including $42,500 in state grants for broadband deployment projects
in unserved and underserved areas. NTIA will establish rules for
this program in the first half of 2022. The IIJA also appropriated
$14,200 for establishment of the Affordable Connectivity Program
(ACP), an FCC-administered monthly, low-income broadband benefit
program, replacing the Emergency Broadband Benefit program
(established in December 2020 by the Consolidated Appropriations
Act 2021). Qualifying customers can receive up to thirty dollars
per month (or seventy-five dollars per month for those on Tribal
lands) to assist with their internet bill. AT&T is a
participating provider in the ACP program and will consider
participating in the deployment program where appropriate. The IIJA
includes various provisions that will result in FCC proceedings
regarding ACP program administration and consumer protection,
reform of the existing universal support program, and broadband
labeling and equal access.
Privacy-related legislation continues to be adopted or
considered in a number of jurisdictions. Legislative, regulatory
and litigation actions could result in significant penalties,
increased costs of compliance, further regulation or claims against
broadband internet access service providers and others, and
increased uncertainty in the value and availability of data.
WarnerMedia Segment
WarnerMedia creates, owns and distributes intellectual property,
including copyrights, trademarks and licenses of intellectual
property. To protect its intellectual property, WarnerMedia relies
on a combination of laws and license agreements. Outside the U.S.,
laws and regulations relating to intellectual property protection
and the effective enforcement of these laws and regulations vary
greatly from country to country. The European Union is pursuing
legislative and regulatory initiatives which could impact
WarnerMedia's activities in the EU. Piracy, particularly of digital
content, continues to threaten revenues from WarnerMedia's products
and services, as well as revenues from our pay TV business, and we
work to limit that threat through a combination of approaches,
including technological and legislative solutions. Outside the
U.S., various laws and regulations, as well as trade agreements
with the U.S., also apply to the distribution or licensing of
feature films for exhibition in theaters and on broadcast and cable
networks. For example, in certain countries, including China, laws
and regulations limit the
number of foreign films exhibited in such countries in a
calendar year.
Additional information relating to regulation of our
subsidiaries is contained under the headings "Operating Environment
Overview" and "Regulatory Developments" of Item 7.
10
AT&T Inc.
Dollars in millions except per share amounts
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IMPORTANCE, DURATION AND EFFECT OF LICENSES
Certain of our subsidiaries own or have licenses to various
patents, copyrights, trademarks and other intellectual property
necessary to conduct business. Many of our subsidiaries also hold
government-issued licenses or franchises to provide wireline,
satellite or wireless services. Additional information relating to
regulation affecting those rights is contained under the heading
"Operating Environment Overview," of Item 7. We actively pursue
patents, trademarks and service marks to protect our intellectual
property within the United States and abroad. We maintain a
significant global portfolio of patents, trademarks and service
mark registrations. We have also entered into agreements that
permit other companies, in exchange for fees and rights, and
subject to appropriate safeguards and restrictions, to utilize
certain of our patents, trademarks and service marks. As we
transition our network from a switch-based network to an IP,
software-based network, we have increasingly entered into licensing
agreements with software developers.
We periodically receive offers from third parties to obtain
licenses for patents and other intellectual rights in exchange for
royalties or other payments. We also receive notices asserting that
our products or services sold to customers or software-based
network functions infringe on their patents and other intellectual
property rights. These claims, whether against us directly, such as
network functions or against third-party suppliers of products or
services that we, in turn, sell to our customers, such as wireless
handsets, could require us to pay damages, royalties, stop offering
the relevant products or services and/or cease network functions or
other activities. While the outcome of any litigation is uncertain,
we do not believe that the resolution of any of these infringement
claims or the expiration or non-renewal of any of our intellectual
property rights would have a material adverse effect on our results
of operations.
MAJOR CUSTOMERS
No customer accounted for 10% or more of our consolidated
revenues in 2021, 2020 or 2019.
COMPETITION
Competition continues to increase for communications, media
entertainment and digital services from traditional and
nontraditional competitors. Technological advances have expanded
the types and uses of services and products available. In addition,
lack of or a reduced level of regulation of comparable legacy
services has lowered costs for alternative communications service
providers. As a result, we face continuing competition as well as
some new opportunities in significant portions of our business.
Wireless We face substantial competition in our wireless
businesses. Under current FCC rules, multiple licensees, who
provide wireless services on the cellular, PCS, Advanced Wireless
Services, 700 MHz and other spectrum bands, may operate in each of
our U.S. service areas. Our competitors include two national
wireless providers; a larger number of regional providers and
resellers of those services; and certain cable companies. In
addition, we face competition from providers who offer voice, text
messaging and other services as applications on data networks. We
are one of four facilities-based providers in Mexico (retail and
wholesale), with the most significant market share controlled by
América Móvil. We may experience significant competition from
companies that provide similar services using other communications
technologies and services. While some of these technologies and
services are now operational, others are being developed or may be
developed. We compete for customers based principally on
service/device offerings, price, network quality, coverage area and
customer service.
Broadband The desire for high-speed data on demand, including
video, is continuing to lead customers to terminate their
traditional wired or linear services and use our fiber services or
competitors' wireless, satellite and internet-based services. In
most U.S. markets, we compete for customers with large cable
companies for high-speed internet and voice services, wireless
broadband providers, and other smaller telecommunications companies
for both long-distance and local services.
Legacy Voice and Data We continue to lose legacy voice and data
subscribers due to competitors (e.g., wireless, cable and VoIP
providers) who can provide comparable services at lower prices
because they are not subject to traditional telephone industry
regulation (or the extent of regulation they are subject to is in
dispute), utilize different technologies or promote a different
business model (such as advertising-based). In response to these
competitive pressures, for a number of years we have used a
bundling strategy that rewards customers who consolidate their
services with us. We continue to focus on bundling services and
will continue to develop innovative and integrated services that
capitalize on our wireless and IP-based network.
11
AT&T Inc.
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Additionally, we provide local and interstate telephone and
switched services to other service providers, primarily large
internet service providers using the largest class of nationwide
internet networks (internet backbone), wireless carriers, other
telephone companies, cable companies and systems integrators. These
services are subject to additional competitive pressures from the
development of new technologies, the introduction of innovative
offerings and increasing satellite, wireless, fiber-optic and cable
transmission capacity for services. We face a number of
international competitors, including Orange Business Services, BT,
Singapore Telecommunications Limited and Verizon Communications
Inc., as well as competition from a number of large systems
integrators.
Media Our WarnerMedia businesses face shifts in consumer viewing
patterns, increased competition from streaming services and the
expansion by other companies, in particular, technology companies.
In May 2020, we launched HBO Max, our platform for premium content
and video offered directly to consumers, as well as through our
traditional distributors.
WarnerMedia competes with other studios and television
production groups and independents to produce and sell programming.
Many television networks and online platforms have affiliated
production companies from which they are increasingly obtaining
their programming, which has reduced their demand for programming
from non-affiliated production companies. WarnerMedia also faces
competition from other television networks, online platforms, and
premium pay television services for distribution and marketing of
its television networks and premium pay and basic tier television
services by affiliates.
Our WarnerMedia businesses compete with other production
companies and studios for the services of producers, directors,
writers, actors and others and for the acquisition of literary
properties. In recent years, technology companies also have begun
to produce programming and compete with WarnerMedia for talent and
property rights.
Advertising The increased amount of consumer time spent online
and on mobile activities has resulted in the shift of advertising
budgets away from traditional television to digital advertising.
WarnerMedia's advertising-supported television networks and digital
properties compete with streaming services, other networks and
digital properties, print, radio and other media. Our programmatic
advertising business faces competition from a variety of technology
companies. Similar to all participants in the advertising
technology sector, we contend with the dominance of Google, as well
as the influence of Facebook, whose practices may result in the
decreased ability and willingness of advertisers and programmers to
adopt programmatic solutions offered by alternative suppliers. In
December 2021, we entered into an agreement to sell the marketplace
component of Xandr (see Note 6).
RESEARCH AND DEVELOPMENT
AT&T scientists and engineers conduct research in a variety
of areas, including IP networking, advanced network design and
architecture, network and cyber security, network operations
support systems, video platform development and data analytics. The
majority of the development activities are performed to create new
services and to invent tools and systems to manage secure and
reliable networks for us and our customers. Research and
development expenses were $1,522 in 2021, $1,210 in 2020, and
$1,276 in 2019.
HUMAN CAPITAL
Number of Employees As of January 31, 2022, we employed approximately 203,000 persons.
Employee Development We believe our success depends on our
employees' success and that all employees must have the skills they
need to thrive. We offer training and elective courses that give
employees the opportunity to enhance their skills. We also intend
to help cultivate the next generation of talent that will lead our
company into the future by providing employees with educational
opportunities through our award-winning internal training
organization, AT&T University.
12
AT&T Inc.
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Labor Contracts Approximately 37% of our employees are
represented by the Communications Workers of America (CWA), the
International Brotherhood of Electrical Workers (IBEW) or other
unions. After expiration of the collective bargaining agreements,
work stoppages or labor disruptions may occur in the absence of new
contracts or other agreements being reached. The main contracts
included the following: A contract covering approximately 12,000
Mobility employees in 36 states and the District of Columbia is set
to expire in February 2022. A contract covering approximately 6,000
wireline employees in five Midwest states that was set to expire in
April 2022 was extended for a four-year period until April 2026. A
contract covering approximately 3,000 MW IBEW employees is set to
expire in June 2022. A contract covering approximately 2,000
AT&T Corp. employees nationwide that was set to expire in April
2022 was extended for a four-year period until April 2026. A
contract covering approximately 170 Teamsters Alascom employees in
Alaska is set to expire in February 2022.
Compensation and Benefits In addition to salaries, we provide a
variety of benefit programs to help meet the needs of our
employees. These programs cover active and former employees and may
vary by subsidiary and region. These programs include 401(k) plans,
pension benefits, and health and welfare benefits, among many
others. In addition to our active employee base, at December 31,
2021, we had approximately 512,000 retirees and dependents who were
eligible to receive retiree benefits.
We review our benefit plans to maintain competitive packages
that reflect the needs of our workforce. We also adapt our
compensation model to provide fair and inclusive pay practices
across our business. We are committed to pay equity for employees
who hold the same jobs, work in the same geographic area, and have
the same levels of experience and performance.
Employee Safety We provide our employees access to flexible and
convenient health and welfare programs and workplace
accommodations. In response to the COVID-19 pandemic, we consulted
with medical professionals to institute policies that best
protected our employees and their families, including a policy that
requires the vast majority of our employees to be vaccinated. We
have prioritized self-care and emphasized a focus on wellness,
providing personal protective equipment, flexible scheduling or
time-off options and implementing technologies to enhance the
necessary remote-work environment. As we look to life and
operations beyond the pandemic, we are revising our business models
to support flexible office space and at-home productivity for many
employees on a permanent basis.
Diversity, Equity and Inclusion We believe that championing
diversity and fostering inclusion do more than just make us a
better company, they contribute to a world where people are
empowered to be their very best. That is why one of our core values
is to stand for equality and why our mission is to inspire human
progress through the power of communication and entertainment. This
focus on building a more diverse and inclusive workforce is
underpinned by the unwavering commitment to ensure that employees
from any and every segment of society are treated with fairness and
provided equal opportunities to advance in the company.
To have a diverse and inclusive workforce, we have put an
emphasis on attracting and hiring talented people who represent a
mix of backgrounds, identities and experiences. Across the AT&T
family of companies, we have employee groups that reflect our
diverse workforce. These groups are not only organized around
women, people of color, LGBTQ+ individuals, people with
disabilities and veterans, but also around professionals who are
experienced or interested in cybersecurity, engineering,
innovation, environmental issues, project management and media and
entertainment technology. When everyone's unique story is
celebrated, we are able to connect, create and innovate in real and
meaningful ways. It is important that our employees feel valued,
have a sense of belonging and are fully engaged in our success.
ITEM 1A. RISK FACTORS
In addition to the other information set forth in this document,
including the matters contained under the caption "Cautionary
Language Concerning Forward-Looking Statements," you should
carefully read the matters described below. We believe that each of
these matters could materially affect our business. We recognize
that most of these factors are beyond our ability to control and
therefore we cannot predict an outcome.
13
AT&T Inc.
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Macro-economic Factors:
Adverse changes in the U.S. securities markets, interest rates
and medical costs could materially increase our benefit plan costs
and future funding requirements.
Our costs to provide current benefits and funding for future
benefits are subject to increases, primarily due to continuing
increases in medical and prescription drug costs, and can be
affected by lower returns on assets held by our pension and other
benefit plans, which are reflected in our financial statements for
that year. In calculating the recognized benefit costs, we have
made certain assumptions regarding future investment returns,
interest rates and medical costs. These assumptions could change
significantly over time and could be materially different than
originally projected. Lower than assumed investment returns, a
decline in interest rates with a corresponding increase in our
benefit obligations, and higher than assumed medical and
prescription drug costs will increase expenses.
The Financial Accounting Standards Board requires companies to
recognize the funded status of defined benefit pension and
postretirement plans as an asset or liability in their statement of
financial position and to recognize changes in that funded status
in the year in which the changes occur. We have elected to reflect
the annual adjustments to the funded status in our consolidated
statement of income. Therefore, an increase in our costs or adverse
market conditions will have a negative effect on our operating
results.
Significant adverse changes in capital markets could result in
the deterioration of our defined benefit plans' funded status and
result in increased contribution requirements for such plans, which
could be material.
Inflationary pressures on costs, such as inputs for devices we
sell and network components, labor and distribution costs may
impact our network construction, our financial condition or results
of operations.
As a provider of telecommunications and technology services, we
sell handsets, wireless data cards, wireless computing devices and
customer premises equipment manufactured by various suppliers for
use with our voice and data services and depend on suppliers to
provide us, directly or through other suppliers, with items such as
network equipment, customer premises equipment, and
wireless-related equipment such as mobile hotspots, handsets,
wirelessly enabled computers, wireless data cards and other
connected devices for our customers. In 2021 and the early part of
2022, the costs of these inputs and the costs of labor necessary to
develop and maintain our networks and our products and services
have rapidly increased. In addition, many of these inputs are
subject to price fluctuations from a number of factors, including,
but not limited to, market conditions, demand for raw materials
used in the production of these devices and network components,
weather, climate change, energy costs, currency fluctuations,
supplier capacities, governmental actions, import and export
requirements (including tariffs), and other factors beyond our
control. Although we are unable to predict the impact on our
ability to source materials in the future, we expect these supply
pressures to continue into 2022. We also expect the pressures of
input cost inflation to continue into 2022.
Our attempts to offset these cost pressures, such as through
increases in the selling prices of some of our products and
services, may not be successful. Higher product prices may result
in reductions in sales volume. Consumers may be less willing to pay
a price differential for our products and may increasingly purchase
lower-priced offerings, or may forego some purchases altogether,
during an economic downturn. To the extent that price increases are
not sufficient to offset these increased costs adequately or in a
timely manner, and/or if they result in significant decreases in
sales volume, our business, financial condition or operating
results may be adversely affected. Furthermore, we may not be able
to offset any cost increases through productivity and cost-saving
initiatives.
Adverse changes in global financial markets could limit our
ability and our larger customers' ability to access capital or
increase the cost of capital needed to fund business
operations.
During 2021, uncertainty surrounding global growth rates and the
impact of the COVID-19 pandemic continued to produce volatility in
the credit, currency and equity markets. Volatility may affect
companies' access to the credit markets, leading to higher
borrowing costs, or, in some cases, the inability to fund ongoing
operations. In addition, we contract with large financial
institutions to support our own treasury operations, including
contracts to hedge our exposure on interest rates and foreign
exchange and the funding of credit lines and other short-term debt
obligations, including commercial paper. These financial
institutions face stricter capital-related and other regulations in
the United States and Europe, as well as ongoing legal and
financial issues concerning their loan portfolios, which may hamper
their ability to provide credit or raise the cost of providing such
credit.
14
AT&T Inc.
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The U.K. Financial Conduct Authority, which regulates LIBOR, has
announced that it intends to phase out LIBOR in 2023. Although our
securities may provide for alternative methods of calculating the
interest rate payable on such indebtedness, uncertainty as to the
extent and manner of future changes may adversely affect the
current trading market for LIBOR-based securities and the value of
variable rate indebtedness in general. A company's cost of
borrowing is also affected by evaluations given by various credit
rating agencies and these agencies have been applying tighter
credit standards when evaluating debt levels and future growth
prospects. While we have been successful in continuing to access
the credit and fixed income markets when needed, adverse changes in
the financial markets could render us either unable to access these
markets or able to access these markets only at higher interest
costs and with restrictive financial or other conditions, severely
affecting our business operations. Additionally, downgrades of our
credit rating by the major credit rating agencies could increase
our cost of borrowing and also impact the collateral we would be
required to post under certain agreements we have entered into with
our derivative counterparties, which could negatively impact our
liquidity. Further, valuation changes in our derivative portfolio
due to interest rates and foreign exchange rates could require us
to post collateral and thus may negatively impact our
liquidity.
Our international operations have increased our exposure to
political instability, to changes in the international economy and
to the level of regulation on our business and these risks could
offset our expected growth opportunities.
We have international operations, including in Mexico, and
worldwide through WarnerMedia's content distribution. We need to
comply with a wide variety of complex local laws, regulations and
treaties. We are exposed to restrictions on cash repatriation,
foreign exchange controls, fluctuations in currency values, changes
in relationships between U.S. and foreign governments, trade
restrictions including potential tariffs, differences in
intellectual property protection laws, and other regulations that
may affect materially our earnings. Our Mexico operations, in
particular, rely on a continuation of a regulatory regime that
fosters competition. While our foreign operations represent
significant opportunities to sell our services, a number of foreign
countries where we operate have experienced unstable growth
patterns, increased inflation, currency devaluation, foreign
exchange controls, instability in the banking sector and high
unemployment. Should these conditions persist, our ability to offer
service in one or more countries could be adversely affected and
customers in these countries may be unable to purchase the services
we offer or pay for services already provided.
In addition, operating in foreign countries also typically
involves participating with local businesses, either to comply with
local laws or, for example, to enhance product marketing, deploy
networks or execute on other capital projects. Involvement with
foreign firms exposes us to the risk of being unable to control the
actions of those firms and therefore exposes us to risks associated
with our obligation to comply with the Foreign Corrupt Practices
Act (FCPA). Violations of the FCPA could have a material adverse
effect on our operating results.
Industry-wide Factors:
Our business is subject to risks arising from the outbreak of
the COVID-19 virus.
The COVID-19 pandemic and resulting mitigation measures have
caused, and may continue to cause, a negative effect on our
operating results. At the onset in 2020, mitigation measures caused
sports leagues to modify their seasons and suspend certain
operations, which adversely affected our advertising revenues and,
resulted in contract disputes concerning carriage rights that
caused us to incur expenses relating to certain of these sporting
events notwithstanding their cancellation. The closure or avoidance
of theaters, and the interruptions in movie production and other
programming caused by COVID-19 are expected to continue to impact
the timing of revenues and may cause a loss of revenue to our
WarnerMedia business over the long term. The COVID-19 pandemic also
drove higher costs for our WarnerMedia business in 2021 based on
the hybrid distribution model for releasing films in 2021 and costs
associated with safety measures put in place to help provide a safe
environment for content production. If the mitigation measures or
the associated effects are prolonged, we expect business customers
in industries most significantly impacted will continue to reduce
or terminate services, having a negative effect on the performance
of our Business Wireline business unit. Further, concerns over the
COVID-19 pandemic could again result in the closure of many of our
retail stores, temporarily or permanently, and deter customers from
accessing our stores even as the pandemic subsides. These pandemic
concerns may also result in continued impact to our customers'
ability to pay for our products and services. We may also continue
to see significant impact on roaming revenues due to a downturn in
international travel. The COVID-19 pandemic has caused and could
further cause reduced staffing levels at our call centers and field
operations, resulting in delays in service. Further reductions in
staffing levels could additionally limit our ability to provide
services, adversely impacting our competitive position. We may also
incur significantly higher expenses attributable to infrastructure
investments required to meet higher network utilization from more
customers consuming bandwidth from changes in work from home
trends; extended cancellation periods; and increased labor costs if
the COVID-19 pandemic continues for an extended period.
15
AT&T Inc.
Dollars in millions except per share amounts
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The COVID-19 pandemic and mitigation measures have caused, and
may continue to cause, adverse impacts on global economic
conditions and consumer confidence, spending and consumer behavior,
which could affect demand for our products and services. The extent
to which the COVID-19 pandemic impacts our business, results of
operations, cash flows and financial condition will depend on
future developments that are highly uncertain and cannot be
predicted, including new information that may emerge concerning
other strains of the virus and the actions to contain its impact.
Due to the speed with which the situation continues to develop and
change, we are not able at this time to estimate the additional
impact of COVID-19 on our financial or operational results, but the
impact could be material.
Changes to federal, state and foreign government regulations and
decisions in regulatory proceedings, as well as private litigation,
could further increase our operating costs and/or alter customer
perceptions of our operations, which could materially adversely
affect us.
Our subsidiaries providing wired services are subject to
significant federal and state regulation while many of our
competitors are not. In addition, our subsidiaries and affiliates
operating outside the United States are also subject to the
jurisdiction of national and supranational regulatory authorities
in the market where service is provided. Our wireless and various
video subsidiaries are regulated to varying degrees by the FCC and
in some instances, by state and local agencies. Adverse regulations
and rulings by the FCC relating to broadband and wireless
deployment could impede our ability to manage our networks and
recover costs and lessen incentives to invest in our networks. The
continuing growth of IP-based services, especially when accessed by
wireless devices, has created or potentially could create
conflicting regulation between the FCC and various state and local
authorities, which may involve lengthy litigation to resolve and
may result in outcomes unfavorable to us. In addition, in response
to the FAA questioning whether our 5G C-band launch could impact
radio altimeter equipment on airplanes, we voluntarily committed to
a series of temporary, precautionary measures, in addition to
deferring turning on a limited number of towers around certain
airports to allow the FAA more time to evaluate. The FAA's
continued evaluation may impact our planned 5G C-band launch in
certain areas. In addition, increased public focus on a variety of
issues related to our operations, such as privacy issues,
government requests or orders for customer data, and concerns about
global climate changes, have led to proposals or new legislation at
state, federal and foreign government levels to change or increase
regulation on our operations. Enactment of new privacy laws and
regulations could, among other things, adversely affect our ability
to collect and offer targeted advertisements or result in
additional costs of compliance or litigation. Should customers
decide that our competitors offer a more customer-friendly
environment, our competitive position, results of operations or
financial condition could be materially adversely affected.
Effects of climate change may impose risk of damage to our
infrastructure, our ability to provide services, and may cause
changes in federal, state and foreign government regulation, all of
which may result in potential adverse impact to our financial
results.
Extreme weather events precipitated by long-term climate change
have the potential to directly damage network facilities or disrupt
our ability to build and maintain portions of our network and could
potentially disrupt suppliers' ability to provide products and
services required to provide reliable network coverage. Any such
disruption could delay network deployment plans, interrupt service
for our customers, increase our costs and have a negative effect on
our operating results. The potential physical effects of climate
change, such as increased frequency and severity of storms, floods,
fires, freezing conditions, sea-level rise, and other
climate-related events, could adversely affect our operations,
infrastructure, and financial results. Operational impacts
resulting from the potential physical effects of climate change,
such as damage to our network infrastructure, could result in
increased costs and loss of revenue. We could incur significant
costs to improve the climate resiliency of our infrastructure and
otherwise prepare for, respond to, and mitigate such physical
effects of climate change. We are not able to accurately predict
the materiality of any potential losses or costs associated with
the physical effects of climate change.
Further, customers, consumers, investors and other stakeholders
are increasingly focusing on environmental issues, including
climate change, water use, deforestation, plastic waste, and other
sustainability concerns. Concern over climate change or other
environmental, social and governance (ESG) matters may result in
new or increased legal and regulatory requirements to reduce or
mitigate impacts to the environment and reduce the impact of our
business on climate change. Further, climate change regulations may
require us to alter our proposed business plans or increase our
operating costs due to increased regulation or environmental
considerations, and could adversely affect our business and
reputation.
16
AT&T Inc.
Dollars in millions except per share amounts
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Continuing growth in and the converging nature of wireless and
broadband services will require us to deploy significant amounts of
capital and require ongoing access to spectrum in order to provide
attractive services to customers.
Wireless and broadband services are undergoing rapid and
significant technological changes and a dramatic increase in usage,
in particular, the demand for faster and seamless usage of data,
including video, across mobile and fixed devices. The COVID-19
pandemic has accelerated these changes and also resulted in higher
network utilization, as more customers consume bandwidth from
changes in work from home trends. We must continually invest in our
networks in order to improve our wireless and broadband services to
meet this increasing demand and changes in customer expectations,
while remaining competitive. Improvements in these services depend
on many factors, including continued access to and deployment of
adequate spectrum and the capital needed to expand our wireline
network to support transport of these services. In order to stem
broadband subscriber losses to cable competitors in our non-fiber
wireline areas, we have been expanding our all-fiber wireline
network. We must maintain and expand our network capacity and
coverage for transport of data, including video, and voice between
cell and fixed landline sites. To this end, we participate in
spectrum auctions and continue to deploy software and other
technology advancements in order to efficiently invest in our
network.
Network service enhancements and product launches may not occur
as scheduled or at the cost expected due to many factors, including
delays in determining equipment and wireless handset operating
standards, supplier delays, software issues, increases in network
and handset component costs, regulatory permitting delays for tower
sites or enhancements, or labor-related delays. Deployment of new
technology also may adversely affect the performance of the network
for existing services. If we cannot acquire needed spectrum or
deploy the services customers desire on a timely basis with
acceptable quality and at reasonable costs, then our ability to
attract and retain customers, and, therefore, maintain and improve
our operating margins, could be materially adversely affected.
Increasing competition for wireless customers could materially
adversely affect our operating results.
We have multiple wireless competitors in each of our service
areas and compete for customers based principally on service/device
offerings, price, network quality, coverage area and customer
service. In addition, we are facing growing competition from
providers offering services using advanced wireless technologies
and IP-based networks. We expect market saturation to continue to
cause the wireless industry's customer growth rate to moderate in
comparison with historical growth rates, leading to increased
competition for customers. Our share of industry sales could be
reduced due to aggressive pricing strategies pursued by
competitors. We also expect that our customers' growing demand for
high-speed video and data services will place constraints on our
network capacity. These competition and capacity constraints will
continue to put pressure on pricing and margins as companies
compete for potential customers. Our ability to respond will
depend, among other things, on continued improvement in network
quality and customer service and our ability to price our products
and services competitively as well as effective marketing of
attractive products and services. These efforts will involve
significant expenses and require strategic management decisions on,
and timely implementation of, equipment choices, network deployment
and service offerings.
Intellectual property rights may be adversely affected by piracy
or be inadequate to take advantage of business opportunities, such
as new distribution platforms, which may materially adversely
affect our operations.
Increased piracy of video content, products and other
intellectual property, particularly in our foreign WarnerMedia
operations, will decrease revenues. Technological developments have
made it easier to reproduce and distribute high-quality
unauthorized copies of content. Piracy is particularly prevalent in
countries that lack effective copyright and other legal protections
or enforcement measures and thieves can attract users throughout
the world. Effective intellectual property protection may not be
available in every country where we operate. We may need to spend
significant amounts of money to protect our rights. We are also
increasingly negotiating broader licensing agreements to expand our
ability to use new methods to distribute content to customers. Any
impairment of our intellectual property rights, including due to
changes in U.S. or foreign intellectual property laws or the
absence of effective legal protections or enforcement measures, or
our inability to negotiate broader distribution rights, could
materially adversely impact our operations.
17
AT&T Inc.
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Incidents leading to damage to our reputation, and any resulting
lawsuits, claims or other legal proceedings, could have a material
adverse effect on our business.
We believe that our brand image, awareness and reputation
strengthen our relationship with consumers and contribute
significantly to the success of our business. We strive to create a
culture in which our colleagues act with integrity and respect and
feel comfortable speaking up to report instances of misconduct or
other concerns. Our ability to attract and retain employees is
highly dependent upon our commitment to a diverse and inclusive
workplace, ethical business practices and other qualities. Acts of
misconduct by any employee, and particularly by senior management,
could erode trust and confidence and damage our reputation.
Negative public opinion could result from actual or alleged conduct
by us or those currently or formerly associated with us, and from
any number of activities or circumstances, including operations,
employment-related offenses (such as sexual harassment and
discrimination), regulatory compliance and actions taken by
regulators or others in response to such conduct. We have in the
past been, and may in the future be, named as a defendant in
lawsuits, claims and other legal proceedings that arise in the
ordinary course of our business based on alleged acts of misconduct
by employees. These actions seek, among other things, compensation
for alleged personal injury (including claims for loss of life),
workers' compensation, employment discrimination, sexual
harassment, workplace misconduct, wage and hour claims and other
employment-related damages, compensation for breach of contract,
statutory or regulatory claims, negligence or gross negligence,
punitive damages, consequential damages, and civil penalties or
other losses or injunctive or declaratory relief. The outcome of
any allegations, lawsuits, claims or legal proceedings is
inherently uncertain and could result in significant costs, damage
to our brands or reputation and diversion of management's attention
from our business. Additionally, our news organization makes
editorial judgments around what is covered and how it is covered in
the normal course of business. Although we have disciplined
practices that are used to make such editorial judgments, it is
possible that our news coverage alienates some consumers, adversely
impacts our reputation and therefore impacts demand for our other
products and services. Any damage to our reputation or payments of
significant amounts, even if reserved, could materially and
adversely affect our business, reputation, financial condition,
results of operations and cash flows.
Company-Specific Financial Factors:
Adoption of new software-based technologies may involve quality
and supply chain issues and could increase capital costs.
The communications and digital entertainment industry has
experienced rapid changes in the past several years. An increasing
number of our customers are using mobile devices as the primary
means of viewing video and an increasing number of nontraditional
video providers are developing content and technologies to satisfy
the desire for video entertainment demand. In addition, businesses
and government bodies are broadly shifting to wireless-based
services for homes and infrastructure to improve services to their
respective customers and constituencies. We have spent, and
continue to spend, significant capital to shift our wired network
to software-based technology to manage this demand and are
expanding 5G wireless technology to address these consumer demands.
We are entering into a significant number of software licensing
agreements and working with software developers to provide network
functions in lieu of installing switches or other physical network
equipment in order to respond to rapid developments in video and
wireless demand. While software-based functionality can be changed
much more quickly than, for example, physical switches, the rapid
pace of development means that we may increasingly need to rely on
single-source and software solutions that have not previously been
deployed in production environments. Should this software not
function as intended or our license agreements provide inadequate
protection from intellectual property infringement claims, we could
be forced to either substitute (if available) or else spend time to
develop alternative technologies at a much higher cost and incur
harm to our reputation for reliability, and, as a result, our
ability to remain competitive could be materially adversely
affected.
18
AT&T Inc.
Dollars in millions except per share amounts
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We depend on various suppliers to provide equipment to operate
our business and satisfy customer demand and interruption or delay
in supply can adversely impact our operating results.
We depend on suppliers to provide us, directly or through other
suppliers, with items such as network equipment, customer premises
equipment, and wireless-related equipment such as mobile hotspots,
handsets, wirelessly enabled computers, wireless data cards and
other connected devices for our customers. These suppliers could
fail to provide equipment on a timely basis, or fail to meet our
performance expectations, for a number of reasons, including
difficulties in obtaining export licenses for certain technologies,
inability to secure component parts, general business disruption,
natural disasters, safety issues, economic and political
instability and public health emergencies such as the COVID-19
pandemic. The COVID-19 pandemic has caused, and may again cause,
delays in the development, manufacturing (including the sourcing of
key components) and shipment of products. In certain limited
circumstances, suppliers have been unable to supply products in a
timely fashion. In such limited circumstances, we have been unable
to provide products and services precisely as and when requested by
our customers. It is possible that, in some circumstances, we could
be forced to switch to a different key supplier. Because of the
cost and time lag that can be associated with transitioning from
one supplier to another, our business could be substantially
disrupted if we were required to, or chose to, replace the products
of one or more key suppliers with products from another source,
especially if the replacement became necessary on short notice. Any
such disruption could increase our costs, decrease our operating
efficiencies and have a negative effect on our operating
results.
Increasing costs to provide services and failure to renew
agreements on favorable terms or at all, could adversely affect
operating margins.
Our operating costs, including customer acquisition and
retention costs, could continue to put pressure on margins and
customer retention levels.
A number of our competitors offering comparable legacy services
that rely on alternative technologies and business models are
typically subject to less (or no) regulation, and therefore are
able to operate with lower costs. These competitors generally can
focus on discrete customer segments since they do not have
regulatory obligations to provide universal service. Also, these
competitors have cost advantages compared to us, due in part to
operating on newer, more technically advanced and lower-cost
networks with a nonunionized workforce, lower employee benefits and
fewer retirees. We are transitioning services from our old
copper-based network and seeking regulatory approvals, where
needed, at both the state and federal levels. If we do not obtain
regulatory approvals for our network transition or obtain approvals
with onerous conditions, we could experience significant cost and
competitive disadvantages.
Our WarnerMedia operations, which create and license content to
other providers, may experience increasing difficulties securing
favorable terms, including those related to pricing, positioning
and packaging, during contract negotiations, which may lead to
blackouts of WarnerMedia programming, and WarnerMedia may face
greater difficulty in achieving placement of its networks and
premium pay television services in offerings by third parties.
We may not realize or sustain the expected benefits from our
business transformation initiatives, and these efforts could have a
materially adverse effect on our business, operations, financial
condition, results of operations and competitive position.
We have been and will be undertaking certain transformation
initiatives, which are designed to reduce costs, streamline and
modernize distribution and customer service, remove redundancies
and simplify and improve processes and support functions. Our focus
is on supporting added customer value with an improved customer
experience. We intend for these efficiencies to enable increased
investments in our strategic areas of focus, which consist of
improving broadband connectivity (for example, fiber and 5G),
developing software-based entertainment (such as HBO Max) and
utilizing WarnerMedia's storytelling legacy to engage consumers and
gain insights across multiple distribution points. We also expect
these initiatives to drive efficiencies and improved margins. If we
do not successfully manage and execute these initiatives, or if
they are inadequate or ineffective, we may fail to meet our
financial goals and achieve anticipated benefits, improvements may
be delayed, not sustained or not realized, and our business,
operations and competitive position could be adversely
affected.
19
AT&T Inc.
Dollars in millions except per share amounts
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If our efforts to attract and retain subscribers to our HBO Max
platform and to develop compelling choices are not successful, our
business will be adversely affected.
HBO Max's future success is subject to inherent uncertainty. Our
ability to continue to attract subscribers to the HBO Max platform
will depend in part on our ability to consistently provide
subscribers with compelling content choices, as well as a quality
experience for selecting and viewing those content choices.
Furthermore, the relative service levels, content offerings,
promotions, and pricing and related features of competitors to HBO
Max may adversely impact our ability to attract and retain
subscribers. If consumers do not perceive our offerings to be of
value, including if we introduce new or adjust existing features,
adjust pricing or offerings, terminate or modify promotional or
trial period offerings, experience technical issues, or change the
mix of content in a manner that is not favorably received by them,
we may not be able to attract and retain subscribers. In addition,
many subscribers to these types of offerings originate from
word-of-mouth advertising from then existing subscribers. If our
efforts to satisfy subscribers are not successful, including
because we terminate or modify promotional or trial-period
offerings or because of technical issues with the platform, we may
not be able to attract or retain subscribers, and as a result, our
ability to maintain and/or grow our business will be adversely
affected.
If subscribers cancel or decide to not continue subscriptions
for any reason, including a perception that they do not use it
sufficiently, the need to cut household expenses, unsatisfactory
availability of content, promotions or trial-period offers expire
or are modified, competitive services or promotions provide a
better value or experience, and customer service or technical
issues are not satisfactorily resolved, our business will be
adversely affected. We must continually add new subscribers both to
replace canceled subscribers and to grow our business. If we do not
grow as expected, given, in particular, that a significant portion
of our content costs are committed and contracted over several
years based on minimum subscriber delivery levels, we may not be
able to adjust our expenditures or increase our (per subscriber)
revenues commensurate with the lowered growth rate such that our
margins, liquidity and results of operations may be adversely
impacted. If we are unable to successfully compete with competitors
in retaining and attracting new subscribers, our business will be
adversely affected. Further, if excessive numbers of subscribers do
cancel, we may be required to incur significantly higher marketing
expenditures or offer significantly more generous promotions to
replace these subscribers with new subscribers.
Unfavorable litigation or governmental investigation results
could require us to pay significant amounts or lead to onerous
operating procedures.
We are subject to a number of lawsuits both in the United States
and in foreign countries, including, at any particular time, claims
relating to antitrust; patent infringement; wage and hour; personal
injury; customer privacy violations; regulatory proceedings; and
selling and collection practices. We also spend substantial
resources complying with various government standards, which may
entail related investigations and litigation. In the wireless area,
we also face current and potential litigation relating to alleged
adverse health effects on customers or employees who use such
technologies including, for example, wireless devices. We may incur
significant expenses defending such suits or government charges and
may be required to pay amounts or otherwise change our operations
in ways that could materially adversely affect our operations or
financial results.
Cyberattacks, equipment failures, natural disasters and
terrorist acts may materially adversely affect our operations.
Cyberattacks, major equipment failures or natural disasters,
such as flooding, hurricanes and forest fires, whether caused by
discrete severe weather events and/or precipitated by long-term
climate change and earthquakes, software problems, data and privacy
breaches, terrorist acts or other breaches of network or IT
security that affect our networks, including software and switches,
microwave links, third-party-owned local and long-distance networks
on which we rely, our cell sites or other equipment, our
satellites, our customer account support and information systems,
or employee and business records could have a material adverse
effect on our operations. Our wired network in particular is
becoming increasingly reliant on software as it evolves to handle
increasing demands for video transmission. While we have been
subject to security incidents or cyberattacks, these did not result
in a material adverse effect on our operations. However, as such
attacks continue to increase in scope and frequency, we may be
unable to prevent a significant attack in the future. Our inability
to deploy or operate our networks or customer support systems or
protect sensitive personal information of customers or employees or
valuable technical and marketing information could result in
significant expenses, potential legal liability, a loss of current
or future customers and reputation damage, any of which could have
a material adverse effect on our operations and financial
condition.
20
AT&T Inc.
Dollars in millions except per share amounts
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Increases in our debt levels to fund spectrum purchases, or
other strategic decisions could adversely affect our ability to
finance future debt at attractive rates and reduce our ability to
respond to competition and adverse economic trends.
We have incurred debt to fund significant acquisitions, as well
as spectrum purchases needed to compete in our industry. While we
believe such decisions were prudent and necessary to take advantage
of both growth opportunities and respond to industry developments,
we did experience credit-rating downgrades from historical levels.
Banks and potential purchasers of our publicly traded debt may
decide that these strategic decisions and similar actions we may
take in the future, as well as expected trends in the industry,
will continue to increase the risk of investing in our debt and may
demand a higher rate of interest, impose restrictive covenants or
otherwise limit the amount of potential borrowing. Additionally,
our capital allocation plan is focused on, among other things,
managing our debt level going forward. Any failure to successfully
execute this plan could adversely affect our cost of funds,
liquidity, competitive position and access to capital markets.
Our business may be impacted by changes in tax laws and
regulations, judicial interpretations of same or
administrative actions by federal, state, local and foreign taxing authorities.
Tax laws are dynamic and subject to change as new laws are
passed and new interpretations of the law are issued or applied. In
many cases, the application of existing, newly enacted or amended
tax laws (such as the U.S. Tax Cuts and Jobs Act of 2017) may be
uncertain and subject to differing interpretations, especially when
evaluated against ever changing products and services provided by
our global telecommunications, media, and technology businesses. In
addition, tax legislation has been introduced or is being
considered in various jurisdictions that could significantly impact
our tax rate, tax liabilities, and carrying value of deferred tax
assets or deferred tax liabilities. Any of these changes could
materially impact our financial performance and our tax provision,
net income and cash flows.
We are also subject to ongoing examinations by taxing
authorities in various jurisdictions. Although we regularly assess
the likelihood of an adverse outcome resulting from these
examinations to determine the adequacy of provisions for taxes,
there can be no assurance as to the outcome of these examinations.
In the event that we have not accurately or fully described,
disclosed or determined, calculated or remitted amounts that were
due to taxing authorities or if the ultimate determination of our
taxes owed is for an amount in excess of amounts previously
accrued, we could be subject to additional taxes, penalties and
interest, which could materially impact our business, financial
condition and operating results.
The proposed separation and combination of our WarnerMedia
business with Discovery may not be completed on the currently
contemplated timeline or at all.
On May 17, 2021, we announced a definitive agreement with
Discovery, Inc. (Discovery) to combine our WarnerMedia business
with Discovery (the "WarnerMedia/Discovery Transaction"), which, if
consummated, would result in our stockholders owning 71% of the
combined company's Discovery's outstanding common stock on a fully
diluted basis (computed using the treasury stock method). The
WarnerMedia/Discovery Transaction is expected to close in the
second quarter of 2022, subject to certain customary closing
conditions including, among others, the approval of Discovery's
stockholders, the receipt of certain regulatory approvals and the
finalization of a private letter ruling from the Internal Revenue
Service (IRS) to the effect that the separation of the WarnerMedia
business and certain related transactions will qualify for tax-free
treatment under the Internal Revenue Code (the "Private Letter
Ruling").
There can be no assurance that such closing conditions will be
satisfied or waived, or that the WarnerMedia/Discovery Transaction
will be consummated. Required regulatory approvals may not be
received in a timely manner or at all. Further, while we have
entered into voting agreements with certain stockholders of
Discovery representing, in the aggregate, approximately 43% of the
voting power of the issued and outstanding shares of Discovery
capital stock as of May 14, 2021, pursuant to which they have
agreed to vote in favor of certain aspects of the
WarnerMedia/Discovery Transaction, we cannot assure you that the
approval of Discovery's stockholders will be obtained. We and
Discovery may be subject to shareholder lawsuits, or other actions
filed in connection with or in opposition to the
WarnerMedia/Discovery Transaction, which could prevent or delay the
consummation of the WarnerMedia/Discovery Transaction.
If the distribution of WarnerMedia, together with certain
related transactions, were to fail to qualify for non-recognition
treatment for U.S. federal income tax purposes, then we could be
subject to significant tax liability.
Under the Merger Agreement, receipt of the Private Letter Ruling
from the IRS is a condition to close the WarnerMedia/Discovery
Transaction. On December 28, 2021, AT&T received a favorable
Private Letter Ruling from the IRS. As long as the Private Letter
Ruling continues to be in full force and effect until closing,
AT&T expects that the receipt of the Private Letter Ruling
satisfies the closing condition for an IRS ruling. While not
anticipated, situations where a Private Letter Ruling could cease
to be in full force and effect may include situations where there
is a material change in applicable tax law, or a material change to
the terms or structure of the transaction. Reliance on the ruling
is also subject to certain facts, representations and undertakings
made in connection with the request for the ruling.
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Accordingly, the IRS or another applicable tax authority could
determine on audit that the distribution by us of WarnerMedia to
our stockholders and certain related transactions should be treated
as taxable transactions if it determines that any of these facts,
representations or undertakings are incorrect or have been
violated. We may be entitled to indemnification from Discovery in
the case of certain breaches of representations or undertakings by
Discovery under the tax matters agreement related to the
WarnerMedia/Discovery Transaction. However, we could potentially be
required to pay such tax prior to reimbursement from Discovery, and
such indemnification is subject to Discovery's credit risk. If the
IRS or another tax authority were to so conclude, there could be a
material adverse impact on our business, financial condition,
results of operations and cash flows.
In addition, in the event that we are unable to effectuate a
Spinco Debt Exchange, we could incur significant incremental tax
liability associated with the WarnerMedia/Discovery Transaction. If
certain conditions are met, Discovery generally will be responsible
for 50% of such incremental tax liability that does not exceed
$4,000. For more information regarding the Spinco Debt Exchange,
refer to the risk factor titled "Even if the WarnerMedia/Discovery
Transaction is completed, we may not realize some or all of the
expected benefits of the transaction" below.
The announcement and pendency of the WarnerMedia/Discovery
Transaction could cause disruptions in our business.
The WarnerMedia/Discovery Transaction will require significant
amounts of time and effort, which could divert management's
attention from operating, growing our business and other strategic
endeavors. Further, our employees may be distracted due to
uncertainty regarding their future roles with us or the WarnerMedia
business pending the consummation of the WarnerMedia/Discovery
Transaction. In the event that the WarnerMedia/Discovery
Transaction does not close, we will be required to bear a number of
non-recurring costs in connection with the transaction, including
financial, legal, accounting, consulting and other advisory fees
and expenses, reorganization and restructuring costs,
severance/employee benefit-related expenses, regulatory and SEC
filing fees and expenses, printing expenses and other related
charges. Until the consummation or termination of the
WarnerMedia/Discovery Transaction, we are also required to operate
the WarnerMedia business in the ordinary course and we are
restricted from taking certain specified actions with respect to
our WarnerMedia business without Discovery's consent. Any of the
foregoing could adversely affect our operating results.
Even if the WarnerMedia/Discovery Transaction is completed, we
may not realize some or all of the expected benefits of the
transaction.
Even if the WarnerMedia/Discovery Transaction is completed, the
anticipated operational, financial, strategic and other benefits of
such transaction to the Company and our stockholders may not be
achieved. There are many factors that could impact the anticipated
benefits from the WarnerMedia/Discovery Transaction, including,
among others, strategic adjustments required to reflect the nature
of our business following the WarnerMedia/Discovery Transaction and
any negative reaction to the WarnerMedia/Discovery Transaction by
our customers and business partners. In addition, we have agreed to
provide certain transition services to the combined company, which
may result in additional expenses and may divert our focus and
resources that would otherwise be invested into maintaining or
growing our businesses.
In connection with the WarnerMedia/Discovery Transaction, we
will receive approximately $43,000, subject to certain adjustments,
in the form of a combination of (i) the assumption by the
WarnerMedia business of certain existing debt, (ii) a cash dividend
distributed to us from the WarnerMedia business (the "Spinco
Special Cash Payment"), and (iii) debt instruments of the
WarnerMedia business (the "Spinco Debt Distribution"). We expect to
deliver such debt instruments of WarnerMedia in exchange for
certain of our outstanding debt obligations (the "Spinco Debt
Exchange"), and to use the proceeds of the Spinco Special Cash
Payment to repay certain of our other outstanding debt obligations.
This process will be complex and may require significant time and
resources. Depending on various variables (such as interest rates
and timing) at the time of the Spinco Debt Exchange, AT&T's
transaction costs relating to the Spinco Debt Exchange may be
significantly higher than expected. Additionally, if market
conditions change in advance of the Spinco Debt Exchange such that
it is no longer feasible for the WarnerMedia business to issue debt
securities with a fair market value at least equal to their face
value, we may be required to take an additional distribution of
cash from the WarnerMedia business in lieu of effecting the Spinco
Debt Exchange, which could result in potentially significant
incremental tax liability. If certain conditions are met, Discovery
generally will be responsible for 50% of such incremental tax
liability that does not exceed $4,000.
An inability to realize the full extent of the anticipated
benefits of the WarnerMedia/Discovery Transaction, as well as any
delays encountered in the process, could have an adverse effect on
our revenues, level of expenses and operating results.
In connection with the separation of the WarnerMedia business
and the completed transaction involving our Video business unit,
certain liabilities will be or were allocated to or retained by us
and we will be subject to indemnification obligations in respect of
those liabilities.
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In connection with the separation of the WarnerMedia business
and the completed transaction involving our Video business unit
(the "DTV Transaction"), we have agreed to assume or retain, and
indemnify the WarnerMedia business and the Video business unit for,
certain liabilities. Payments pursuant to these indemnities may be
significant and could negatively impact our business, particularly
indemnities relating to our actions that could impact the tax-free
nature of the distribution of the WarnerMedia business. Third
parties could also seek to hold us responsible for any liabilities
allocated to the WarnerMedia business and the Video business unit
and such third parties could seek damages, other monetary penalties
(whether civil or criminal) and other remedies.
The separation of the WarnerMedia business and the Video
business unit may result in an increase in our costs and
expenses.
Following the consummation of the WarnerMedia/Discovery
Transaction and the DTV Transaction, we will no longer benefit from
economies of scale and synergies we currently have or expected to
realize between our WarnerMedia business, our Video business unit
and our remaining businesses, including through intercompany
arrangements and combined agreements with third parties. There can
be no assurance that we will be able to continue any of these
arrangements, or that any such continuing arrangements will be on
the same or more favorable terms, following the separation of the
WarnerMedia business and the Video business unit. Additionally,
there can be no assurance that costs retained by AT&T after the
WarnerMedia/Discovery Transaction and the DTV Transaction will be
fully recovered through transition service agreements or business
transformation initiatives. As a result, our costs and expenses may
increase following the consummation of the WarnerMedia/Discovery
Transaction and the DTV Transaction.
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CAUTIONARY LANGUAGE CONCERNING FORWARD-LOOKING STATEMENTS
Information set forth in this report contains forward-looking
statements that are subject to risks and uncertainties, and actual
results could differ materially. Many of these factors are
discussed in more detail in the "Risk Factors" section. We claim
the protection of the safe harbor for forward-looking statements
provided by the Private Securities Litigation Reform Act of
1995.
The following factors could cause our future results to differ
materially from those expressed in the forward-looking
statements:
--The severity, magnitude and duration of the COVID-19 pandemic
and containment, mitigation and other measures taken in response,
including the potential impacts of these matters on our business
and operations.
--Our inability to predict the extent to which the COVID-19
pandemic and related impacts will continue to impact our business
operations, financial performance and results of operations.
--Adverse economic, political and/or capital access changes in
the markets served by us or in countries in which we have
significant investments and/or operations, including the impact on
customer demand and our ability and our suppliers' ability to
access financial markets at favorable rates and terms.
--Increases in our benefit plans' costs, including increases due
to adverse changes in the United States and foreign securities
markets, resulting in worse-than-assumed investment returns and
discount rates; adverse changes in mortality assumptions; adverse
medical cost trends; and unfavorable or delayed implementation or
repeal of healthcare legislation, regulations or related court
decisions.
--The final outcome of FCC and other federal, state or foreign
government agency proceedings (including judicial review, if any,
of such proceedings) and legislative efforts involving issues that
are important to our business, including, without limitation,
pending Notices of Apparent Liability; the transition from legacy
technologies to IP-based infrastructure, including the withdrawal
of legacy TDM-based services; universal service; broadband
deployment; wireless equipment siting regulations and, in
particular, siting for 5G service; E911 services; competition
policy; privacy; net neutrality; multichannel video programming
distributor services and equipment; content licensing and copyright
protection; availability of new spectrum on fair and balanced
terms; and wireless and satellite license awards and renewals.
--Enactment of additional state, local, federal and/or foreign
regulatory and tax laws and regulations, or changes to existing
standards and actions by tax agencies and judicial authorities
including the resolution of disputes with any taxing jurisdictions,
pertaining to our subsidiaries and foreign investments, including
laws and regulations that reduce our incentive to invest in our
networks, resulting in lower revenue growth and/or higher operating
costs.
--Potential changes to the electromagnetic spectrum currently
used for broadcast television and satellite distribution being
considered by the FCC could negatively impact WarnerMedia's ability
to deliver linear network feeds of its domestic cable networks to
its affiliates, and in some cases, WarnerMedia's ability to produce
high-value news and entertainment programming on location.
--U.S. and foreign laws and regulations regarding intellectual
property rights protection and privacy, personal data protection
and user consent are complex and rapidly evolving and could result
in adverse impacts to our business plans, increased costs, or
claims against us that may harm our reputation.
--The ability of our competitors to offer product/service
offerings at lower prices due to lower cost structures and
regulatory and legislative actions adverse to us, including
non-regulation of comparable alternative technologies and/or
government-owned or subsidized networks.
--Disruption in our supply chain for a number of reasons,
including, difficulties in obtaining export licenses for certain
technology, inability to secure component parts, general business
disruption, workforce shortage, natural disasters, safety issues,
economic and political instability and public health
emergencies.
--The continued development and delivery of attractive and
profitable wireless, video content and broadband offerings and
devices, and, in particular, the success of our HBO Max platform;
the extent to which regulatory and build-out requirements apply to
our offerings; our ability to match speeds offered by our
competitors and the availability, cost and/or reliability of the
various technologies and/or content required to provide such
offerings.
--Our ability to generate subscription and advertising revenue
from attractive video content, especially from WarnerMedia, in the
face of unpredictable and rapidly evolving public viewing habits
and legal restrictions on using personal data for advertising.
--The availability and cost and our ability to adequately fund
additional wireless spectrum and network upgrades; and regulations
and conditions relating to spectrum use, licensing, obtaining
additional spectrum, technical standards and deployment and usage,
including network management rules.
--Our ability to manage growth in wireless data services,
including network quality and acquisition of adequate spectrum at
reasonable costs and terms.
--The outcome of pending, threatened or potential litigation
(which includes arbitrations), including, without limitation,
patent and product safety claims by or against third parties or
claims based on alleged misconduct by employees.
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--The impact from major equipment or software failures on our
networks; the effect of security breaches related to the network or
customer information; our inability to obtain handsets,
equipment/software or have handsets, equipment/software serviced in
a timely and cost-effective manner from suppliers; or severe
weather conditions including flooding and hurricanes, natural
disasters including earthquakes and forest fires, pandemics, energy
shortages, wars or terrorist attacks.
--The issuance by the Financial Accounting Standards Board or
other accounting oversight bodies of new accounting standards or
changes to existing standards.
--Changes in our corporate strategies to respond to competition
and regulatory, legislative and technological developments.
--The uncertainty surrounding further congressional action
regarding spending and taxation, which may result in changes in
government spending and affect the ability and willingness of
businesses and consumers to spend in general.
--Our ability to realize or sustain the expected benefits of our
business transformation initiatives, which are designed to reduce
costs, streamline distribution, remove redundancies and simplify
and improve processes and support functions.
--Our ability to successfully complete divestitures, including
the separation of the WarnerMedia business, as well as achieve our
expectations regarding the financial impact of the completed and/or
pending transactions.
Readers are cautioned that other factors discussed in this
report, although not enumerated here, also could materially affect
our future earnings.
ITEM 2. PROPERTIES
Our properties do not lend themselves to description by
character and location of principal units. At December 31, 2021, of
our total property, plant and equipment, central office equipment
represented 30%; outside plant (including cable, wiring and other
non-central office network equipment) represented 24%; other
equipment, comprised principally of wireless network equipment
attached to towers, furniture and office equipment and vehicles and
other work equipment, represented 26%; land, building and wireless
communications towers represented 13%; and other miscellaneous
property represented 7%.
For our Communications segment, substantially all of the
installations of central office equipment are located in buildings
and on land we own. Many garages, administrative and business
offices, wireless towers, telephone centers and retail stores are
leased. Property on which communication towers are located may be
either owned or leased.
For our WarnerMedia segment, we own or lease offices; studios;
technical, production and warehouse spaces; communications
facilities and other properties in numerous locations globally.
ITEM 3. LEGAL PROCEEDINGS
We are a party to numerous lawsuits, regulatory proceedings and
other matters arising in the ordinary course of business. As of the
date of this report, we do not believe any pending legal
proceedings to which we or our subsidiaries are subject are
required to be disclosed as material legal proceedings pursuant to
this item, but have included the below as a matter of general
information.
Recently, the U.S. Attorney's Office for the Northern District
of Illinois informed us that they are considering filing a charge
against one of our subsidiaries, Illinois Bell Telephone Company,
LLC (Illinois Bell), arising out of a single, nine-month consulting
contract in 2017 worth twenty-two thousand five hundred dollars.
Since 2019, Illinois Bell has been cooperating with the U.S.
Attorney's Office concerning their widely reported investigation of
certain elected Illinois politicians and related parties for
corruption. Based on our own extensive investigation of the facts
and our engagement with the U.S. Attorney's Office, we have
concluded that the contract at issue was legal in all respects and
that any charge against Illinois Bell or its personnel would be
without merit. We cannot predict the outcome of the government's
investigation, which could (i) result in criminal penalties, fines,
or other remedial measures, (ii) adversely affect our reputation
with customers, regulators, and other stakeholders, and (iii)
impact our existing federal and state government contracts and our
ability to win new contracts in the future.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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Information about our Executive Officers
(As of February 1, 2022)
Name Age Position Held Since
John T. Stankey 59 Chief Executive Officer and President 7/2020
Senior Executive Vice President and Chief
Pascal Desroches 57 Financial Officer 4/2021
Senior Executive Vice President - External
and Legislative Affairs, AT&T Services,
Edward W. Gillespie 60 Inc. 4/2020
Senior Executive Vice President and Chief
David S. Huntley 63 Compliance Officer 12/2014
Jason Kilar 50 Chief Executive Officer, Warner Media, LLC 5/2020
Chief Executive Officer-AT&T Latin America
Lori M. Lee 56 and Global Marketing Officer 8/2017
Senior Executive Vice President and General
David R. McAtee II 53 Counsel 10/2015
Chief Executive Officer, AT&T Communications,
Jeffery S. McElfresh 51 LLC 10/2019
Senior Executive Vice President - Human
Angela R. Santone 50 Resources 12/2019
The above executive officers have held high-level managerial
positions with AT&T or its subsidiaries for more than the past
five years, except for Mr. Desroches, Mr. Gillespie, Mr. Kilar and
Ms. Santone. Executive officers are not appointed to a fixed term
of office.
Mr. Desroches was previously Executive Vice President of Finance
of AT&T from November 2020 to March 2021, Executive Vice
President and Chief Financial Officer of WarnerMedia from June 2018
to November 2020 and Executive Vice President and Chief Financial
Officer of Turner Broadcasting Systems Inc. from January 2015 to
June 2018.
Mr. Gillespie was previously Managing Director of Sard Verbinnen
& Co. from June 2018 to April 2020, Founder and Principal of Ed
Gillespie Strategies from February 2009 to December 2016, and
Counselor to the President for George W. Bush, Executive Office of
the President at The White House, from July 2007 to January
2009.
Mr. Kilar was previously Co-Founder and Chief Executive Officer
of Vessel from 2013 to 2017 and Founder and Chief Executive Officer
of Hulu from 2007 to 2013.
Ms. Santone was previously Chief Administrative Officer of
AT&T from May 2019 to December 2019, Executive Vice President
and Global Chief Human Resources Officer of Turner from February
2016 to April 2019, and Senior Vice President and Chief Human
Resources Officer of Turner from June 2013 to January 2016.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is listed on the New York Stock Exchange under
the ticker symbol "T". The number of stockholders of record as of
December 31, 2021 and 2020 was 817,330 and 858,373. The number of
stockholders of record as of February 11, 2022, was 814,326. We
declared dividends on common stock, on a quarterly basis, totaling
$2.08 per share in 2021 and $2.08 per share in 2020.
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Our Board of Directors has approved the following authorization
to repurchase common stock: March 2014 authorization program for
300 million shares, with 178 million outstanding at December 31,
2021. To implement this authorization, we used open market
repurchases, relying on Rule 10b5-1 of the Securities Exchange Act
of 1934, where feasible. We also used accelerated share repurchase
agreements with large financial institutions to repurchase our
stock. We will continue to fund any share repurchases through a
combination of cash from operations, borrowings dependent on market
conditions, or cash from the disposition of certain non-strategic
investments.
Excluding the impact of acquisitions, our 2022 financing
activities will focus on managing our debt level and paying
dividends, subject to approval by our Board of Directors. We plan
to fund our financing uses of cash through a combination of cash
from operations, issuance of debt and asset sales. The timing and
mix of any debt issuance and/or refinancing will be guided by
credit market conditions and interest rate trends.
A summary of our repurchases of common stock during the fourth
quarter of 2021 is as follows:
ISSUER PURCHASES OF EQUITY SECURITIES
(a) (b) (c) (d)
Maximum Number (or
Approximate Dollar
Total Number of Value) of Shares
Shares (or Units) (or Units) That
Purchased May Yet Be
Total Number of Average Price as Part of Publicly Purchased
Shares (or Units) Paid Per Share Announced Plans Under The Plans
Period Purchased 1,2,3 (or Unit) or Programs 1 or Programs
October 1, 2021
-
October 31, 2021 265,408 $ 27.14 - 177,902,921
November 1, 2021
-
November 30, 2021 56,662 $ 24.96 - 177,902,921
December 1, 2021
-
December 31, 2021 120,417 $ 22.96 - 177,902,921
Total 442,487 $ 25.72 -
==================== ================== === ============ =================== ==================
1 In March 2014, our Board of Directors approved an
authorization to repurchase up to 300 million shares of our common
stock. The authorization has no expiration date.
2 Of the shares purchased, 442,487 shares were acquired through
the withholding of taxes on the vesting of restricted stock and
performance shares or in respect of the exercise price of
options.
3 Of the shares repurchased or transferred, no shares were
transferred from AT&T maintained Voluntary Employee Benefit
Association (VEBA) trusts.
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ITEM 6. [RESERVED]
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
AT&T Inc. is referred to as "we," "AT&T" or the
"Company" throughout this document, and the names of the particular
subsidiaries and affiliates providing the services generally have
been omitted. AT&T is a holding company whose subsidiaries and
affiliates operate worldwide in the telecommunications, media and
technology industries. You should read this discussion in
conjunction with the consolidated financial statements and
accompanying notes (Notes).
Our Management's Discussion and Analysis of Financial Condition
and Results of Operations included in this document generally
discusses 2021 and 2020 items and year-to-year comparisons between
2021 and 2020. Discussions of 2019 items and year-to-year
comparisons between 2020 and 2019 that are not included in this
document can be found in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in exhibit 99.1,
revised Item 7 of our Annual Report on Form 10-K for the fiscal
year ended December 31, 2020, filed on Form 8-K on June 21,
2021.
On July 31, 2021, we closed our transaction with TPG Capital
(TPG) to form a new company named DIRECTV Entertainment Holdings,
LLC (DIRECTV). With the close of the transaction, we separated our
Video business, comprised of our U.S. video operations, and began
accounting for our investment in DIRECTV under the equity method.
On November 15, 2021, we sold or Latin America video operations,
Vrio, to Grupo Werthein. (See Note 6)
We have three reportable segments: (1) Communications, (2)
WarnerMedia and (3) Latin America. Our segment results presented in
Note 4 and discussed below follow our internal management
reporting. We analyze our segments based on segment operating
contribution, which consists of operating income, excluding
acquisition-related costs and other significant items and equity in
net income (loss) of affiliates for investments managed within each
segment. Each segment's percentage calculation of total segment
operating revenue and contribution is derived from our segment
results table in Note 4 and may total more than 100% due to losses
in one or more segments. Percentage increases and decreases that
are not considered meaningful are denoted with a dash.
Percent Change
2021 2020 2019 2021 vs. 2020 2020 vs. 2019
Operating Revenues
Communications $ 114,730 $ 109,965 $ 109,969 4.3 % -%
WarnerMedia 35,632 30,442 35,259 17.0 (13.7)
Latin America 5,354 5,716 6,963 (6.3) (17.9)
Corporate and Other:
Corporate 1,264 2,207 2,131 (42.7) 3.6
Video 15,513 28,610 32,124 (45.8) (10.9)
Eliminations and
consolidation (3,629) (5,180) (5,253) 29.9 1.4
AT&T Operating
Revenues 168,864 171,760 181,193 (1.7) (5.2)
Operating Contribution
Communications 28,279 28,313 29,815 (0.1) (5.0)
WarnerMedia 7,277 8,210 10,659 (11.4) (23.0)
Latin America (430) (729) (635) 41.0 (14.8)
Segment Operating
Contribution $ 35,126 $ 35,794 $ 39,839 (1.9) (10.2)
Corporate and Other
1 (11,148) (29,294) (11,878) 61.9 -
AT&T Operating
Contribution $ 23,978 $ 6,500 $ 27,961 -% (76.8)%
=========== ========== ========== ========== ==========
1 Includes the reclassification of prior service credit amortization and retained
costs previously allocated to Video, the Video business separated in July 2021,
acquisition-related and certain significant items, and eliminations and consolidations.
See Note 4 for additional details and amounts included in Corporate and Other.
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The Communications segment accounted for approximately 74% of
our 2021 total segment operating revenues compared to 75% in 2020
and 81% of our 2021 total segment operating contribution as
compared to 79% in 2020. This segment provides services to
businesses and consumers located in the U.S. and businesses
globally. Our business strategies reflect bundled product offerings
that cut across product lines and utilize shared assets. This
segment contains the following business units:
--Mobility provides nationwide wireless service and equipment.
--Business Wireline provides advanced IP-based services, as well
as traditional voice and data services and related equipment to
business customers.
--Consumer Wireline provides internet, including broadband
fiber, and legacy telephony voice communication services to
residential customers.
The WarnerMedia segment accounted for approximately 23% of our
2021 total segment operating revenues compared to 21% in 2020 and
21% of our 2021 total segment operating contribution compared to
23% in 2020. This segment develops, produces and distributes
feature films, television, gaming and other content in various
physical and digital formats globally. WarnerMedia content is
distributed through basic networks, Direct-to-Consumer (DTC) or
theatrical, TV content and games licensing. Segment results also
include Xandr advertising and Otter Media Holdings (Otter Media).
We disposed of substantially all of the Otter Media assets in the
third quarter of 2021 (see Note 6).
The Latin America segment accounted for approximately 3% of our
2021 total segment operating revenues compared to 4% in 2020. This
segment provides wireless services and equipment in Mexico, and
prior to the November 2021 disposition of Vrio, video services in
Latin America and the Caribbean (see Note 6).
RESULTS OF OPERATIONS
Consolidated Results Our financial results are summarized in the
following table. We then discuss factors affecting our overall
results. Additional analysis is discussed in our "Segment Results"
section. We also discuss our expected revenue and expense trends
for 2022 in the "Operating Environment and Trends of the Business"
section. Certain prior-period amounts have been reclassified to
conform to the current period's presentation.
Percent Change
2021 vs. 2020 vs.
2021 2020 2019 2020 2019
Operating revenues
Service $146,391 $152,767 $163,499 (4.2) % (6.6) %
Equipment 22,473 18,993 17,694 18.3 7.3
Total Operating Revenues 168,864 171,760 181,193 (1.7) (5.2)
Operating expenses
Operations and support 117,751 117,959 123,563 (0.2) (4.5)
Asset impairments and
abandonments 4,904 18,880 1,458 (74.0) -
Depreciation and amortization 22,862 28,516 28,217 (19.8) 1.1
Total Operating Expenses 145,517 165,355 153,238 (12.0) 7.9
Operating Income 23,347 6,405 27,955 - (77.1)
Interest expense 6,884 7,925 8,422 (13.1) (5.9)
Equity in net income
of affiliates 631 95 6 - -
Other income (expense)
- net 9,853 (1,431) (1,071) - (33.6)
Income (Loss) Before
Income Taxes 26,947 (2,856) 18,468 - -
Net Income (Loss) 21,479 (3,821) 14,975 - -
Net Income (Loss) Attributable
to AT&T 20,081 (5,176) 13,903 - -
Net Income (Loss) Attributable
to
Common Stock $ 19,874 $(5,369) $ 13,900 -% -%
=================================== ======= ======= ======= ========= ======
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OVERVIEW
Operating revenues decreased in 2021, with declines reflecting
our July 31, 2021 separation of the U.S. video business, the
completion of the sale of our Vrio business unit in November 2021
and the October 2020 sale of wireless and wireline operations in
Puerto Rico and the U.S. Virgin Islands. Also contributing to
revenue declines was lower Business Wireline revenues due in part
to higher demand for pandemic-related connectivity in the prior
year. Partially offsetting declines were higher Mobility equipment
and service revenues and gains in broadband service in our
Communications segment; higher content and DTC subscription
revenues in our WarnerMedia segment; and growth in Mexico wireless
operations including favorable foreign exchange impacts.
Operations and support expenses decreased in 2021, with declines
reflecting our business divestitures, lower bad debt expense and
lower personnel costs associated with our ongoing transformation
initiatives. Declines were mostly offset by increased domestic
wireless equipment expense from higher volumes, and higher
WarnerMedia programming costs and marketing activities.
Asset impairments and abandonments decreased in 2021, with
higher impairments in 2020. Noncash impairment charges in 2020
included $15,508, resulting from our assessment of the
recoverability of the long-lived assets and goodwill associated
with our U.S. video business (see Notes 7 and 9); $2,212 goodwill
impairment at our Vrio business unit (see Note 9); and $780 from
the impairment of production and other content inventory at
WarnerMedia, with approximately $524 resulting from the continued
shutdown of theaters during the pandemic and the hybrid
distribution model for our 2021 film slate (see Note 11). In 2021,
we took an additional Vrio impairment of $4,555, resulting from our
assessment of the recoverability of the net assets of Vrio (see
Note 6).
Depreciation and amortization expense decreased in 2021.
Amortization expense decreased $3,779, or 47.2%, in 2021,
primarily due to ceasing amortization on Video and Vrio
held-for-sale assets.
Depreciation expense decreased $1,875, or 9.1%, in 2021,
primarily due to the lower cost basis of property, plant and
equipment resulting from Video impairments taken in the fourth
quarter of 2020 and ceasing depreciation on Video and Vrio
held-for-sale assets in 2021.
Operating income increased in 2021 and decreased in 2020. Our
operating margin was 13.8% in 2021, compared to 3.7% in 2020 and
15.4% in 2019.
Interest expense decreased in 2021, primarily due to lower
interest rates and capitalized interest associated with the
spectrum acquisitions, partially offset by higher debt
balances.
Equity in net income (loss) of affiliates increased in 2021,
primarily due to the close of our transaction with TPG related to
the U.S. video business, which resulted in our accounting for our
investment in DIRECTV under the equity method of accounting
beginning August 1, 2021 (see Notes 6 and 20).
Other income (expense) - net increased in 2021, primarily due to
the recognition of $4,140 in actuarial gains, compared to losses of
$4,169 in 2020, and recognition of $1,405 of debt redemption costs
in 2020. Also contributing to increased income were higher net
pension and postretirement benefit credits from higher prior
service credit amortization (see Note 15) and net gains on the sale
of assets (see Note 6).
Income tax expense increased in 2021, primarily driven by
increased income before income taxes, offset primarily by the
Coronavirus Aid, Relief, and Economic Security Act (CARES Act)
benefit of U.S. federal Net Operating Loss (NOL) carryback and
benefits on divestitures in 2021.
Our effective tax rate was 20.3% in 2021, (33.8)% in 2020, and
18.9% in 2019. The effective tax rate in 2020 was impacted by our
impairment of Vrio and Video goodwill, which was not deductible for
tax purposes.
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AT&T Inc.
Dollars in millions except per share amounts
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Segment Results Our segments are strategic business units that
offer different products and services over various technology
platforms and/or in different geographies that are managed
accordingly. Our segment results presented below follow our
internal management reporting. In addition to segment operating
contribution, we also evaluate segment performance based on EBITDA
and/or EBITDA margin. EBITDA is defined as segment operating
contribution, excluding equity in net income (loss) of affiliates
and depreciation and amortization. We believe EBITDA to be a
relevant and useful measurement to our investors as it is part of
our internal management reporting and planning processes and it is
an important metric that management uses to evaluate operating
performance. EBITDA does not give effect to depreciation and
amortization expenses incurred in operating contribution nor is it
burdened by cash used for debt service requirements and thus does
not reflect available funds for distributions, reinvestment or
other discretionary uses. EBITDA margin is EBITDA divided by total
revenues.
COMMUNICATIONS SEGMENT Percent Change
2021 vs. 2020 vs.
2021 2020 2019 2020 2019
Segment Operating Revenues
Mobility $78,254 $72,564 $71,056 7.8 % 2.1 %
Business Wireline 23,937 25,083 25,901 (4.6) (3.2)
Consumer Wireline 12,539 12,318 13,012 1.8 (5.3)
Total Segment Operating Revenues 114,730 109,965 109,969 4.3 -
Segment Operating Contribution
Mobility 23,312 22,372 22,321 4.2 0.2
Business Wireline 3,990 4,564 5,137 (12.6) (11.2)
Consumer Wireline 977 1,377 2,357 (29.0) (41.6)
Total Segment Operating Contribution $28,279 $28,313 $29,815 (0.1) % (5.0) %
Selected Subscribers and Connections
December 31,
(000s) 2021 2020 2019
Mobility subscribers 201,791 182,558 165,889
Total domestic broadband connections 15,504 15,384 15,389
Network access lines in service 6,177 7,263 8,487
U-verse VoIP connections 3,333 3,816 4,370
======= ======= ======= ========== =======
Operating revenues increased in 2021, driven by increases in our
Mobility and Consumer Wireline business units, partially offset by
a decrease in our Business Wireline business unit. The increases
are primarily driven by equipment and wireless service revenue
growth and gains in broadband service.
Operating contribution decreased in 2021 and 2020. The 2021
operating contribution includes declines in our Business Wireline
and Consumer Wireline business units, and reflects an increase in
operating contribution from our Mobility business unit. Our
Communications segment operating income margin was 24.6% in 2021,
25.7% in 2020 and 27.1% in 2019.
32
AT&T Inc.
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Communications Business Unit Discussion
Mobility Results
----------
Percent Change
2021 vs. 2020 vs.
2021 2020 2019 2020 2019
Operating revenues
Service $57,590 $55,542 $55,331 3.7 % 0.4%
Equipment 20,664 17,022 15,725 21.4 8.2
Total Operating Revenues 78,254 72,564 71,056 7.8 2.1
Operating expenses
Operations and support 46,820 42,106 40,681 11.2 3.5
Depreciation and amortization 8,122 8,086 8,054 0.4 0.4
Total Operating Expenses 54,942 50,192 48,735 9.5 3.0
Operating Income 23,312 22,372 22,321 4.2 0.2
Equity in Net Income (Loss)
of Affiliates - - - - -
Operating Contribution $23,312 $22,372 $22,321 4.2 % 0.2 %
================================== ====== ====== ====== ========= === ===== ===
The following tables highlight other key measures of performance
for Mobility:
Subscribers
------------
Percent Change
2021 vs. 2020 vs.
(in 000s) 2021 2020 2019 2020 2019
Postpaid 81,534 77,154 75,207 5.7% 2.6%
Postpaid phone 67,260 64,216 63,018 4.7 1.9
Prepaid 19,028 18,102 17,803 5.1 1.7
Reseller 6,113 6,535 6,893 (6.5) (5.2)
Connected devices 1 95,116 80,767 65,986 17.8 22.4
Total Mobility Subscribers 201,791 182,558 165,889 10.5 % 10.0 %
======= ======= ======= ===== ===== ===== =====
1 Includes data-centric devices such as session-based tablets, monitoring devices
and primarily wholesale automobile systems.
33
AT&T Inc.
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Mobility Net Additions
--------------
Percent Change
2021 vs. 2020 vs.
(in 000s) 2021 2020 2019 2020 2019
Postpaid Phone Net Additions 3,196 1,457 483 - % - %
Total Phone Net Additions 3,850 1,640 989 - 65.8
Postpaid 2 4,482 2,183 (435) - -
Prepaid 956 379 677 - (44.0)
Reseller (534) (449) (928) (18.9) 51.6
Connected devices 3 14,328 14,785 14,645 (3.1) 1.0
Mobility Net Subscriber
Additions 1 19,232 16,898 13,959 13.8 % 21.1 %
Postpaid Churn 4 0.94 % 0.98 % 1.18 % (4) BP (20) BP
Postpaid Phone-Only Churn
4 0.76 % 0.79 % 0.95 % (3) BP (16) BP
==== ===== ==== ==== ==== ==== ====== ====== ====== ======
1 Excludes acquisition-related additions during the period.
2 In addition to postpaid phones, includes tablets and wearables and other.
Tablet net adds (losses) were 28, (512) and (1,487) for the years ended December
31, 2021, 2020 and 2019, respectively. Wearables and other net adds were 1,257,
1,223 and 569 for the years ended December 31, 2021, 2020 and 2019, respectively.
3 Includes data-centric devices such as session-based tablets, monitoring devices
and primarily wholesale automobile systems. Excludes postpaid tablets and other
postpaid data devices. Wholesale connected car net adds were 7.9 million for
the year ended December 31, 2021.
4 Calculated by dividing the aggregate number of wireless subscribers who canceled
service during a month by the total number of wireless subscribers at the beginning
of that month. The churn rate for the period is equal to the average of the
churn rate for each month of that period.
Service revenue increased during 2021, largely due to growth from subscriber gains.
ARPU
Average revenue per subscriber (ARPU) decreased in 2021 and
reflects the impact of higher promotional discount amortization
(see Note 5).
Churn
The effective management of subscriber churn is critical to our
ability to maximize revenue growth and to maintain and improve
margins. Postpaid churn and postpaid phone-only churn were lower in
2021 due to retention offers, migrations to unlimited plans,
continued network performance and lower involuntary
disconnects.
Equipment revenue increased in 2021, primarily driven by
increased volumes, the sale of higher-priced smartphones and a mix
of higher-priced postpaid smartphones.
Operations and support expenses increased in 2021, largely
driven by growth in equipment sales and associated expenses,
including costs associated with the upcoming first-quarter 2022 3G
network shutdown, increased content costs associated with bundling
HBO Max, increased amortization of deferred contract acquisition
costs and higher network and technology costs. These expense
increases were partially offset by lower sales costs and lower bad
debt expense.
Depreciation expense increased in 2021, primarily due to ongoing
capital spending for network upgrades and expansion partially
offset by fully depreciated assets.
Operating income increased in 2021 and 2020. Our Mobility
operating income margin was 29.8% in 2021, 30.8% in 2020 and 31.4%
in 2019. Our Mobility EBITDA margin was 40.2% in 2021, 42.0% in
2020 and 42.7% in 2019.
34
AT&T Inc.
Dollars in millions except per share amounts
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Subscriber Relationships
As the wireless industry has matured, with nearly full
penetration of smartphones in the U.S. population, future wireless
growth will depend on our ability to offer innovative services,
plans and devices that bundle product offerings and take advantage
of our 5G wireless network, which went nationwide in July 2020. We
believe 5G opens up vast possibilities of connecting sensors,
devices, and autonomous things, commonly referred to as the
Internet of Things (IoT). More and more, these devices are
performing use cases that require high bandwidth, ultra-reliability
and low latency that only 5G and edge computing can bring. To
support higher mobile data usage, our priority is to best utilize a
wireless network that has sufficient spectrum and capacity to
support these innovations on as broad a geographic basis as
possible. In January 2022, we began to deploy our C-band spectrum
acquired in FCC Auction 107 (see Note 6).
To attract and retain subscribers in a mature and highly
competitive market, we have launched a wide variety of plans,
including our FirstNet and prepaid products, and arrangements that
bundle our services. Virtually all of our postpaid smartphone
subscribers are on plans that provide for service on multiple
devices at reduced rates, and subscribers to such plans tend to
have higher retention and lower churn rates. We offer unlimited
data plans and subscribers to such plans also tend to have higher
retention and lower churn rates. Our offerings are intended to
encourage existing subscribers to upgrade their current services
and/or add devices, attract subscribers from other providers and/or
minimize subscriber churn. Subscribers that purchase two or more
services from us have significantly lower churn than subscribers
that purchase only one service.
Business Wireline Results
----------
Percent Change
2021 vs. 2020 vs.
2021 2020 2019 2020 2019
Operating revenues
Services $23,224 $24,313 $25,116 (4.5)% (3.2)%
Equipment 713 770 785 (7.4) (1.9)
Total Operating Revenues 23,937 25,083 25,901 (4.6) (3.2)
Operating expenses
Operations and support 14,755 15,303 15,839 (3.6) (3.4)
Depreciation and amortization 5,192 5,216 4,925 (0.5) 5.9
Total Operating Expenses 19,947 20,519 20,764 (2.8) (1.2)
Operating Income 3,990 4,564 5,137 (12.6) (11.2)
Equity in Net Income (Loss)
of Affiliates - - - - -
Operating Contribution $ 3,990 $ 4,564 $ 5,137 (12.6)% (11.2)%
================================== ====== ====== ====== ========= ======
Service revenues decreased in 2021, driven by lower demand for
legacy voice and data services in the current year, proactive
rationalization of low profit margin products and higher demand for
pandemic-related connectivity in the prior-year. We expect this
trend to continue.
Equipment revenues decreased in 2021, driven by declines in
legacy and non-core services which we expect to continue.
Operations and support expenses decreased in 2021, primarily due
to our continued efforts to drive efficiencies in our network
operations through automation and reductions in customer support
expenses through digitization and proactive rationalization of low
profit margin products.
Depreciation expense decreased in 2021, primarily due to certain
network assets becoming fully depreciated.
Operating income decreased in 2021 and 2020. Our Business
Wireline operating income margin was 16.7% in 2021, 18.2% in 2020
and 19.8% in 2019. Our Business Wireline EBITDA margin was 38.4% in
2021, 39.0% in 2020 and 38.8% in 2019.
35
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------------------
Consumer Wireline Results
----------
Percent Change
2021 vs. 2020 vs.
2021 2020 2019 2020 2019
Operating revenues
Broadband $9,085 $8,534 $8,403 6.5% 1.6%
Legacy voice and data services 1,977 2,213 2,573 (10.7) (14.0)
Other service and equipment 1,477 1,571 2,036 (6.0) (22.8)
Total Operating Revenues 12,539 12,318 13,012 1.8 (5.3)
Operating expenses
Operations and support 8,467 8,027 7,775 5.5 3.2
Depreciation and amortization 3,095 2,914 2,880 6.2 1.2
Total Operating Expenses 11,562 10,941 10,655 5.7 2.7
Operating Income 977 1,377 2,357 (29.0) (41.6)
Equity in Net Income (Loss)
of Affiliates - - - - -
Operating Contribution $ 977 $1,377 $2,357 (29.0) % (41.6)%
=================================== ===== ===== ===== ========= === ======
The following tables highlight other key measures of performance
for Consumer Wireline:
Connections
----------
Percent Change
2021 vs. 2020 vs.
(in 000s) 2021 2020 2019 2020 2019
Broadband Connections
Total Broadband and DSL Connections 14,160 14,100 14,119 0.4% (0.1)%
Fiber Broadband Connections 5,992 4,951 3,887 21.0 27.4
Voice Connections
Retail Consumer Switched
Access Lines 2,423 2,862 3,329 (15.3) (14.0)
U-verse Consumer VoIP Connections 2,736 3,231 3,794 (15.3) (14.8)
Total Retail Consumer Voice
Connections 5,159 6,093 7,123 (15.3)% (14.5)%
====== ====== ====== ========= ======
Net Additions
----------
Percent Change
2021 vs. 2020 vs.
(in 000s) 2021 2020 2019 2020 2019
Broadband Net Additions
Total Broadband and DSL Net
Additions 60 (19) (290) -% 93.4%
Fiber Broadband Net Additions 1,041 1,064 1,124 (2.2)% (5.3)%
------------------------------------ ----- ----- ----- --------- ------
Broadband revenues increased in 2021, driven by an increase in
fiber customers and pricing, which we expect to continue for the
foreseeable future.
Legacy voice and data service revenues decreased in 2021,
reflecting the continued decline in the number of customers, which
we expect to continue.
Other service and equipment revenues decreased in 2021,
reflecting the continued decline in the number of VoIP customers,
which we expect to continue.
36
AT&T Inc.
Dollars in millions except per share amounts
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Operations and support expenses increased in 2021, primarily
driven by higher advertising, technology and customer support
costs, and content costs associated with plans bundling HBO Max.
Partially offsetting these increases was lower amortization of
deferred fulfillment costs, including updates to extend the
estimated economic life of our subscribers.
Depreciation expense increased in 2021, primarily due to ongoing
capital spending for network upgrades and expansion.
Operating income decreased in 2021 and 2020. Our Consumer
Wireline operating income margin was 7.8% in 2021, 11.2% in 2020
and 18.1% in 2019. Our Consumer Wireline EBITDA margin was 32.5% in
2021, 34.8% in 2020 and 40.2% in 2019.
WARNERMEDIA SEGMENT
Percent Change
2021 vs. 2020 vs.
2021 2020 2019 2020 2019
Segment Operating Revenues
Subscription $15,596 $13,765 $13,651 13.3% 0.8%
Content and other 13,514 10,552 14,930 28.1 (29.3)
Advertising 6,522 6,125 6,678 6.5 (8.3)
Total Segment Operating Revenues 35,632 30,442 35,259 17.0 (13.7)
Segment Operating Expenses
Direct Costs
Programming 15,286 11,678 13,949 30.9 (16.3)
Marketing 4,137 2,529 2,953 63.6 (14.4)
Other 3,658 3,211 3,060 13.9 4.9
Selling, general and administrative 4,656 4,161 4,210 11.9 (1.2)
Depreciation and amortization 656 671 589 (2.2) 13.9
Total Operating Expenses 28,393 22,250 24,761 27.6 (10.1)
Operating Income 7,239 8,192 10,498 (11.6) (22.0)
Equity in Net Income (Loss)
of Affiliates 38 18 161 - (88.8)
Total Segment Operating Contribution $ 7,277 $ 8,210 $10,659 (11.4)% (23.0)%
======================================= ====== ====== ====== ========= ======
Our WarnerMedia segment is operated as a content organization
that distributes across various platforms, including basic
networks, Direct-to-Consumer (DTC) or theatrical, TV content and
games licensing.
HBO Latin America Group (HBO LAG) is included as an equity
method investment prior to our acquiring the remaining interest in
May 2020. It is included in the segment operating results following
the date of acquisition.
On May 17, 2021, we entered into an agreement to combine our
WarnerMedia segment, subject to certain exceptions, with a
subsidiary of Discovery Inc. On December 21, 2021, we entered into
an agreement to sell the marketplace component of Xandr to
Microsoft Corporation (Microsoft). (See Note 6)
Operating revenues increased in 2021 and decreased in 2020. The
increase in 2021 was primarily due to increases in content and
other, reflecting the partial recovery from prior-year impacts of
the pandemic, and also in subscription revenues. The decrease in
2020 was primarily due to lower content and advertising revenues,
which were negatively impacted by the pandemic, partially offset by
higher subscription revenues.
Subscription revenues increased in 2021 and 2020, reflecting
growth of DTC domestic HBO Max and HBO subscribers and the May 2020
acquisition of the remaining interest in HBO Latin America Group.
DTC subscription revenues were $7,723 in 2021, versus $6,090 and
$5,814 in 2020 and 2019, respectively, and include growth from
intercompany relationships with the Communications segment.
37
AT&T Inc.
Dollars in millions except per share amounts
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Content and other revenues increased in 2021 and decreased in
2020. The increase in 2021 was due to higher TV production and
licensing, which represent a partial recovery from prior-year
impacts of the pandemic, as well as higher theatrical, with 2020
including only five worldwide theatrical releases compared to 17 in
2021. The decrease in 2020 was primarily due to pandemic-related
movie theater closures and television and theatrical production
delays.
Advertising revenues increased in 2021 and decreased in 2020.
The increase in 2021 was due to the return in 2021 of major
sporting events, including the NCAA Division I Men's Championship
Basketball Tournament. The decrease in 2020 was primarily due to
the pandemic-related cancellation of sporting events, partially
offset by higher news coverage of general elections and COVID-19
developments.
Direct costs increased in 2021 and decreased in 2020. The
increase in 2021 was driven by higher film and programming costs
and increased costs for HBO Max. Direct costs supporting DTC
revenues were $7,934 in 2021, versus $5,452 and $3,824 in 2020 and
2019, respectively. The decrease in 2020 was primarily due to
pandemic-related closures and production delays.
Selling, general and administrative expenses increased in 2021
and decreased in 2020. The increase in 2021 was primarily due to
incremental selling costs associated with a DIRECTV advertising
revenue sharing arrangement, partially offset by lower bad debt
expense and integration of support functions. The decrease in 2020
was primarily due to lower print and advertising expenses from
limited theatrical releases, lower distribution fees and
cost-saving initiatives, partially offset by marketing costs
associated with HBO Max.
Operating contribution decreased in 2021 and 2020. The
WarnerMedia segment operating income margin was 20.3% in 2021,
26.9% in 2020 and 29.8% in 2019.
LATIN AMERICA SEGMENT
Percent Change
2021 vs. 2020 vs.
2021 2020 2019 2020 2019
Segment Operating Revenues
Mexico $2,747 $2,562 $2,869 7.2% (10.7)%
Vrio 2,607 3,154 4,094 (17.3) (23.0)
Total Segment Operating Revenues 5,354 5,716 6,963 (6.3) (17.9)
Segment Operating Contribution
Mexico (510) (587) (718) 13.1 18.2
Vrio 80 (142) 83 - -
Total Segment Operating Contribution $(430) $(729) $(635) 41.0% (14.8)%
======================================= ===== ===== ===== ========= ======
Our Latin America operations conduct business in their local
currency and operating results are converted to U.S. dollars using
official exchange rates, subjecting results to foreign currency
fluctuations.
On November 15, 2021, we completed the sale of our Latin America
video operations, Vrio, to Grupo Werthein (see Note 6).
Operating revenues decreased in 2021, reflecting the sale of
Vrio partially offset by growth in the Mexico wireless operations.
Foreign exchange pressure in Vrio was partially offset by
improvements in Mexico.
Operating contribution improved in 2021, reflecting higher
profitability in Mexico and lower depreciation resulting from Vrio
assets being accounted for as held-for-sale. Our Latin America
segment operating income margin was (8.1)% in 2021, (13.2)% in 2020
and (9.5)% in 2019.
38
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------------------
Latin America Business Unit Discussion
Mexico Results
--------------------------------------------------------------------------------------
Percent Change
2021 vs. 2020 vs.
2021 2020 2019 2020 2019
Operating revenues
Service $1,834 $1,656 $1,863 10.7 % (11.1)%
Equipment 913 906 1,006 0.8 (9.9)
Total Operating Revenues 2,747 2,562 2,869 7.2 (10.7)
Operating expenses
Operations and support 2,652 2,636 3,085 0.6 (14.6)
Depreciation and amortization 605 513 502 17.9 2.2
Total Operating Expenses 3,257 3,149 3,587 3.4 (12.2)
Operating Income (Loss) (510) (587) (718) 13.1 18.2
Equity in Net Income (Loss)
of Affiliates - - - - -
Operating Contribution $(510) $(587) $(718) 13.1 % 18.2%
================================== ===== ===== ===== ========= === ======
The following tables highlight other key measures of performance
for Mexico:
Percent Change
2021 vs. 2020 vs.
(in 000s) 2021 2020 2019 2020 2019
Mexico Wireless Subscribers
Postpaid 4,807 4,696 5,103 2.4% (8.0)%
Prepaid 15,057 13,758 13,584 9.4 1.3
Reseller 498 489 472 1.8 3.6
Mexico Wireless Subscribers 20,362 18,943 19,159 7.5% (1.1)%
Percent Change
2021 vs. 2020 vs.
(in 000s) 2021 2020 2019 2020 2019
Mexico Wireless Net Additions
Postpaid 111 (407) (608) -% 33.1%
Prepaid 1,299 174 1,919 - (90.9)
Reseller 9 118 219 (92.4) (46.1)
Mexico Wireless Net Additions 1,419 (115) 1,530 -% -%
====== ====== ====== ========= ======
Service revenues increased in 2021, driven by improvements in
foreign exchange and growth in other services.
Equipment revenues increased in 2021, driven by improvements in
foreign exchange impact partly offset by lower equipment sales
volumes.
Operations and support expenses increased in 2021, due to
foreign exchange impact partially offset by lower expenses.
Approximately 7% of Mexico expenses are U.S. dollar-based, with the
remainder in the local currency.
Depreciation expense increased in 2021, reflecting higher
in-service assets and foreign exchange impacts.
Operating income improved in 2021 and 2020. Our Mexico operating
income margin was (18.6)% in 2021, (22.9)% in 2020 and (25.0)% in
2019. Our Mexico EBITDA margin was 3.5% in 2021, (2.9)% in 2020 and
(7.5)% in 2019.
39
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------------------
Vrio Results
----------
Percent Change
2021 vs. 2020 vs.
2021 2020 2019 2020 2019
Operating revenues $2,607 $3,154 $4,094 (17.3)% (23.0)%
Operating expenses
Operations and support 2,302 2,800 3,378 (17.8) (17.1)
Depreciation and amortization 231 520 660 (55.6) (21.2)
Total Operating Expenses 2,533 3,320 4,038 (23.7) (17.8)
Operating Income (Loss) 74 (166) 56 - -
Equity in Net Income (Loss)
of Affiliates 6 24 27 (75.0) (11.1)
Operating Contribution $ 80 $(142) $ 83 -% -%
================================== ===== ===== ===== ========= ======
Operating revenues decreased in 2021, driven by the sale of Vrio and foreign exchange impacts.
Operations and support expenses decreased in 2021, driven by the
sale of Vrio and foreign exchange impacts.
Depreciation expense decreased in 2021, due to ceasing
depreciation on held-for-sale Vrio assets. We applied held-for-sale
accounting to Vrio on June 30, 2021 and ceased depreciation
beginning July 1, 2021.
Operating income improved in 2021 and 2020. Our Vrio operating
income margin was 2.8% in 2021, (5.3)% in 2020 and 1.4% in 2019.
Our Vrio EBITDA margin was 11.7% in 2021, 11.2% in 2020 and 17.5%
in 2019.
OPERATING ENVIRONMENT AND TRS OF THE BUSINESS
2022 Revenue Trends We expect revenue growth in our wireless and
broadband businesses as customers demand instant connectivity and
higher speeds made possible by wireless network enhancements
through 5G deployment and our fiber network expansion. We also
expect revenue growth from continued investment in premium content
and by expanding the international reach of HBO Max.
In our Communications segment, we expect that our simplified
go-to-market strategy for 5G in underpenetrated markets will
continue to contribute to wireless subscriber and service revenue
growth and that expansion of our fiber footprint and our new
multi-gig rollout will drive greater demand for broadband services
on our fast-growing fiber network.
In our WarnerMedia segment, we expect our video streaming
platform, HBO Max, and premium content will continue to drive
revenue growth. The pandemic-related partial closure of movie
theaters is expected to continue to pressure revenues; however, we
are working towards a shorter but exclusive theatrical window for
our 2022 film slate. The decline in viewing on our basic cable
networks is expected to continue as consumers continue to increase
their use of streaming platforms.
As we expand our fiber reach, we will be orienting our business
portfolio to leverage this opportunity to offset continuing
declines in legacy business wireline products by growing
connectivity with small to mid-sized business. We plan to use our
strong fiber and wireless assets, broad distribution and converged
product offers to strengthen our overall market position. We will
continue to deemphasize non-core services with a longer-term shift
of the business to fiber and mobile connectivity, and growth in
value-added services.
2022 Expense Trends We expect the spending required to support
growth initiatives, primarily our continued deployment of fiber and
5G, including 3G shutdown costs in the first quarter of 2022, as
well as continued investment into the HBO Max platform, to pressure
expense trends in 2022. To the extent 5G handset introductions
continue in 2022, and as anticipated, the expenses associated with
those device sales are expected to contribute to higher costs.
During 2022, we will also continue to prioritize efficiency, led by
our cost transformation initiative and continued transition from
our hardware-based network technology to more efficient and less
expensive software-based technology. These investments will help
prepare us to meet increased customer demand for enhanced wireless
and broadband services, including video streaming, augmented
reality and "smart" technologies. The software benefits of our 5G
wireless technology should result in a more efficient use of
capital and lower network-related expenses in the coming years.
40
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------------------
We continue to transform our operations to be more efficient and
effective, reinvesting savings into growth areas of the business.
We are restructuring businesses, sunsetting legacy networks,
improving customer service and ordering functions through digital
transformation, sizing our support costs and staffing with current
activity levels, and reassessing overall benefit costs. Cost
savings and asset sales align with our focus on debt reduction.
Market Conditions The U.S. stock market experienced steady
growth in 2021; however, several factors, including the global
pandemic, have resulted in changes in demand in business
communication services. The global pandemic has caused, and could
again cause, delays in the development, manufacturing (including
the sourcing of key components) and shipment of products, as well
as continued tight labor market and actual or perceived inflation.
Most of our products and services are not directly affected by the
imposition of tariffs on Chinese goods. However, we expect ongoing
pressure on pricing during 2022 as we respond to the competitive
marketplace, especially in wireless services.
Included on our consolidated balance sheets are assets held by
benefit plans for the payment of future benefits. Our pension plans
are subject to funding requirements of the Employee Retirement
Income Security Act of 1974, as amended (ERISA). We expect only
minimal ERISA contribution requirements to our pension plans for
2022. Investment returns on these assets depend largely on trends
in the economy, and a weakness in the equity, fixed income and real
asset markets could require us to make future contributions to the
pension plans. In addition, our policy of recognizing actuarial
gains and losses related to our pension and other postretirement
plans in the period in which they arise subjects us to earnings
volatility caused by changes in market conditions; however, these
actuarial gains and losses do not impact segment performance as
they are required to be recorded in "Other income (expense) - net."
Changes in our discount rate, which are tied to changes in the bond
market, and changes in the performance of equity markets, may have
significant impacts on the valuation of our pension and other
postretirement obligations at the end of 2022 (see "Critical
Accounting Policies and Estimates").
OPERATING ENVIRONMENT OVERVIEW
AT&T subsidiaries operating within the United States are
subject to federal and state regulatory authorities. AT&T
subsidiaries operating outside the United States are subject to the
jurisdiction of national and supranational regulatory authorities
in the markets where service is provided.
In the Telecommunications Act of 1996 (Telecom Act), Congress
established a national policy framework intended to bring the
benefits of competition and investment in advanced
telecommunications facilities and services to all Americans by
opening all telecommunications markets to competition and reducing
or eliminating regulatory burdens that harm consumer welfare.
Nonetheless, over the ensuing two decades, the Federal
Communications Commission (FCC) and some state regulatory
commissions have maintained or expanded certain regulatory
requirements that were imposed decades ago on our traditional
wireline subsidiaries when they operated as legal monopolies. More
recently, the FCC has pursued a more deregulatory agenda,
eliminating a variety of antiquated and unnecessary regulations and
streamlining its processes in a number of areas. We continue to
support regulatory and legislative measures and efforts, at both
the state and federal levels, to reduce inappropriate regulatory
burdens that inhibit our ability to compete effectively and offer
needed services to our customers, including initiatives to
transition services from traditional networks to all IP-based
networks. At the same time, we also seek to ensure that legacy
regulations are not further extended to broadband or wireless
services, which are subject to vigorous competition.
Communications Segment
Internet The FCC currently classifies fixed and mobile consumer
broadband services as information services, subject to light-touch
regulation. The D.C. Circuit upheld the FCC's current
classification, although it remanded three discrete issues to the
FCC for further consideration. These issues related to the effect
of the FCC's decision to classify broadband services as information
services on public safety, the regulation of pole attachments, and
universal service support for low-income consumers through the
Lifeline program. Because no party sought Supreme Court review of
the D.C. Circuit's decision to uphold the FCC's classification of
broadband as an information service, that decision is final.
In October 2020, the FCC adopted an order addressing the three
issues remanded by the D.C. Circuit for further consideration.
After considering those issues, the FCC concluded they provided no
grounds to depart from its determination that fixed and mobile
consumer broadband services should be classified as information
services. An appeal of the FCC's remand decision is pending.
Some states have adopted legislation or issued executive orders
that would reimpose net neutrality rules repealed by the FCC. Suits
have been filed concerning such laws in California and Vermont. The
California statute is now in effect, and the lawsuit regarding the
Vermont statute has been stayed pending resolution of any appeal of
the California lawsuit. We expect that going forward additional
states may seek to impose net neutrality requirements.
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On November 15, 2021, President Biden signed the Infrastructure
Investment and Jobs Act (IIJA) into law. The legislation
appropriates $65,000 to support broadband deployment and adoption.
The National Telecommunications and Information Agency (NTIA) is
responsible for distributing more than $48,000 of this funding,
including $42,500 in state grants for broadband deployment projects
in unserved and underserved areas. NTIA will establish rules for
this program in the first half of 2022. The IIJA also appropriated
$14,200 for establishment of the Affordable Connectivity Program
(ACP), an FCC-administered monthly, low-income broadband benefit
program, replacing the Emergency Broadband Benefit program
(established in December 2020 by the Consolidated Appropriations
Act 2021). Qualifying customers can receive up to thirty dollars
per month (or seventy-five dollars per month for those on Tribal
lands) to assist with their internet bill. AT&T is a
participating provider in the ACP program and will consider
participating in the deployment program where appropriate. The IIJA
includes various provisions that will result in FCC proceedings
regarding ACP program administration and consumer protection,
reform of the existing universal support program, and broadband
labeling and equal access.
Privacy-related legislation continues to be adopted or
considered in a number of jurisdictions. Legislative, regulatory
and litigation actions could result in increased costs of
compliance, further regulation or claims against broadband internet
access service providers and others, and increased uncertainty in
the value and availability of data.
Wireless Industry-wide network densification and 5G technology
expansion efforts, which are needed to satisfy extensive demand for
video and internet access, will involve significant deployment of
"small cell" equipment. This increases the importance of local
permitting processes that allow for the placement of small cell
equipment in the public right-of-way on reasonable timelines and
terms. Between 2018 and 2020, the FCC adopted multiple Orders
streamlining federal, state, and local wireless structure review
processes that had the tendency to delay and impede deployment of
small cell and related infrastructure used to provide
telecommunications and broadband services. The key elements of
these orders have been affirmed on judicial review. During
2020-2021, we have also deployed 5G nationwide on "low band"
spectrum on macro towers. Executing on the recent spectrum
purchase, we announced on-going construction and continuing
deployment of 5G on C-band spectrum in 2022 and beyond.
WarnerMedia Segment
We create, own and distribute intellectual property, including
copyrights, trademarks and licenses of intellectual property. To
protect our intellectual property, we rely on a combination of laws
and license agreements. Outside of the U.S., laws and regulations
relating to intellectual property protection and the effective
enforcement of these laws and regulations vary greatly from country
to country. The European Union Commission is pursuing legislative
and regulatory initiatives which could impact WarnerMedia's
activities in the EU. Piracy, particularly of digital content,
continues to threaten WarnerMedia's revenues from products and
services, and we work to limit that threat through a combination of
approaches, including technological and legislative solutions.
Outside the U.S., various laws and regulations, as well as trade
agreements with the U.S., also apply to the distribution or
licensing of feature films for exhibition in movie theaters and on
broadcast and cable networks. For example, in certain countries,
including China, laws and regulations limit the number of foreign
films exhibited in such countries in a calendar year.
EXPECTED GROWTH AREAS
Over the next few years, we expect our growth to come from
wireless and IP-based fiber broadband services. We provide
integrated services to diverse groups of customers in the U.S. on
an integrated telecommunications network utilizing different
technological platforms. In 2022, our key initiatives include:
--Continuing our wireless subscriber momentum while increasing
the pace of our 5G deployment and expansion of 5G service,
including to underpenetrated markets.
--Improving fiber penetration, accelerating subscriber growth
and increasing broadband revenues.
--Increasing international subscriber base for HBO Max, our
platform for premium content and video offered directly to
consumers, as well as through other distributors.
--Continuing to develop efficiencies and a competitive advantage
through cost transformation initiatives and product
simplification.
Wireless We expect to continue to deliver revenue growth in the
coming years. We are in a period of rapid growth in wireless video
usage and believe that there are substantial opportunities
available for next-generation converged services that combine
technologies and services. As of December 31, 2021, we served 222
million wireless subscribers in North America, with more than 202
million in the United States.
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Our LTE technology covers over 434 million people in North
America, and in the United States, we cover all major metropolitan
areas and over 330 million people. We also provide 4G coverage
using another technology (HSPA+), and when combined with our
upgraded backhaul network, we provide enhanced network capabilities
and superior mobile broadband speeds for data and video services.
In December 2018, we introduced the nation's first commercial
mobile 5G service and expanded that deployment nationwide in July
2020. At December 31, 2021, our network covers more than 250
million people with 5G technology in the United States and North
America.
Our networks covering both the U.S. and Mexico have enabled our
customers to use wireless services without roaming on other
companies' networks. We believe this seamless access will prove
attractive to customers and provide a significant growth
opportunity. As of the end of 2021, we provided LTE coverage to
over 104 million people in Mexico.
Integration of Data/Broadband and Streaming Services As the
communications industry has evolved into internet-based
technologies capable of blending wireline and wireless services, we
plan to focus on expanding our wireless network capabilities and
provide broadband offerings that allow customers to integrate their
home or business fixed services with their mobile service. In
January 2022, we launched our multi-gig rollout, which brings the
fastest internet to AT&T Fiber customers with symmetrical 2 gig
and 5 gig tiers. We will continue to develop and provide unique
integrated mobile and broadband/fiber solutions.
REGULATORY DEVELOPMENTS
Set forth below is a summary of the most significant regulatory
proceedings that directly affected our operations during 2021.
Industry-wide regulatory developments are discussed above in
Operating Environment Overview. While these issues may apply only
to certain subsidiaries, the words "we," "AT&T" and "our" are
used to simplify the discussion. The following discussions are
intended as a condensed summary of the issues rather than as a
comprehensive legal analysis and description of all of these
specific issues.
International Regulation Our subsidiaries operating outside the
United States are subject to the jurisdiction of regulatory
authorities in the territories in which the subsidiaries operate.
Our licensing, compliance and advocacy initiatives in foreign
countries primarily enable the provision of enterprise (i.e., large
business) globally and wireless services in Mexico.
The General Data Protection Regulation went into effect in
Europe in May of 2018. AT&T processes and handles personal data
of its customers and subscribers, employees of its enterprise
customers and its employees. This regulation created a range of new
compliance obligations and significantly increased financial
penalties for noncompliance.
Federal Regulation We have organized our following discussion by service impacted.
Internet In February 2015, the FCC released an order classifying
both fixed and mobile consumer broadband internet access services
as telecommunications services, subject to Title II of the
Communications Act. The Order, which represented a departure from
longstanding bipartisan precedent, significantly expanded the FCC's
authority to regulate broadband internet access services, as well
as internet interconnection arrangements. In December 2017, the FCC
reversed its 2015 decision by reclassifying fixed and mobile
consumer broadband services as information services and repealing
most of the rules that were adopted in 2015. In lieu of broad
conduct prohibitions, the order requires internet service providers
to disclose information about their network practices and terms of
service, including whether they block or throttle internet traffic
or offer paid prioritization. On October 1, 2019, the D.C. Circuit
issued a unanimous opinion upholding the FCC's reclassification of
broadband as an information service, and its reliance on
transparency requirements and competitive marketplace dynamics to
safeguard net neutrality. Because no party sought Supreme Court
review of the D.C. Circuit's decision to uphold the FCC's
classification of broadband as an information service, that
decision is final. While the court vacated the FCC's express
preemption of any state regulation of net neutrality, it stressed
that its ruling did not prevent the FCC or ISPs from relying on
conflict preemption to invalidate particular state laws that are
inconsistent with the FCC's regulatory objectives and framework.
The court also remanded the matter to the FCC for further
consideration of the impact of reclassifying broadband services as
information services on public safety, the Lifeline program, and
pole attachment regulation. In October 2020, the FCC adopted an
order concluding that those issues did not justify reversing its
decision to reclassify broadband services as information services.
An appeal of the FCC's remand decision is pending.
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Following the FCC's 2017 decision to reclassify broadband as
information services, a number of states adopted legislation to
reimpose the very rules the FCC repealed. In some cases, state
legislation imposes requirements that go beyond the FCC's February
2015 order. Additionally, some state governors have issued
executive orders that effectively reimpose the repealed
requirements. Suits have been filed concerning laws in California
and Vermont. Both lawsuits were stayed pursuant to agreements by
those states not to enforce their laws pending final resolution of
all appeals of the FCC's December 2017 order. Because that order is
now final, the California suit has returned to active status. In
January 2021, a U.S. District Court in California denied a request
for a preliminary injunction against enforcement of the California
law. As a consequence, the California statute now is in effect. The
trade associations challenging the statute have appealed the denial
of their request for preliminary injunction to the Ninth Circuit;
that appeal remains pending. The lawsuit regarding the Vermont
statute has been stayed pending the Ninth Circuit's resolution of
the appeal or April 15, 2022, whichever occurs first. We expect
that going forward additional states may seek to impose net
neutrality requirements. We will continue to support congressional
action to codify a set of standard
consumer rules for the internet.
Privacy-related legislation continues to be adopted or
considered in a number of jurisdictions. Legislative, regulatory
and litigation actions could result in increased costs of
compliance, further regulation or claims against broadband internet
access service providers and others, and increased uncertainty in
the value and availability of data.
Wireless and Broadband In June and November 2020, the FCC issued
a Declaratory Ruling clarifying the limits on state and local
authority to deny applications to modify existing structures to
accommodate wireless facilities. Appeals of the November 2020 order
remain pending in the Ninth Circuit Court of Appeals, following
multiple requests by the FCC to hold the appeal in abeyance until
the Senate confirms a fifth FCC Commissioner. If sustained on
appeal, these FCC decisions will remove state and local regulatory
barriers and reduce the costs of the infrastructure needed for 5G
and FirstNet deployments, which will enhance our ability to place
small cell facilities on utility poles, expand existing facilities
to accommodate public safety services, and replace legacy
facilities and services with advanced broadband infrastructure and
services. During 2020-2021, we have also deployed 5G nationwide on
"low band" spectrum on macro towers. Executing on the recent
spectrum purchase, we announced on-going construction and
continuing deployment of 5G on C-band spectrum in 2022 and
beyond.
In March 2020, the FCC released its order setting rules for
certain spectrum bands (C-band) for 5G operations. In that order,
the FCC concluded that C-band 5G services that met the agency's
technical limits on power and emissions would not cause harmful
interference with aircraft operations. In reliance on that order,
AT&T bid a total of $23,406 and was awarded 1,621 C-band
licenses, including 40 MHz nationwide available for deployment in
December 2021, with the remainder available for deployment in
December 2023. In late 2021, the Federal Aviation Administration
(FAA) questioned whether the C-band launch could impact radio
altimeter equipment on airplanes, which operate on spectrum bands
over 400 MHz away from the spectrum AT&T is launching in 2022.
In response, to allow the FAA more time to evaluate, AT&T and
Verizon delayed their planned December 2021 5G C-band launch by six
weeks and voluntarily committed to a series of temporary,
precautionary measures, in addition to deferring turning on a
limited number of towers around certain airports. On January 19,
2022, we launched 5G C-band services, subject to these voluntary
temporary measures.
In recent years, the FCC took several actions to make spectrum
available for 5G services, including the auction of 280 MHz of
mid-band spectrum used for satellite service (the "C Band" auction)
and 39 GHz band spectrum. AT&T obtained spectrum in these
auctions (see "Other Business Matters"). The FCC also made 150 MHz
of mid-band CBRS spectrum available, to be shared with Federal
incumbents, which enjoy priority. In addition, the FCC recently
completed Auction 110, in which AT&T won 40 MHz of spectrum
nationwide at a cost of $9,079.
Following enactment in December 2019 of the Pallone-Thune
Telephone Robocall Abuse Criminal Enforcement and Deterrence Act
(TRACED Act) by Congress, the FCC adopted new rules requiring voice
service providers to implement caller ID authentication protocols
(known as STIR/SHAKEN) and adopt robocall mitigation measures.
These measures apply to portions of their networks where
STIR/SHAKEN is not enabled, in addition to other anti-robocall
measures. The new rules contemplate ongoing FCC oversight and
review of efforts related to STIR/SHAKEN implementation. Among
other goals, the FCC has stated its intention to promote the IP
transition through its rules.
In September 2019, the FCC released reformed aspects of its
intercarrier compensation regime related to tandem switching and
transport charges, with the goal of reducing the prevalence of
telephone access arbitrage schemes. In October 2020, the FCC
further reformed aspects of its intercarrier compensation regime by
greatly reducing, and in some cases eliminating, the charges long
distance carriers must pay to originating carriers for toll-free
calls. Appeals of both orders are pending at the D.C. Circuit Court
of Appeals.
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ACCOUNTING POLICIES AND STANDARDS
Critical Accounting Policies and Estimates Because of the size
of the financial statement line items they relate to or the extent
of judgment required by our management, some of our accounting
policies and estimates have a more significant impact on our
consolidated financial statements than others. The following
policies are presented in the order in which the topics appear in
our consolidated statements of income.
Pension and Postretirement Benefits Our actuarial estimates of
retiree benefit expense and the associated significant
weighted-average assumptions are discussed in Note 15. Our assumed
weighted-average discount rates for pension and postretirement
benefits of 3.00% and 2.80%, respectively, at December 31, 2021,
reflect the hypothetical rate at which the projected benefit
obligations could be effectively settled or paid out to
participants. We determined our discount rate based on a range of
factors, including a yield curve composed of the rates of return on
several hundred high-quality, fixed income corporate bonds
available at the measurement date and corresponding to the related
expected durations of future cash outflows for the obligations.
These bonds had an average rating of at least Aa3 or AA- by the
nationally recognized statistical rating organizations, denominated
in U.S. dollars, and neither callable, convertible nor index
linked. For the year ended December 31, 2021, when compared to the
year ended December 31, 2020, we increased our pension discount
rate by 0.30%, resulting in a decrease in our pension plan benefit
obligation of $1,645, and increased our postretirement discount
rate by 0.40%, resulting in a decrease in our postretirement
benefit obligation of $341.
Our expected long-term rate of return is 6.75% on pension plan
assets and 4.50% on postretirement plan assets for 2022 and for
2021. Our expected return on plan assets is calculated using the
actual fair value of plan assets. If all other factors were to
remain unchanged, we expect that a 0.50% decrease in the expected
long-term rate of return would cause 2022 combined pension and
postretirement cost to increase $272, which under our accounting
policy would be adjusted to actual returns in the current year as
part of our fourth-quarter remeasurement of our retiree benefit
plans.
We recognize gains and losses on pension and postretirement plan
assets and obligations immediately in "Other income (expense) -
net" in our consolidated statements of income. These gains and
losses are generally measured annually as of December 31, and
accordingly, will normally be recorded during the fourth quarter,
unless an earlier remeasurement is required. Should actual
experience differ from actuarial assumptions, the projected pension
benefit obligation and net pension cost and accumulated
postretirement benefit obligation and postretirement benefit cost
would be affected in future years. See Note 15 for additional
discussions regarding our assumptions.
Depreciation Our depreciation of assets, including use of
composite group depreciation for certain subsidiaries and estimates
of useful lives, is described in Notes 1 and 7.
If all other factors were to remain unchanged, we expect that a
one-year increase in the useful lives of our plant in service would
have resulted in a decrease of approximately $2,702 in our 2021
depreciation expense and that a one-year decrease would have
resulted in an increase of approximately $3,700 in our 2021
depreciation expense. See Notes 7 and 8 for depreciation and
amortization expense applicable to property, plant and equipment,
including our finance lease right-of-use assets.
Asset Valuations and Impairments
Goodwill and other indefinite-lived intangible assets are not
amortized but tested at least annually on October 1 for impairment.
For impairment testing, we estimate fair values using models that
predominantly rely on the expected cash flows to be derived from
the reporting unit or use of the asset. Long-lived assets are
reviewed for impairment whenever events or circumstances indicate
that the book value may not be recoverable over the remaining life.
Inputs underlying the expected cash flows include, but are not
limited to, subscriber counts, revenues from subscriptions,
advertising and content, revenue per user, capital investment and
acquisition costs per subscriber, production and content costs, and
ongoing operating costs. We based our assumptions on a combination
of our historical results, trends, business plans and marketplace
participant data.
Annual Goodwill Testing
Goodwill is tested on a reporting unit basis by comparing the
estimated fair value of each reporting unit to its book value. If
the fair value exceeds the book value, then no impairment is
measured. We estimate fair values using an income approach (also
known as a discounted cash flow model) and a market multiple
approach. The income approach utilizes our future cash flow
projections with a perpetuity value discounted at an appropriate
weighted average cost of capital. The market multiple approach uses
the multiples of publicly traded companies whose services are
comparable to those offered by the reporting units.
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Effective January 1, 2021, we updated our reporting units to
reflect changes in how WarnerMedia, an integrated content
organization that distributes across various platforms, is managed
and evaluated. With this operational change, the reporting unit is
deemed to be the operating segment. The previous reporting units,
Turner, Home Box Office, Warner Bros., and Xandr, and the new
WarnerMedia reporting unit were tested for goodwill impairment on
January 1, 2021, for which there was no impairment identified.
As of October 1, 2021, the calculated fair values of the
reporting units exceeded their book values in all circumstances;
however, the WarnerMedia segment fair value exceeded its book value
by less than 10% with increased investment in content and
distribution expenses affecting fair value. For all reporting
units, if either the projected rate of long-term growth of cash
flows or revenues declined by 0.5%, or if the weighted average cost
of capital increased by 0.5%, the fair values would still be higher
than the book value of the goodwill. In the event of a 10% drop in
the fair values of the reporting units, the fair values still would
have exceeded the book values of the reporting units. For the
WarnerMedia reporting unit as of October 1, 2021, if the projected
rate of longer-term growth of cash flows or revenues declined by
4.4%, or if the weighted average cost of capital increased by 0.6%,
it would have resulted in impairment of the goodwill.
U.S. Wireless Licenses
The fair value of U.S. wireless licenses is assessed using a
discounted cash flow model (the Greenfield Approach) and a
qualitative collaborative market approach based on auction prices,
depending upon auction activity. The Greenfield Approach assumes a
company initially owns only the wireless licenses and makes
investments required to build an operation comparable to current
use. These licenses are tested annually for impairment on an
aggregated basis, consistent with their use on a national scope for
the United States. For impairment testing, we assume subscriber and
revenue growth will trend up to projected levels, with a long-term
growth rate reflecting expected long-term inflation trends. We
assume churn rates will initially exceed our current experience but
decline to rates that are in line with industry-leading churn. We
used a discount rate of 9.25%, based on the optimal long-term
capital structure of a market participant and its associated cost
of debt and equity for the licenses, to calculate the present value
of the projected cash flows. If either the projected rate of
long-term growth of cash flows or revenues declined by 0.5%, or if
the discount rate increased by 0.5%, the fair values of these
wireless licenses would still be higher than the book value of the
licenses. The fair value of these wireless licenses exceeded their
book values by more than 10%.
Other Finite-Lived Intangibles
Customer relationships, licenses in Mexico and other
finite-lived intangible assets are reviewed for impairment whenever
events or circumstances indicate that the book value may not be
recoverable over their remaining life. For this analysis, we
compare the expected undiscounted future cash flows attributable to
the asset to its book value. When the asset's book value exceeds
undiscounted future cash flows, an impairment is recorded to reduce
the book value of the asset to its estimated fair value (see Notes
7 and 9).
Vrio Business
In the second quarter of 2021, we classified the Vrio disposal
group as held-for-sale and reported the disposal group at fair
value less cost to sell, which resulted in a noncash, pre-tax
impairment charge of $4,555, including approximately $2,100 related
to accumulated foreign currency translation adjustments and $2,500
related to property, plant and equipment and intangible assets.
Approximately $80 of the impairment was attributable to
noncontrolling interest. Vrio was sold in November 2021, resulting
in the release of the accumulated foreign currency translation
adjustments from accumulated other comprehensive income. (See Notes
3, 7 and 9)
Income Taxes Our estimates of income taxes and the significant
items giving rise to the deferred assets and liabilities are shown
in Note 14 and reflect our assessment of actual future taxes to be
paid on items reflected in the financial statements, giving
consideration to both timing and probability of these estimates.
Actual income taxes could vary from these estimates due to future
changes in income tax law or the final review of our tax returns by
federal, state or foreign tax authorities.
We use our judgment to determine whether it is more likely than
not that we will sustain positions that we have taken on tax
returns and, if so, the amount of benefit to initially recognize
within our financial statements. We regularly review our uncertain
tax positions and adjust our unrecognized tax benefits (UTBs) in
light of changes in facts and circumstances, such as changes in tax
law, interactions with taxing authorities and developments in case
law. These adjustments to our UTBs may affect our income tax
expense. Settlement of uncertain tax positions may require use of
our cash.
New Accounting Standards
See Note 1 for discussion of recently issued or adopted
accounting standards.
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OTHER BUSINESS MATTERS
Spectrum Auction On February 24, 2021, the FCC announced that
AT&T was the winning bidder for 1,621 C-Band licenses,
comprised of a total of 80 MHz nationwide, including 40 MHz in
Phase I. We provided to the FCC an upfront deposit of $550 in 2020
and cash payments totaling $22,856 in the first quarter of 2021,
for a total of $23,406. We received the licenses in July 2021 and
classified the auction deposits, related capitalized interest and
billed relocation costs as "Licenses - Net" on our December 31,
2021 consolidated balance sheet. In December 2021, we paid $955 of
Incentive Payments for the clearing of Phase I spectrum and
estimate that we will be responsible for an additional $2,112 upon
clearing of Phase II spectrum, expected by the end of 2023.
Additionally, we are responsible for approximately $1,000 of
compensable relocation costs over the next several years as the
spectrum is being cleared by satellite operators, of which $650 was
paid in the fourth quarter of 2021.
On January 14, 2022, the FCC announced that we were the winning
bidder for 1,624 3.45 GHz licenses in Auction 110. We provided the
FCC an upfront deposit of $123 in the third quarter of 2021 and
will pay the remaining $8,956 in the first quarter of 2022, for a
total of $9,079. We intend to fund the purchase price using cash
and short-term investments.
Video Business On July 31, 2021, we closed our transaction with
TPG to form a new company named DIRECTV, which is jointly governed
by a board with representation from both AT&T and TPG, with TPG
having tie-breaking authority on certain key decisions. With the
close of the transaction, we separated our Video business,
comprised of our U.S. video operations, and began accounting for
our investment in DIRECTV under the equity method.
In connection with the transaction, we contributed our U.S.
Video business unit to DIRECTV for $4,250 of junior preferred
units, an additional distribution preference of $4,200 and a 70%
economic interest in common units (collectively "equity
considerations"). Upon close, we received approximately $7,170 in
cash from DIRECTV ($7,600, net of $430 cash on hand) and
transferred $195 of DIRECTV debt. TPG contributed approximately
$1,800 in cash to DIRECTV for $1,800 of senior preferred units and
a 30% economic interest in common units. As part of this
transaction, we agreed to cover net losses under the NFL SUNDAY
TICKET contract up to a cap of $2,100 over the remaining period of
the contract, of which $1,800 was a note payable to DIRECTV.
Under separate transition services agreements, we will provide
DIRECTV certain operational support for up to three years. We also
have entered into commercial arrangements, for up to five years, to
provide network transport for U-verse products and sales
services.
WarnerMedia On May 17, 2021, we entered into an agreement to
combine our WarnerMedia segment, subject to certain exceptions,
with a subsidiary of Discovery, Inc. (Discovery). The agreement is
structured as a Reverse Morris Trust transaction, under which
WarnerMedia will be distributed to AT&T's shareholders via a
pro rata dividend, an exchange offer, or a combination of both,
followed by its combination with Discovery. The transaction is
expected to be tax-free to AT&T and AT&T's shareholders.
AT&T will receive approximately $43,000 (subject to working
capital and other adjustments) in a combination of cash, debt
securities, and WarnerMedia's retention of certain debt. AT&T's
shareholders will receive stock representing approximately 71% of
the new company; Discovery shareholders will own approximately 29%
of the new company.
On February 1, 2022, we announced that we will structure the
distribution as a spin-off rather than an exchange offer. Upon
closing of the transaction, each AT&T shareholder will receive,
on a tax-free basis, an estimated 0.24 shares of the new company
for each share of AT&T common stock held as of the record date
for the pro rata distribution. The exact number of shares to be
received by AT&T shareholders for each AT&T common share
will be determined closer to the closing based on the number of
shares of AT&T common stock outstanding and the number of
shares of Discovery common stock outstanding on an as-converted and
as-exercised basis. AT&T shareholders will continue to hold the
same number of shares of AT&T common stock after the
transaction closes.
The transaction is expected to close in the second quarter of
2022, subject to approval by Discovery shareholders and customary
closing conditions, including receipt of regulatory approvals. No
vote is required by AT&T shareholders. Upon close of the
transaction, WarnerMedia will be deconsolidated.
The merger agreement contains certain customary termination
rights for AT&T and Discovery, including, without limitation, a
right for either party to terminate if the transaction is not
completed on or before July 15, 2023. Termination fees under
specified circumstances will require Discovery to pay AT&T $720
or AT&T to pay Discovery $1,770.
Magallanes, Inc. (Spinco), a subsidiary of AT&T, entered
into a $41,500 commitment letter (Bridge Loan) on May 17, 2021. On
June 4, 2021, Spinco entered into a $10,000 term loan credit
agreement (Spinco Term Loan) and reduced the aggregate commitment
amount under the Bridge Loan to $31,500. There have been no draws
on the Bridge Loan or the Spinco Term Loan. In the event advances
are made under the Bridge Loan or Spinco Term Loan, those advances
will be used by Spinco to finance a portion of the cash
distribution to AT&T in connection with the transaction.
47
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------------------
On September 20, 2021, we sold WarnerMedia's mobile games app
studio, Playdemic Ltd. for approximately $1,370 in cash and
recognized a pre-tax gain of $706. Playdemic was excluded from the
pending WarnerMedia/Discovery transaction.
On December 21, 2021, we entered into an agreement to sell the
marketplace component of Xandr, our WarnerMedia advertising
business that was not included in the WarnerMedia/Discovery
transaction, to Microsoft, which is expected to close in 2022,
subject to customary regulatory approvals.
Vrio On November 15, 2021, we sold our Latin America video
operations, Vrio, to Grupo Werthein. In the second quarter of 2021,
we classified the Vrio disposal group as held-for-sale and reported
the disposal group at fair value less cost to sell, which resulted
in a noncash, pre-tax impairment charge of $4,555, including
approximately $2,100 related to accumulated foreign currency
translation adjustments and $2,500 related to property, plant and
equipment and intangible assets. Approximately $80 of the
impairment was attributable to noncontrolling interest. We retained
our 41.3% interest in SKY Mexico, a leading pay-TV provider in
Mexico.
Labor Contracts As of January 31, 2022, we employed
approximately 203,000 persons. Approximately 37% of our employees
are represented by the Communications Workers of America (CWA), the
International Brotherhood of Electrical Workers (IBEW) or other
unions. After expiration of the collective bargaining agreements,
work stoppages or labor disruptions may occur in the absence of new
contracts or other agreements being reached. The main contracts
included the following:
--A contract covering approximately 12,000 Mobility employees in
36 states and the District of Columbia is set to expire in February
2022.
--A contract covering approximately 6,000 wireline employees in
five Midwest states that was set to expire in April 2022 was
extended for a four-year period until April 2026.
--A contract covering approximately 3,000 MW IBEW employees is
set to expire in June 2022.
--A contract covering approximately 2,000 AT&T Corp.
employees nationwide that was set to expire in April 2022 was
extended for a four-year period until April 2026.
--A contract covering approximately 170 Teamsters Alascom
employees in Alaska is set to expire in February 2022.
Environmental We are subject from time to time to judicial and
administrative proceedings brought by various governmental
authorities under federal, state or local environmental laws. We
reference in our Forms 10-Q and 10-K certain environmental
proceedings that could result in monetary sanctions (exclusive of
interest and costs) of three hundred thousand dollars or more.
However, we do not believe that any of those currently pending will
have a material adverse effect on our results of operations.
LIQUIDITY AND CAPITAL RESOURCES
For the years ended December 31, 2021 2020 2019
Cash provided by operating activities $ 41,957 $ 43,130 $ 48,668
Cash used in investing activities (32,089) (13,548) (16,690)
Cash provided by (used in) financing activities 1,578 (32,007) (25,083)
At December 31, 2021 2020
Cash and cash equivalents $ 21,169 $ 9,740
Total debt 177,354 157,245
===================================================== ========== ==========
We had $21,169 in cash and cash equivalents available at
December 31, 2021. Cash and cash equivalents included cash of
$5,204 and money market funds and other cash equivalents of
$15,965. Approximately $2,706 of our cash and cash equivalents were
held by our foreign entities in accounts predominantly outside of
the U.S. and may be subject to restrictions on repatriation.
Cash and cash equivalents increased $11,429 since December 31,
2020. In 2021, cash inflows were primarily provided by cash
receipts from operations, including cash from our sale and transfer
of our receivables to third parties, the disposition of businesses,
including our recently completed U.S. video business transaction,
and issuance of long-term debt and commercial paper. These inflows
were offset by cash used to meet the needs of the business,
including, but not limited to, payment of operating expenses,
spectrum acquisitions, funding capital expenditures and vendor
financing payments, investment in WarnerMedia content and dividends
to stockholders.We maintain significant availability under our
credit facilities and our commercial paper program to meet our
short-term liquidity requirements.
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AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------------------
Our cash and debt management will be impacted by the
WarnerMedia/Discovery transaction. During this time, we plan to
maintain cash and cash equivalent balances above historical
thresholds.
Refer to "Contractual Obligations" discussion below for
additional information regarding our cash requirements, including
payments required for Auction 110 which was completed in January
2022. We will make the remaining payment of $8,956 for Auction 110
spectrum in the first quarter of 2022, funded with cash and
short-term investments.
Cash Provided by or Used in Operating Activities
During 2021, cash provided by operating activities was $41,957
compared to $43,130 in 2020, reflecting higher content investment
and the separation of the U.S. video business, partially offset by
higher receivable securitizations in 2021. Total cash paid for
WarnerMedia's content investment was $19,164 in 2021, an increase
of $4,266 over 2020.
We actively manage the timing of our supplier payments for
operating items to optimize the use of our cash. Among other
things, we seek to make payments on 90-day or greater terms, while
providing the suppliers with access to bank facilities that permit
earlier payments at their cost. In addition, for payments to a key
supplier, as part of our working capital initiatives, we have
arrangements that allow us to extend payment terms up to 90 days at
an additional cost to us (referred to as supplier financing). The
net impact of supplier financing was to improve cash from operating
activities $25 in 2021 and $432 in 2020. All supplier financing
payments are due within one year.
Cash Used in or Provided by Investing Activities
During 2021, cash used in investing activities totaled $32,089,
and consisted primarily of $16,527 (including interest during
construction) for capital expenditures, and acquisitions of
$25,453, which includes C-Band spectrum licenses won in Auction
107, associated capitalized interest, clearing and compensable
relocation costs. Investing activities also included cash receipts
of approximately $5,370 (excluding cash on hand and $1,800 of
financing activities) from the separation of our Video business and
$2,910 from the sale of Otter Media assets and Playdemic. In 2021,
we received a return of investment of $1,323 from DIRECTV
representing distributions in excess of cumulative equity in
earnings from DIRECTV (see Note 10).
On January 14, 2022, the FCC announced that we were the winning
bidder for 1,624 3.45 GHz licenses in Auction 110. We provided the
FCC an upfront deposit of $123 in the third quarter of 2021 and
will pay the remaining $8,956 in the first quarter of 2022, for a
total of $9,079. We intend to fund the purchase price using cash
and short-term investments. (See Note 6)
For capital improvements, we have negotiated favorable vendor
payment terms of 120 days or more (referred to as vendor financing)
with some of our vendors, which are excluded from capital
expenditures and reported as financing activities. Vendor financing
payments were $4,596 in 2021, compared to $2,966 in 2020. Capital
expenditures in 2021 were $16,527, and when including $4,596 cash
paid for vendor financing and excluding $515 of FirstNet
reimbursements, gross capital investment was $21,638 ($1,934 higher
than the prior year).
The vast majority of our capital expenditures are spent on our
networks, including product development and related support
systems. In 2021, we placed $5,282 of equipment in service under
vendor financing arrangements (compared to $4,664 in 2020) and
approximately $750 of assets related to the FirstNet build
(compared to $1,230 in 2020). Total reimbursements from the
government for FirstNet were $865 for 2021 and $1,626 for 2020,
predominantly for capital expenditures.
The amount of our capital expenditures is influenced by demand
for services and products, capacity needs and network enhancements.
In 2022, we expect that our gross capital investment, which
includes capital expenditures and cash paid for vendor financing,
will be in the $24,000 range with capital expenditures in the
$20,000 range.
Cash Used in or Provided by Financing Activities
In 2021, cash provided by financing activities totaled $1,578
and was comprised of debt issuances and repayments, payments of
dividends, and vendor financing payments. We also paid
approximately $459 in cash on the $1,800 note payable to DIRECTV
(see Note 6 and Note 20).
49
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------------------
A tabular summary of our debt activity during 2021 is as
follows:
First Second Third Fourth Full Year
Quarter Quarter Quarter Quarter 2021
Net commercial paper borrowings 1 $ 7,072 $ (513) $ (2) $ 4 $ 6,561
Issuance of Notes and Debentures 2 :
U.S. dollar denominated global notes $ 6,000 $ - $ - $ - $ 6,000
Initial average rate of 1.27%
Euro denominated global notes (converted
to USD at issuance) 1,461 - - - 1,461
Rate of 0.00%
2021 Syndicated Term Loan 7,350 - - - 7,350
BAML Bilateral Term Loan 2,000 - - - 2,000
Private financing 750 - - - 750
Other 636 - 835 - 1,471
Debt Issuances $ 18,197 $ - $ 835 $ - $ 19,032
Repayments:
Private financing $ (649) $ - $ - $ - $ (649)
2.650% Euro denominated global notes due
2021 - - - (1,349) (1,349)
Other (253) (253) (498) (140) (1,144)
Repayments of long-term debt $ (902) $ (253) $ (498) $(1,489) $ (3,142)
====== ====== ====== ======= =======
1 Includes $1,316 net issuance of commercial paper with original maturities
of three months or less, $12,755 of commercial paper issued greater than 90
days and $7,510 of commercial paper repaid greater than 90 days.
2 Includes credit agreement borrowing.
The weighted average interest rate of our long-term debt
portfolio, including, credit agreement borrowings and the impact of
derivatives, was approximately 3.8% as of December 31, 2021 and
4.1% as of December 31, 2020. We had $169,147 of total notes and
debentures outstanding at December 31, 2021, which included Euro,
British pound sterling, Canadian dollar, Mexican peso, Australian
dollar, and Swiss franc denominated debt that totaled approximately
$41,249.
At December 31, 2021, we had $24,630 of debt maturing within one
year, consisting of $6,586 of commercial paper borrowings, $10,100
of credit agreement borrowings, and $7,944 of long-term debt
issuances.
During 2021, we paid $4,596 of cash under our vendor financing
program, compared to $2,966 in 2020. Total vendor financing
payables included in our December 31, 2021 consolidated balance
sheet were approximately $5,000, with $3,950 due within one year
(in "Accounts payable and accrued liabilities") and the remainder
predominantly due within five years (in "Other noncurrent
liabilities").
At December 31, 2021, we had approximately 178 million shares
remaining from our share repurchase authorizations approved by the
Board of Directors in 2014.
We paid dividends on common shares and preferred shares of
$15,068 in 2021, compared with $14,956 in 2020.
Dividends on common stock declared by our Board of Directors
totaled $2.08 per share in both 2021 and 2020. Our dividend policy
considers the expectations and requirements of stockholders,
capital funding requirements of AT&T and long-term growth
opportunities. On February 1, 2022, we announced that our Board of
Directors approved an expected annual dividend level of $1.11 per
share, or approximately $8,000 per year, following the close of the
WarnerMedia/Discovery transaction.
Our 2022 financing activities will focus on managing our debt
level and paying dividends, subject to approval by our Board of
Directors. We plan to fund our financing uses of cash through a
combination of cash from operations, issuance of debt, and asset
sales. The timing and mix of any debt issuance and/or refinancing
will be guided by credit market conditions and interest rate
trends.
50
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------------------
Credit Facilities
The following summary of our various credit and loan agreements
does not purport to be complete and is qualified in its entirety by
reference to each agreement filed as exhibits to our Annual Report
on Form 10-K.
We use credit facilities as a tool in managing our liquidity
status. In November 2020, we amended one of our $7,500 revolving
credit agreements by extending the termination date. In total, we
have two $7,500 revolving credit agreements, totaling $15,000, with
one terminating on December 11, 2023 and the other terminating on
November 17, 2025. No amounts were outstanding under either
agreement as of December 31, 2021.
On January 29, 2021, we entered into a $14,700 Term Loan Credit
Agreement (2021 Syndicated Term Loan), with Bank of America, N.A.,
as agent. On March 23, 2021, we borrowed $7,350 under the 2021
Syndicated Term Loan, and the remaining $7,350 of lenders'
commitments was terminated. As of December 31, 2021, $7,350 was
outstanding and is due on March 22, 2022.
In March 2021, we entered into and drew on a $2,000 term loan
credit agreement (BAML Bilateral Term Loan) consisting of (i) a
$1,000 facility originally due December 31, 2021 (BAML Tranche A
Facility) and subsequently extended to December 31, 2022 in the
fourth quarter of 2021, and (ii) a $1,000 facility due December 31,
2022 (BAML Tranche B Facility), with Bank of America, N.A., as
agent. At December 31, 2021, $2,000 was outstanding under these
facilities.
We also utilize other external financing sources, which include
various credit arrangements supported by government agencies to
support network equipment purchases as well as a commercial paper
program.
Each of our credit and loan agreements contains covenants that
are customary for an issuer with an investment grade senior debt
credit rating as well as a net debt-to-EBITDA financial ratio
covenant requiring AT&T to maintain, as of the last day of each
fiscal quarter through June 30, 2023, a ratio of not more than
4.0-to-1, and a ratio of not more than 3.5-to-1 for any fiscal
quarter thereafter. As of December 31, 2021, we were in compliance
with the covenants for our credit facilities.
Collateral Arrangements
Most of our counterparty collateral arrangements require cash
collateral posting by AT&T only when derivative market values
exceed certain thresholds. Under these arrangements, which cover
approximately 97% of our approximate $41,000 derivative portfolio,
counterparties are still required to post collateral. During 2021,
we posted approximately $770 of cash collateral, on a net basis.
Cash postings under these arrangements vary with changes in credit
ratings and netting agreements. (See Note 13)
Other
Our total capital consists of debt (long-term debt and debt
maturing within one year) and stockholders' equity. Our capital
structure does not include debt issued by our equity method
investments. At December 31, 2021, our debt ratio was 49.1%,
compared to 46.7% at December 31, 2020 and 44.7% at December 31,
2019. Our net debt ratio was 43.2% at December 31, 2021, compared
to 43.8% at December 31, 2020 and 41.4% at December 31, 2019. The
debt ratio is affected by the same factors that affect total
capital, and reflects our recent debt issuances and repayments.
A significant amount of our cash outflows is related to tax
items, acquisition of spectrum through FCC auctions and benefits
paid for current and former employees:
--Total taxes incurred, collected and remitted by AT&T
during 2021 and 2020, were $21,739 and $21,967. These taxes include
income, franchise, property, sales, excise, payroll, gross receipts
and various other taxes and fees.
--Total domestic spectrum acquired primarily through FCC
auctions, including cash, exchanged spectrum and auction deposits
was approximately $25,400 in 2021, $2,800 in 2020 and $1,300 in
2019.
--Total health and welfare benefits provided to certain active
and retired employees and their dependents totaled $3,617 in 2021
and $3,656 in 2020, with $1,163 paid from plan assets in 2021
compared to $1,029 in 2020. Of those benefits, $3,210 related to
medical and prescription drug benefits in 2021 compared to $3,293
in 2020. In addition, in 2021, we prefunded $685 for future benefit
payments versus $745 in 2020. We paid $5,942 of pension benefits
out of plan assets in 2021 compared to $5,124 in 2020.
On May 17, 2021, we entered into an agreement to combine our
WarnerMedia segment with a subsidiary of Discovery. The transaction
is anticipated to close in the second quarter of 2022, subject to
approval by Discovery shareholders and customary closing
conditions, including receipt of regulatory approvals. We expect to
receive $43,000 (subject to working capital and other adjustments)
in a combination of cash, debt securities, and WarnerMedia's
retention of certain debt. (See Note 6)
51
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------------------
On May 17, 2021, in anticipation of the separation of
WarnerMedia business from us, Spinco entered into a $41,500
commitment letter (Bridge Loan). On June 4, 2021, Spinco entered
into a $10,000 term loan credit agreement (Spinco Term Loan)
consisting of (i) an 18 month $3,000 tranche (Tranche 1 Facility),
and (ii) a 3 year $7,000 tranche (Tranche 2 Facility), with
JPMorgan Chase Bank, N.A., as agent. In connection with the
execution of the Spinco Term Loan, the aggregate commitment amount
under the Bridge Loan was reduced to $31,500. No amounts were
outstanding as of December 31, 2021.
Contractual Obligations
Our contractual obligations as of December 31, 2021, and the
estimated timing of payment, are in the following table:
Payments Due By Period
Less than 1-3 3-5 More than
Total 1 Year Years Years 5 Years
Long-term debt obligations 1 $181,449 $ 18,185 $19,301 $17,041 $ 126,922
Interest payments on long-term
debt 2 117,454 6,710 12,624 11,400 86,720
Purchase obligations 3 77,621 28,860 24,585 11,636 12,540
Operating lease obligations 4 29,852 4,922 8,472 5,772 10,686
FirstNet sustainability payments
5 17,400 195 390 1,785 15,030
Unrecognized tax benefits 6 10,108 268 - - 9,840
Other finance obligations 7 12,724 4,635 2,414 1,524 4,151
Note payable to DIRECTV 1,341 1,245 96 - -
Total Contractual Obligations $447,949 $ 65,020 $67,882 $49,158 $ 265,889
=================================== ======= ======= ====== ====== =======
1 Represents principal or payoff amounts of notes, debentures
and credit agreement borrowings at maturity or, for puttable debt,
the next put opportunity (see Note 12). Foreign debt includes the
impact from hedges, when applicable.
2 Includes credit agreement borrowings.
3 We expect to fund the purchase obligations with cash provided
by operations or through incremental borrowings. Consists of
commitments primarily related to network programming at
WarnerMedia, spectrum acquisitions and other commercial
commitments. The minimum commitment for certain obligations is
based on termination penalties that could be paid to exit the
contracts. (See Note 22)
4 Represents operating lease payments (see Note 8).
5 Represents contractual commitment to make sustainability
payments over the 25-year contract. These sustainability payments
represent our commitment to fund FirstNet's operating expenses and
future reinvestment in the network, which we own and operate.
FirstNet has a statutory requirement to reinvest funds that exceed
the agency's operating expenses, which we anticipate to be $15,000.
(See Note 21)
6 The noncurrent portion of the UTBs is included in the "More
than 5 Years" column, as we cannot reasonably estimate the timing
or amounts of additional cash payments, if any, at this time (see
Note 14).
7 Represents future minimum payments under the Crown Castle and
other arrangements (see Note 19), payables subject to extended
payment terms (see Note 23) and finance lease payments (see Note
8).
Certain items were excluded from this table, as the year of
payment is unknown and could not be reliably estimated since past
trends were not deemed to be an indicator of future payment, we
believe the obligations are immaterial or because the settlement of
the obligation will not require the use of cash. These items
include: deferred income tax liability of $65,226 (see Note 14);
net postemployment benefit obligations of $13,927 (including
current portion); and other noncurrent liabilities of $13,409.
Contractual obligations at December 31, 2021 include
approximately $36,912 of commitments related to our WarnerMedia
segment, which we have entered into an agreement to combine with
Discovery (see Note 6).
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
We are exposed to market risks primarily from changes in
interest rates and foreign currency exchange rates. These risks,
along with other business risks, impact our cost of capital. It is
our policy to manage our debt structure and foreign exchange
exposure in order to manage capital costs, control financial risks
and maintain financial flexibility over the long term. In managing
market risks, we employ derivatives according to documented
policies and procedures, including interest rate swaps, interest
rate locks, foreign currency exchange contracts and combined
interest rate foreign currency contracts (cross-currency swaps). We
do not use derivatives for trading or speculative purposes. We do
not foresee significant changes in the strategies we use to manage
market risk in the near future.
52
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------------------
One of the most significant assumptions used in estimating our
postretirement benefit obligations is the assumed weighted-average
discount rate, which is the hypothetical rate at which the
projected benefit obligations could be effectively settled or paid
out to participants. We determined our discount rate based on a
range of factors, including a yield curve composed of the rates of
return on several hundred high-quality, fixed income corporate
bonds available at the measurement date and corresponding to the
related expected durations of future cash outflows for the
obligations. In recent years, the discount rates have been
increasingly volatile, and on average have been lower than in
historical periods. Lower discount rates used to measure our
pension and postretirement plans result in higher obligations.
Future increases in these rates could result in lower obligations,
improved funded status and actuarial gains.
Interest Rate Risk
The majority of our financial instruments are medium- and
long-term fixed-rate notes and debentures. Changes in interest
rates can lead to significant fluctuations in the fair value of
these instruments. The principal amounts by expected maturity,
average interest rate and fair value of our liabilities that are
exposed to interest rate risk are described in Notes 12 and 13. In
managing interest expense, we control our mix of fixed and floating
rate debt through term loans, floating rate notes, and interest
rate swaps. We have established interest rate risk limits that we
closely monitor by measuring interest rate sensitivities in our
debt and interest rate derivatives portfolios.
Most of our foreign-denominated long-term debt has been swapped
from fixed-rate or floating-rate foreign currencies to fixed-rate
U.S. dollars at issuance through cross-currency swaps, removing
interest rate risk and foreign currency exchange risk associated
with the underlying interest and principal payments. Likewise,
periodically we enter into interest rate locks to partially hedge
the risk of increases in the benchmark interest rate during the
period leading up to the probable issuance of fixed-rate debt. We
expect gains or losses in our cross-currency swaps and interest
rate locks to offset the losses and gains in the financial
instruments they hedge.
We had no interest rate swaps and no interest rate locks at
December 31, 2021.
Foreign Exchange Risk
We principally use foreign exchange contracts to hedge certain
film production costs denominated in foreign currencies. We are
also exposed to foreign currency exchange risk through our foreign
affiliates and equity investments in foreign companies. We have
designated EUR1,450 million aggregate principal amount of debt as a
hedge of the variability of certain Euro-denominated net
investments of our subsidiaries. The gain or loss on the debt that
is designated as, and is effective as, an economic hedge of the net
investment in a foreign operation is recorded as a currency
translation adjustment within accumulated other comprehensive
income, net on the consolidated balance sheet.
Through cross-currency swaps, most of our foreign-denominated
debt has been swapped from fixed-rate or floating-rate foreign
currencies to fixed-rate U.S. dollars at issuance, removing
interest rate and foreign currency exchange risk associated with
the underlying interest and principal payments. We expect gains or
losses in our cross-currency swaps to offset the gains and losses
in the financial instruments they hedge. We had cross-currency
swaps with a notional value of $40,737 and a fair value of $(2,959)
outstanding at December 31, 2021.
For the purpose of assessing specific risks, we use a
sensitivity analysis to determine the effects that market risk
exposures may have on the fair value of our financial instruments
and results of operations. We had foreign exchange forward
contracts with a notional value of $30 and a fair value of $(33)
outstanding at December 31, 2021.
53
AT&T Inc.
Report of Management
The consolidated financial statements have been prepared in
conformity with U.S. generally accepted accounting principles. The
integrity and objectivity of the data in these financial
statements, including estimates and judgments relating to matters
not concluded by year end, are the responsibility of management, as
is all other information included in the Annual Report, unless
otherwise indicated.
The financial statements of AT&T Inc. (AT&T) have been
audited by Ernst & Young LLP, Independent Registered Public
Accounting Firm. Management has made available to Ernst & Young
LLP all of AT&T's financial records and related data, as well
as the minutes of stockholders' and directors' meetings.
Furthermore, management believes that all representations made to
Ernst & Young LLP during its audit were valid and
appropriate.
Management maintains disclosure controls and procedures that are
designed to ensure that information required to be disclosed by
AT&T is recorded, processed, summarized, accumulated and
communicated to its management, including its principal executive
and principal financial officers, to allow timely decisions
regarding required disclosure, and reported within the time periods
specified by the Securities and Exchange Commission's rules and
forms.
Management also seeks to ensure the objectivity and integrity of
its financial data by the careful selection of its managers, by
organizational arrangements that provide an appropriate division of
responsibility and by communication programs aimed at ensuring that
its policies, standards and managerial authorities are understood
throughout the organization.
The Audit Committee of the Board of Directors meets periodically
with management, the internal auditors and the independent auditors
to review the manner in which they are performing their respective
responsibilities and to discuss auditing, internal accounting
controls and financial reporting matters. Both the internal
auditors and the independent auditors periodically meet alone with
the Audit Committee and have access to the Audit Committee at any
time.
Assessment of Internal Control
The management of AT&T is responsible for establishing and
maintaining adequate internal control over financial reporting, as
defined in Rule 13a-15(f) or 15d-15(f) under the Securities
Exchange Act of 1934. AT&T's internal control system was
designed to provide reasonable assurance to the company's
management and Board of Directors regarding the preparation and
fair presentation of published financial statements.
AT&T management assessed the effectiveness of the company's
internal control over financial reporting as of December 31, 2021.
In making this assessment, it used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO) in Internal Control - Integrated Framework (2013 framework).
Based on its assessment, AT&T management believes that, as of
December 31, 2021, the company's internal control over financial
reporting is effective based on those criteria.
Ernst & Young LLP, the independent registered public
accounting firm that audited the financial statements included in
this Annual Report, has issued an attestation report on the
company's internal control over financial reporting.
/s/John T. Stankey /s/Pascal Desroches
John T. Stankey Pascal Desroches
Chief Executive Officer Senior Executive Vice President
and President and Chief Financial Officer
54
AT&T Inc.
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of AT&T
Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of
AT&T Inc. (the Company) as of December 31, 2021 and 2020, the
related consolidated statements of income, comprehensive income,
cash flows and changes in stockholders' equity for each of the
three years in the period ended December 31, 2021, and the related
notes and financial statement schedule listed in Item 15(a)
(collectively referred to as the "consolidated financial
statements"). In our opinion, the consolidated financial statements
present fairly, in all material respects, the financial position of
the Company at December 31, 2021 and 2020, and the results of its
operations and its cash flows for each of the three years in the
period ended December 31, 2021, in conformity with U.S. generally
accepted accounting principles.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States) (PCAOB),
the Company's internal control over financial reporting as of
December 31, 2021, based on criteria established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (2013 framework) and our
report dated February 16, 2022 expressed an unqualified opinion
thereon.
Basis for Opinion
These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion
on the Company's financial statements based on our audits. We are a
public accounting firm registered with the PCAOB and are required
to be independent with respect to the Company in accordance with
the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in accordance with the standards of the
PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial
statements are free of material misstatement, whether due to error
or fraud. Our audits included performing procedures to assess the
risks of material misstatement of the financial statements, whether
due to error or fraud, and performing procedures that respond to
those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial
statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as
well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis
for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters
arising from the current period audit of the financial statements
that were communicated or required to be communicated to the audit
committee and that: (1) relate to accounts or disclosures that are
material to the financial statements and (2) involved our
especially challenging, subjective or complex judgments. The
communication of critical audit matters does not alter in any way
our opinion on the consolidated financial statements, taken as a
whole, and we are not, by communicating the critical audit matters
below, providing separate opinions on the critical audit matters or
on the accounts or disclosures to which they relate.
Discount rates used in determining pension and postretirement
benefit obligations
Description of At December 31, 2021, the Company's pension benefit obligation
the Matter was $57,212 million and exceeded the fair value of defined benefit
pension plan assets of $54,401 million, resulting in an unfunded
benefit obligation of $2,811 million. Additionally, at December
31, 2021, the Company's postretirement benefit obligation was
$12,552 million and exceeded the fair value of postretirement
plan assets of $3,198 million, resulting in an unfunded benefit
obligation of $9,354 million. As explained in Note 15 to the
consolidated financial statements, the Company updates the assumptions
used to measure the defined benefit pension and postretirement
benefit obligations, including discount rates, at December 31
or upon a remeasurement event. The Company determines the discount
rates used to measure the obligations based on the development
of a yield curve using high-quality corporate bonds selected
to yield cash flows that correspond to the expected timing and
amount of the expected future benefit payments.
55
AT&T Inc.
Auditing the defined benefit pension and postretirement benefit
obligations was complex due to the judgmental nature of the actuarial
assumptions made by management, primarily the discount rate,
used in the Company's measurement process. The discount rate
has a significant effect on the measurement of the defined benefit
pension and postretirement benefit obligations, and auditing
the discount rate was complex because it required an evaluation
of the credit quality of the corporate bonds used to develop
the discount rate and the correlation of those bonds' cash inflows
to the timing and amount of future expected benefit payments.
How We We obtained an understanding, evaluated the design and tested
Addressed the the operating effectiveness of certain controls over management's
Matter in Our review of the determination of the discount rates used in the
Audit defined benefit pension and postretirement benefit obligations
calculations.
To test the determination of the discount rate used in the calculation
of the defined benefit pension and postretirement benefit obligations,
we performed audit procedures that focused on evaluating, with
the assistance of our actuarial specialists, the determination
of the discount rates, among other procedures. For example, we
evaluated the selected yield curve used to determine the discount
rates applied in measuring the defined benefit pension and postretirement
benefit obligations. As part of this assessment, we considered
the credit quality of the corporate bonds that comprise the yield
curve and compared the timing and amount of cash flows at maturity
with the expected amounts and duration of the related benefit
payments.
Evaluation of goodwill for impairment
Description of At December 31, 2021, the Company's goodwill balance was $133,223
the Matter million. As discussed in Note 1 to the consolidated financial
statements, reporting unit goodwill is tested at least annually
for impairment. Estimating fair values in connection with these
impairment evaluations involves the utilization of discounted
cash flow models and market multiples valuation approaches.
Auditing management's annual goodwill impairment test for the
reporting units was complex because the estimation of fair values
involves subjective management assumptions, such as estimates
of the projected rates of discrete and long-term growth of cash
flows and weighted average cost of capital. These assumptions
are forward-looking and could be affected by shifts in the evolving
market landscape. Changes in these assumptions can have a material
effect on the determination of fair value.
How We Addressed We obtained an understanding, evaluated the design and tested
the the operating effectiveness of controls over the Company's impairment
Matter in Our evaluation processes. Our procedures included testing controls
Audit over management's review of the valuation models and the significant
assumptions described above.
Our audit procedures to test management's impairment evaluations
included, among others, assessing the valuation methodologies
and significant assumptions discussed above and the underlying
data used to develop such assumptions. For example, we compared
the significant assumptions to current industry, market and economic
trends, and other guideline companies in the same industry. Where
appropriate, we evaluated whether changes to the Company's business
model, customer base and other factors would affect the significant
assumptions. We also assessed the historical accuracy of management's
estimates and performed independent sensitivity analyses. We
involved our valuation specialists to assist us in performing
our audit procedures to test the estimated fair values of the
Company's reporting units.
56
AT&T Inc.
Accounting for the investment in DIRECTV
Description of As discussed in Notes 6 and 10, on July 31, 2021, the Company
the Matter closed on a transaction with TPG to form a new company named
DIRECTV Entertainment Holdings, LLC (DIRECTV). In connection
with the transaction, the Company contributed its U.S. Video
business unit to DIRECTV for $4,250 million of junior preferred
units, an additional distribution preference of $4,200 million
and a 70% economic interest in common units. DIRECTV was considered
a variable interest entity for accounting purposes. The Company
concluded that it was not the primary beneficiary and accordingly
deconsolidated DIRECTV and accounted for its investment under
the equity method of accounting. The initial fair value of the
Company's investment in DIRECTV on July 31, 2021 was $6,852 million,
which was determined using a discounted cash flow model, reflecting
distribution rights and preference of the individual instruments.
Auditing management's application of the variable interest entity
consolidation model to this transaction, and its initial estimate
of the fair value of the Company's investment in DIRECTV, required
significant judgment. In particular, management's assessment
of whether the Company is the primary beneficiary under the variable
interest model required significant judgment to determine the
activities of the investee that most significantly impact the
investee's economics, and management applied significant judgment
in determining and applying the valuation model used to estimate
the initial fair value of the Company's investment in DIRECTV.
How We Addressed We obtained an understanding, evaluated the design and tested
the the operating effectiveness of controls over the Company's application
Matter in Our of the variable interest entity consolidation model, including
Audit the identification of the activities that most significantly
impact DIRECTV's economics, and its selection and application
of the model used to estimate the initial fair value of the Company's
investment in DIRECTV.
Our audit procedures to test the appropriateness of management's
application of the variable interest entity consolidation model
to the DIRECTV transaction included, among others, evaluating
the design and purpose of the variable interest entity, and assessing
the terms of the arrangement, that were relevant to the evaluation
of DIRECTV's significant activities. Our procedures to test the
valuation of AT&T's investment in DIRECTV included, among others,
involving our valuation specialists in assessing the reasonableness
of the selected valuation methodology, performing an independent
calculation, and performing sensitivity analysis for certain
assumptions in the model.
/s/ Ernst & Young LLP
We have served as the Company's auditor since 1999.
Dallas, Texas
February 16, 2022
57
AT&T Inc.
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of AT&T
Inc.
Opinion on Internal Control Over Financial Reporting
We have audited AT&T Inc.'s internal control over financial
reporting as of December 31, 2021, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (2013
framework) (the COSO criteria). In our opinion, AT&T Inc. (the
Company) maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2021, based on
the COSO criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States) (PCAOB),
the 2021 consolidated financial statements of the Company and our
report dated February 16, 2022 expressed an unqualified opinion
thereon.
Basis for Opinion
The Company's management is responsible for maintaining
effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial
reporting included in the accompanying Report of Management. Our
responsibility is to express an opinion on the Company's internal
control over financial reporting based on our audit. We are a
public accounting firm registered with the PCAOB and are required
to be independent with respect to the Company in accordance with
the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audit in accordance with the standards of the
PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether effective internal
control over financial reporting was maintained in all material
respects.
Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a
material weakness exists, testing and evaluating the design and
operating effectiveness of internal control based on the assessed
risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides
a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial
Reporting
A company's internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally
accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of
the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company's assets that could
have a material effect on the financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Dallas, Texas
February 16, 2022
58
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Statements of Income
2021 2020 2019
Operating Revenues
Service $146,391 $152,767 $163,499
Equipment 22,473 18,993 17,694
Total operating revenues 168,864 171,760 181,193
Operating Expenses
Cost of revenues
Equipment 23,778 19,706 18,653
Broadcast, programming and operations 24,797 27,305 31,132
Other cost of revenues (exclusive of depreciation
and amortization shown separately below) 31,232 32,909 34,356
Selling, general and administrative 37,944 38,039 39,422
Asset impairments and abandonments 4,904 18,880 1,458
Depreciation and amortization 22,862 28,516 28,217
Total operating expenses 145,517 165,355 153,238
Operating Income 23,347 6,405 27,955
Other Income (Expense)
Interest expense (6,884) (7,925) (8,422)
Equity in net income of affiliates 631 95 6
Other income (expense) - net 9,853 (1,431) (1,071)
Total other income (expense) 3,600 (9,261) (9,487)
Income (Loss) Before Income Taxes 26,947 (2,856) 18,468
Income tax expense 5,468 965 3,493
Net Income (Loss) 21,479 (3,821) 14,975
Less: Net Income Attributable to Noncontrolling
Interest (1,398) (1,355) (1,072)
Net Income (Loss) Attributable to AT&T $ 20,081 $(5,176) $ 13,903
Less: Preferred Stock Dividends (207) (193) (3)
Net Income (Loss) Attributable to Common Stock $ 19,874 $(5,369) $ 13,900
Basic Earnings Per Share Attributable to Common
Stock $ 2.77 $ (0.75) $ 1.90
Diluted Earnings Per Share Attributable to Common
Stock $ 2.76 $ (0.75) $ 1.89
========================================================= ======= ======= =======
The accompanying notes are an integral part of the consolidated
financial statements.
59
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------------------
Consolidated Statements of Comprehensive Income
2021 2020 2019
Net income (loss) $21,479 $(3,821) $14,975
Other comprehensive income (loss), net of tax:
Foreign Currency:
Translation adjustment (includes $(2), $(59) and
$(9) attributable to
noncontrolling interest), net of taxes of $(44),
$(42) and $18 (127) (929) 19
Reclassification adjustment included in net income
(loss), net of taxes of
$204, $0 and $0 2,087 - -
Securities:
Net unrealized gains (losses), net of taxes of
$(21), $27 and $17 (63) 78 50
Reclassification adjustment included in net income
(loss),
net of taxes of $(1), $(5) and $0 (3) (15) -
Derivative Instruments:
Net unrealized gains (losses), net of taxes of
$(192), $(212) and $(240) (715) (811) (900)
Reclassification adjustment included in net income
(loss), net of taxes
of $19, $18 and $12 72 69 45
Defined benefit postretirement plans:
Net prior service (cost) credit arising during
period, net of taxes of $(8),
$735 and $1,134 (34) 2,250 3,457
Amortization of net prior service credit included
in net income (loss),
net of taxes of $(660), $(601) and $(475) (2,020) (1,841) (1,459)
Other comprehensive income (loss) (803) (1,199) 1,212
Total comprehensive income (loss) 20,676 (5,020) 16,187
Less: Total comprehensive income attributable
to noncontrolling interest (1,396) (1,296) (1,063)
Total Comprehensive Income (Loss) Attributable
to AT&T $19,280 $(6,316) $15,124
============================================================ ====== ======= ======
The accompanying notes are an integral part of the consolidated
financial statements.
60
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------------------
Consolidated Balance Sheets
-------------------------------------------------------------------------------------------
December 31,
2021 2020
Assets
Current Assets
Cash and cash equivalents $ 21,169 $ 9,740
Accounts receivable - net of related allowance for credit
loss of $771 and $1,221 17,571 20,215
Inventories 3,464 3,695
Prepaid and other current assets 17,793 18,358
Total current assets 59,997 52,008
Noncurrent Inventories and Theatrical Film and Television
Production Costs 18,983 14,752
Property, Plant and Equipment - Net 125,904 127,315
Goodwill 133,223 135,259
Licenses - Net 113,830 93,840
Trademarks and Trade Names - Net 21,938 23,297
Distribution Networks - Net 11,942 13,793
Other Intangible Assets - Net 11,783 15,386
Investments in and Advances to Equity Affiliates 7,274 1,780
Operating Lease Right-Of-Use Assets 24,180 24,714
Other Assets 22,568 23,617
Total Assets $551,622 $525,761
Liabilities and Stockholders' Equity
Current Liabilities
Debt maturing within one year $ 24,630 $ 3,470
Note payable to DIRECTV 1,245 -
Accounts payable and accrued liabilities 50,661 50,051
Advanced billings and customer deposits 5,303 6,176
Dividends payable 3,749 3,741
Total current liabilities 85,588 63,438
Long-Term Debt 152,724 153,775
Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes 65,226 60,472
Postemployment benefit obligation 12,649 18,276
Operating lease liabilities 21,261 22,202
Other noncurrent liabilities 30,223 28,358
Noncurrent portion of note payable to DIRECTV 96 -
Total deferred credits and other noncurrent liabilities 129,455 129,308
Stockholders' Equity
Preferred stock ($1 par value, 10,000,000 authorized at December
31, 2021
and December 31, 2020):
Series A (48,000 issued and outstanding at December 31, 2021
and December 31, 2020) - -
Series B (20,000 issued and outstanding at December 31, 2021
and December 31, 2020) - -
Series C (70,000 issued and outstanding at December 31, 2021
and December 31, 2020) - -
Common stock ($1 par value, 14,000,000,000 authorized at
December 31, 2021 and
December 31, 2020: issued 7,620,748,598 at December 31, 2021
and December 31, 2020) 7,621 7,621
Additional paid-in capital 130,112 130,175
Retained earnings 42,350 37,457
Treasury stock (479,684,705 at December 31, 2021 and 494,826,583
at December 31, 2020, at cost) (17,280) (17,910)
Accumulated other comprehensive income 3,529 4,330
Noncontrolling interest 17,523 17,567
Total stockholders' equity 183,855 179,240
Total Liabilities and Stockholders' Equity $551,622 $525,761
===================================================================== ======= =======
The accompanying notes are an integral part of the consolidated
financial statements.
61
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------------------
Consolidated Statements of Cash Flows
2021 2020 2019
Operating Activities
Net income (loss) $ 21,479 $(3,821) $ 14,975
Adjustments to reconcile net income (loss) to
net cash provided by
operating activities:
Depreciation and amortization 22,862 28,516 28,217
Amortization of film and television costs 11,006 8,603 9,587
Distributed (undistributed) earnings from investments
in equity affiliates 184 38 295
Provision for uncollectible accounts 1,240 1,972 2,575
Deferred income tax expense 5,246 1,675 1,806
Net (gain) loss on investments, net of impairments (927) (742) (1,218)
Pension and postretirement benefit expense (credit) (3,848) (2,992) (2,002)
Actuarial (gain) loss on pension and postretirement
benefits (4,140) 4,169 5,171
Asset impairments and abandonments 4,904 18,880 1,458
Changes in operating assets and liabilities:
Receivables (634) 2,216 2,812
Other current assets, inventories and theatrical
film and television
production costs (16,472) (13,070) (12,852)
Accounts payable and other accrued liabilities 1,636 (1,410) (1,524)
Equipment installment receivables and related
sales (265) (1,429) 548
Deferred customer contract acquisition and fulfillment
costs 52 376 (910)
Postretirement claims and contributions (822) (985) (1,008)
Other - net 456 1,134 738
Total adjustments 20,478 46,951 33,693
Net Cash Provided by Operating Activities 41,957 43,130 48,668
Investing Activities
Capital expenditures (16,527) (15,675) (19,635)
Acquisitions, net of cash acquired (25,453) (1,851) (1,809)
Dispositions 8,740 3,641 4,684
Distributions from DIRECTV in excess of cumulative
equity in earnings 1,323 - -
Other - net (172) 337 70
Net Cash Used in Investing Activities (32,089) (13,548) (16,690)
Financing Activities
Net change in short-term borrowings with original
maturities of
three months or less 1,316 (17) (276)
Issuance of other short-term borrowings 21,856 9,440 4,012
Repayment of other short-term borrowings (7,510) (9,467) (6,904)
Issuance of long-term debt 9,931 31,988 17,039
Repayment of long-term debt (3,142) (39,964) (27,592)
Note payable to DIRECTV, net of payments of $459 1,341 - -
Payment of vendor financing (4,596) (2,966) (3,050)
Issuance of preferred stock - 3,869 1,164
Purchase of treasury stock (202) (5,498) (2,417)
Issuance of treasury stock 96 105 631
Issuance of preferred interests in subsidiaries - 1,979 7,876
Redemption of preferred interest in subsidiary - (1,950) -
Dividends paid (15,068) (14,956) (14,888)
Other - net (2,444) (4,570) (678)
Net Cash Provided by (Used in) Financing Activities 1,578 (32,007) (25,083)
Net increase (decrease) in cash and cash equivalents
and restricted cash 11,446 (2,425) 6,895
Cash and cash equivalents and restricted cash
beginning of year 9,870 12,295 5,400
Cash and Cash Equivalents and Restricted Cash
End of Year $ 21,316 $ 9,870 $ 12,295
=========================================================== ====== ======= ======
The accompanying notes are an integral part of the consolidated
financial statements.
62
AT&T Inc.
Dollars and shares in millions except per share amounts
-----------------------------------------------------------------------
Consolidated Statements of Changes in Stockholders' Equity
---------------------------------------------------------------------------
2021 2020 2019
Shares Amount Shares Amount Shares Amount
Preferred Stock -
Series
A
Balance at
beginning of
year - $ - - $ - - $ -
Issuance of stock - - - - - -
Balance at end of
year - $ - - $ - - $ -
Preferred Stock -
Series
B
Balance at
beginning of
year - $ - - $ - - $ -
Issuance of stock - - - - - -
Balance at end of
year - $ - - $ - - $ -
Preferred Stock -
Series
C
Balance at
beginning of
year - $ - - $ - - $ -
Issuance of stock - - - - - -
Balance at end of
year - $ - - $ - - $ -
Common Stock
Balance at
beginning of
year 7,621 $ 7,621 7,621 $ 7,621 7,621 $ 7,621
Issuance of stock - - - - - -
Balance at end of
year 7,621 $ 7,621 7,621 $ 7,621 7,621 $ 7,621
Additional Paid-In
Capital
Balance at
beginning of
year $130,175 $126,279 $125,525
Repurchase and
acquisition
of
common stock - 67 -
Issuance of
preferred
stock - 3,869 1,164
Issuance of
treasury stock (76) (62) (125)
Share-based
payments 13 18 (271)
Changes related
to acquisition
of
interests held
by
noncontrolling
owners - 4 (14)
Balance at end of
year $130,112 $130,175 $126,279
Retained Earnings
Balance at
beginning of
year $ 37,457 $ 57,936 $ 58,753
Cumulative effect
of accounting
changes and
other
adjustments - (293) 316
Adjusted beginning
balance 37,457 57,643 59,069
Net income (loss)
attributable
to AT&T 20,081 (5,176) 13,903
Preferred stock
dividends (224) (139) (8)
Common stock
dividends
($2.08, $2.08,
and $2.05 per
share) (14,964) (14,871) (15,028)
Balance at end of
year $ 42,350 $ 37,457 $ 57,936
=================== ====== ======= ====== ======= ====== =======
The accompanying notes are an integral part of the consolidated
financial statements.
63
AT&T Inc.
Dollars and shares in millions except per share amounts
-----------------------------------------------------------------------
Consolidated Statements of Changes in Stockholders' Equity - continued
-------------------------------------------------------------------------------
2021 2020 2019
Shares Amount Shares Amount Shares Amount
Treasury Stock
Balance at beginning
of
year (495) $(17,910) (366) $(13,085) (339) $(12,059)
Repurchase and
acquisition
of
common stock (8) (237) (150) (5,631) (67) (2,492)
Issuance of treasury
stock 23 867 21 806 40 1,466
Balance at end of
year (480) $(17,280) (495) $(17,910) (366) $(13,085)
======
Accumulated Other
Comprehensive
Income
Attributable to AT&T, net
of tax:
Balance at beginning
of
year $ 4,330 $ 5,470 $ 4,249
Other
comprehensive
income
(loss)
attributable to
AT&T (801) (1,140) 1,221
Balance at end of
year $ 3,529 $ 4,330 $ 5,470
Noncontrolling
Interest:
Balance at beginning
of
year $ 17,567 $ 17,713 $ 9,795
Cumulative effect
of accounting
changes and other
adjustments - (7) 29
Adjusted beginning
balance 17,567 17,706 9,824
Net income
attributable
to
noncontrolling
interest 1,398 1,355 1,072
Issuance and
acquisition
of
noncontrolling
owners 7 1,979 7,881
Redemption of
noncontrolling
interest - (1,950) -
Distributions (1,447) (1,464) (1,055)
Translation
adjustments
attributable to
noncontrolling
interest,
net of taxes (2) (59) (9)
Balance at end of
year $ 17,523 $ 17,567 $ 17,713
Total
Stockholders'
Equity
at
beginning of
year $ 179,240 $ 201,934 $ 193,884
Total
Stockholders'
Equity
at
end of year $ 183,855 $ 179,240 $ 201,934
==================== ====== ======== ====== ======== ====== ========
The accompanying notes are an integral part of the consolidated
financial statements.
64
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------------------
Notes to Consolidated Financial Statements
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation Throughout this document, AT&T Inc. is
referred to as "AT&T," "we" or the "Company." The consolidated
financial statements include the accounts of the Company and
subsidiaries and affiliates which we control. AT&T is a holding
company whose subsidiaries and affiliates operate worldwide in the
telecommunications, media and technology industries.
On July 31, 2021, we closed our transaction with TPG Capital
(TPG) to form a new company named DIRECTV Entertainment Holdings,
LLC (DIRECTV). With the close of the transaction, we separated and
deconsolidated our Video business, comprised of our U.S. video
operations, and began accounting for our investment in DIRECTV
under the equity method (see Notes 6 and 10). On November 15, 2021,
we sold our Latin America video operations, Vrio, to Grupo Werthein
(see Note 6).
All significant intercompany transactions are eliminated in the
consolidation process. Investments in subsidiaries and partnerships
which we do not control but have significant influence are
accounted for under the equity method. Earnings from certain
investments accounted for using the equity method are included in
our results on a one quarter lag. We also record our proportionate
share of our equity method investees' other comprehensive income
(OCI) items, including translation adjustments. We treat
distributions received from equity method investees as returns on
investment and classify them as cash flows from operating
activities until those distributions exceed our cumulative equity
in the earnings of that investment. We treat the excess amount as a
return of investment and classify it as cash flows from investing
activities.
The preparation of financial statements in conformity with U.S.
generally accepted accounting principles (GAAP) requires management
to make estimates and assumptions, including other estimates of
probable losses and expenses, that affect the amounts reported in
the financial statements and accompanying notes. Actual results
could differ from those estimates. Certain prior-period amounts
have been conformed to the current period's presentation.
Accounting Policies and Adopted Accounting Standards
Credit Losses As of January 1, 2020, we adopted, through
modified retrospective application, the Financial Accounting
Standards Board's (FASB) Accounting Standards Update (ASU) No.
2016-13, "Financial Instruments-Credit Losses (Topic 326):
Measurement of Credit Losses on Financial Instruments," or
Accounting Standards Codification (ASC) 326 (ASC 326), which
replaces the incurred loss impairment methodology under prior GAAP
with an expected credit loss model. ASC 326 affects trade
receivables, loans, contract assets, certain beneficial interests,
off-balance-sheet credit exposures not accounted for as insurance
and other financial assets that are not subject to fair value
through net income, as defined by the standard. Under the expected
credit loss model, we are required to consider future economic
trends to estimate expected credit losses over the lifetime of the
asset. Upon adoption on January 1, 2020, we recorded a $293
reduction to "Retained earnings," $395 increase to "Allowances for
credit losses" applicable to our trade and loan receivables, $10
reduction of contract assets, $105 reduction of net deferred income
tax liability and $7 reduction of "Noncontrolling interest." Our
adoption of ASC 326 did not have a material impact on our financial
statements.
Leases As of January 1, 2019, we adopted, with modified
retrospective application, the FASB's ASU No. 2016-02, "Leases
(Topic 842)" (ASC 842), which replaces existing leasing rules with
a comprehensive lease measurement and recognition standard and
expanded disclosure requirements (see Note 8). ASC 842 requires
lessees to recognize most leases on their balance sheets as
liabilities, with corresponding "right-of-use" assets. For income
statement recognition purposes, leases are classified as either a
finance or an operating lease without relying upon bright-line
tests.
The key change upon adoption of the standard was balance sheet
recognition of operating leases, given that the recognition of
lease expense on our income statement is similar to our historical
accounting. Using the modified retrospective transition method of
adoption, we did not adjust the balance sheet for comparative
periods but recorded a cumulative effect adjustment to retained
earnings on January 1, 2019. We elected the package of practical
expedients permitted under the transition guidance within the new
standard, which, among other things, allowed us to carry forward
our historical lease classification. We also elected the practical
expedient related to land easements, allowing us to carry forward
our accounting treatment for land easements on existing agreements
that were not accounted for as leases. We excluded leases with
original terms of one year or less. Additionally, we elected to not
separate lease and non-lease components for certain classes of
assets. Our accounting for finance leases did not change from our
prior accounting for capital leases.
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The adoption of ASC 842 resulted in the recognition of an
operating lease liability of $22,121 and an operating right-of-use
asset of the same amount. Existing prepaid and deferred rent
accruals were recorded as an offset to the right-of-use asset,
resulting in a net asset of $20,960. The cumulative effect of the
adoption to retained earnings was an increase of $316 reflecting
the reclassification of deferred gains related to sale/leaseback
transactions. The standard did not materially impact our income
statements or statements of cash flows, and had no impact on our
covenant compliance under our current debt agreements.
Income Taxes We record deferred income taxes for temporary
differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the computed tax basis of
those assets and liabilities. We record valuation allowances
against the deferred tax assets (included, together with our
deferred income tax assets, as part of our reportable net deferred
income tax liabilities on our consolidated balance sheets), for
which the realization is uncertain. We review these items regularly
in light of changes in federal and state tax laws and changes in
our business.
As of January 1, 2021, we adopted, with modified retrospective
application, the FASB's ASU No. 2019-12, "Income Taxes (Topic 740):
Simplifying the Accounting for Income Taxes" (ASU 2019-12), which
is expected to simplify income tax accounting requirements in areas
deemed costly and complex. ASU 2019-12 did not have a material
impact on our financial statements.
Cash and Cash Equivalents Cash and cash equivalents include all
highly liquid investments with original maturities of three months
or less. The carrying amounts approximate fair value. At December
31, 2021, we held $5,204 in cash and $15,965 in money market funds
and other cash equivalents. Of our total cash and cash equivalents,
$2,706 resided in foreign jurisdictions, some of which is subject
to restrictions on repatriation.
Allowance for Credit Losses We record expense to maintain an
allowance for credit losses for estimated losses that result from
the failure or inability of our customers to make required payments
deemed collectible from the customer when the service was provided
or product was delivered. When determining the allowances for trade
receivables and loans, we consider the probability of
recoverability of accounts receivable based on past experience,
taking into account current collection trends and general economic
factors, including bankruptcy rates. We also consider future
economic trends to estimate expected credit losses over the
lifetime of the asset. Credit risks are assessed based on
historical write-offs, net of recoveries, as well as an analysis of
the aged accounts receivable balances with allowances generally
increasing as the receivable ages. Accounts receivable may be fully
reserved for when specific collection issues are known to exist,
such as catastrophes or pending bankruptcies.
Inventories Inventories primarily consist of wireless devices
and accessories and are valued at the lower of cost or net
realizable value.
Licensed Programming Inventory Cost Recognition and Impairment
We enter into agreements to license programming exhibition rights
from licensors. A programming inventory asset related to these
rights and a corresponding liability payable to the licensor are
recorded (on a discounted basis if the license agreements are
long-term) when (i) the cost of the programming is reasonably
determined, (ii) the programming material has been accepted in
accordance with the terms of the agreement, (iii) the programming
is available for its first showing or telecast, and (iv) the
license period has commenced. There are variations in the
amortization methods of these rights, depending on whether the
network is advertising-supported (e.g., TNT and TBS) or not
advertising-supported (e.g., HBO and Turner Classic Movies).
For the advertising-supported networks, our general policy is to
amortize each program's costs on a straight-line basis (or per-play
basis, if greater) over its license period. In circumstances where
the initial airing of the program has more value than subsequent
airings, an accelerated method of amortization is used. The
accelerated amortization upon the first airing versus subsequent
airings is determined based on a study of historical and estimated
future advertising sales for similar programming. For rights fees
paid for sports programming arrangements, such rights fees are
amortized using a revenue-forecast model, in which the rights fees
are amortized using the ratio of current period advertising revenue
to total estimated remaining advertising revenue over the term of
the arrangement.
For premium pay television, streaming and over-the-top (OTT)
services that are not advertising-supported, each licensed
program's costs are amortized on a straight-line basis over its
license period or estimated period of use, beginning with the month
of initial exhibition. When we have the right to exhibit feature
theatrical programming in multiple windows over a number of years,
historical audience viewership is used as the basis for determining
the amount of programming amortization attributable to each
window.
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Licensed programming inventory is carried at the lower of
unamortized cost or fair value. For networks that generate both
advertising and subscription revenues, the net realizable value of
unamortized programming costs is generally evaluated based on the
network's programming taken as a whole. In assessing whether the
programming inventory for a particular advertising-supported
network is impaired, the net realizable value for all of the
network's programming inventory is determined based on a projection
of the network's profitability. This assessment would occur upon
the occurrence of certain triggering events. Similarly, for premium
pay television, streaming and OTT services that are not
advertising-supported, an evaluation of the fair value of
unamortized programming costs is performed based on services'
licensed programming taken as a whole. Specifically, the fair value
for all premium pay television, streaming and OTT service licensed
programming is determined based on projections of estimated
subscription revenues less certain costs of delivering and
distributing the licensed programming. Changes in management's
intended usage of a specific program, such as a decision to no
longer exhibit that program and forgo the use of the rights
associated with the program license, results in a reassessment of
that program's fair value, which could result in an impairment (see
Note 11).
Film and Television Production Cost Recognition, Participations
and Residuals and Impairments Film and television production costs
on our consolidated balance sheets include the unamortized cost of
completed theatrical films and television episodes, theatrical
films and television series in production and undeveloped film and
television rights. Film and television production costs are stated
at the lower of cost, less accumulated amortization, or fair value.
For films and television programs predominantly monetized
individually, the amount of capitalized film and television
production costs and the amount of participations and residuals to
be recognized as broadcast, programming and operations expenses for
a given film or television series in a particular period are
determined using the film forecast computation method. Under this
method, the amortization of capitalized costs and the accrual of
participations and residuals are based on the proportion of the
film's (or television program's) revenues recognized for such
period to the film's (or television program's) estimated remaining
ultimate revenues (i.e., the total revenue to be received
throughout a film's (or television program's) life cycle).
The process of estimating a film's ultimate revenues requires us
to make a series of judgments related to future revenue-generating
activities associated with a particular film. We estimate the
ultimate revenues, less additional costs to be incurred (including
exploitation and participation costs), in order to determine
whether the value of a film or television series is impaired and
requires an immediate write-off of unrecoverable film and
television production costs. To the extent that the ultimate
revenues are adjusted, the resulting gross margin reported on the
exploitation of that film or television series in a period is also
adjusted. (See Note 11)
Prior to the theatrical release of a film, our estimates are
based on factors such as the historical performance of similar
films, the star power of the lead actors, the rating and genre of
the film, pre-release market research (including test market
screenings), international distribution plans and the expected
number of theaters in which the film will be released. In the
absence of revenues directly related to the exhibition of owned
film or television programs on our television networks, premium pay
television, streaming or OTT services, we estimate a portion of the
unamortized costs that are representative of the utilization of
that film or television program in that exhibition and expense such
costs as the film or television program is exhibited. The period
over which ultimate revenues are estimated generally does not
exceed ten years from the initial release of a motion picture or
from the date of delivery of the first episode of an episodic
television series. Estimates were updated based on information
available during the film's production and, upon release, the
actual results of each film.
For a film (or television program) predominantly monetized as
part of a film (or television program) group, the amount of
capitalized film and television production costs is amortized using
a reasonably reliable estimate of the portion of unamortized film
costs that is representative of the use of the film. Production
costs are expensed as the film (or television program) is exhibited
or exploited.
Property, Plant and Equipment Property, plant and equipment is
stated at cost, except for assets acquired using acquisition
accounting, which are initially recorded at fair value (see Note
7). The cost of additions and substantial improvements to property,
plant and equipment is capitalized, and includes internal
compensation costs for these projects. The cost of maintenance and
repairs of property, plant and equipment is charged to operating
expenses. Property, plant and equipment costs are depreciated using
straight-line methods over their estimated economic lives. Certain
subsidiaries follow composite group depreciation methodology.
Accordingly, when a portion of their depreciable property, plant
and equipment is retired in the ordinary course of business, the
gross book value is reclassified to accumulated depreciation, and
no gain or loss is recognized on the disposition of these
assets.
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Property, plant and equipment is reviewed for recoverability
whenever events or changes in circumstances indicate that the
carrying amount of an asset group may not be recoverable. We
recognize an impairment loss when the carrying amount of a
long-lived asset is not recoverable. The carrying amount of a
long-lived asset is not recoverable if it exceeds the sum of the
undiscounted cash flows expected to result from the use and
eventual disposition of the asset. (See Note 7)
The liability for the fair value of an asset retirement
obligation is recorded in the period in which it is incurred if a
reasonable estimate of fair value can be made. In periods
subsequent to initial measurement, we recognize period-to-period
changes in the liability resulting from the passage of time and
revisions to either the timing or the amount of the original
estimate. The increase in the carrying value of the associated
long-lived asset is depreciated over the corresponding estimated
economic life.
Software Costs We capitalize certain costs incurred in
connection with developing or obtaining internal-use software.
Capitalized software costs are included in "Property, Plant and
Equipment - Net" on our consolidated balance sheets. In addition,
there is certain network software that allows the equipment to
provide the features and functions unique to the AT&T network,
which we include in the cost of the equipment categories for
financial reporting purposes.
We amortize our capitalized software costs over a three-year to
seven-year period, reflecting the estimated period during which
these assets will remain in service.
Goodwill and Other Intangible Assets We have the following major
classes of intangible assets: goodwill; licenses, which include
Federal Communications Commission (FCC) and other wireless
licenses; distribution networks; film and television libraries;
intellectual properties and franchises; trademarks and trade names;
customer lists; and various other finite-lived intangible assets
(see Note 9).
Goodwill represents the excess of consideration paid over the
fair value of identifiable net assets acquired in business
combinations. Wireless licenses provide us with the exclusive right
to utilize certain radio frequency spectrum to provide wireless
communications services. While wireless licenses are issued for a
fixed period of time (generally ten years), renewals of domestic
wireless licenses have occurred routinely and at nominal cost. We
have determined that there are currently no legal, regulatory,
contractual, competitive, economic or other factors that limit the
useful lives of our FCC wireless licenses.
We amortize our wireless licenses in Mexico over their average
remaining economic life of 25 years.
We acquired the rights to the AT&T and other trade names in
previous acquisitions, classifying certain of those trade names as
indefinite-lived. We have the effective ability to retain these
exclusive rights permanently at a nominal cost.
Goodwill, FCC wireless licenses and other indefinite-lived
intangible assets are not amortized but are tested at least
annually for impairment. The testing is performed on the value as
of October 1 each year, and compares the book values of the assets
to their fair values. Goodwill is tested by comparing the carrying
amount of each reporting unit, deemed to be our principal operating
segments or one level below them, to the fair value using both
discounted cash flow as well as market multiple approaches. FCC
wireless licenses are tested on an aggregate basis, consistent with
our use of the licenses on a national scope, using a discounted
cash flow approach. Prior to 2020, orbital slots were similarly
aggregated for purposes of impairment testing and valued using a
discounted cash flow approach. Trade names are tested by comparing
their book values to their fair values calculated using a
discounted cash flow approach on a presumed royalty rate derived
from the revenues related to each brand name.
Intangible assets that have finite useful lives are amortized
over their estimated useful lives (see Note 9). As of January 1,
2020, on a prospective basis, orbital slots were amortized using
the sum-of-the-months-digits method of amortization over their
average remaining economic life (ceased in 2021 in conjunction with
the transfer of the orbital slots as part of the DIRECTV
transaction). Customer lists and relationships are amortized using
primarily the sum-of-the-months-digits method of amortization over
the period in which those relationships are expected to contribute
to our future cash flows. Finite-lived trademarks and trade names
and distribution networks are amortized using the straight-line
method over the estimated useful life of the assets. Film library
is amortized using the film forecast computation method, as
previously disclosed. The remaining finite-lived intangible assets
are generally amortized using the straight-line method. These
assets, along with other long-lived assets, are reviewed for
recoverability whenever events or changes in circumstances indicate
that the carrying amount of an asset group may not be recoverable
(see Note 6).
Advertising Costs We expense advertising costs for products and
services or for promoting our corporate image as incurred (see Note
23).
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Foreign Currency Translation Our foreign subsidiaries and
foreign investments generally report their earnings in their local
currencies. We translate their foreign assets and liabilities at
exchange rates in effect at the balance sheet dates. We translate
their revenues and expenses using average rates during the year.
The resulting foreign currency translation adjustments are recorded
as a separate component of accumulated OCI in our consolidated
balance sheets (see Note 3). Operations in countries with highly
inflationary economies use the U.S. dollar as the functional
currency.
We hedge a portion of the foreign currency exchange risk
involved in certain foreign currency-denominated transactions,
which we explain further in our discussion of our methods of
managing our foreign currency risk (see Note 13).
Pension and Other Postretirement Benefits See Note 15 for a
comprehensive discussion of our pension and postretirement
benefits, including a discussion of the actuarial assumptions, our
policy for recognizing the associated gains and losses and our
method used to estimate service and interest cost components.
New Accounting Standards
Reference Rate Reform In March 2020, the FASB issued ASU No.
2020-04, "Reference Rate Reform (Topic 848): Facilitation of the
Effects of Reference Rate Reform on Financial Reporting" (ASU
2020-04, as amended), which provides optional expedients, and
allows for certain exceptions to existing GAAP, for contract
modifications triggered by the expected market transition of
certain benchmark interest rates to alternative reference rates.
ASU 2020-04 applies to contracts, hedging relationships, certain
derivatives and other arrangements that reference the London
Interbank Offering Rate (LIBOR) or any other rates ending after
December 31, 2022. ASU 2020-04, as amended, became effective
immediately. We do not believe our adoption of ASU 2020-04,
including optional expedients, will materially impact our financial
statements.
Convertible Instruments Beginning with 2022 interim reporting,
we will adopt ASU No. 2020-06, "Debt-Debt With Conversion and Other
Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in
Entity's Own Equity (Subtopic 815-40): Accounting for Convertible
Instruments and Contracts in an Entity's Own Equity" (ASU 2020-06).
ASU 2020-06 eliminated certain separation models regarding cash
conversion and beneficial conversion features to simplify reporting
for convertible instruments as a single liability or equity, with
no separate accounting for embedded conversion features.
Additionally, ASU 2020-06 requires that instruments which may be
settled in cash or stock are presumed settled in stock in
calculating diluted earnings per share. While our intent is to
settle the Mobility II preferred interests in cash (see Note 17),
settlement of this instrument in AT&T shares will result in
additional dilutive impact, the magnitude of which is influenced by
the fair value of the Mobility II preferred interests and the
average AT&T common stock price during the reporting period,
which could vary from period-to-period. We are currently evaluating
our adoption method and the impact on our financial statements, as
our recent decision (February 2022) on methodology of distribution
to AT&T's shareholders (i.e., pro rata dividend) for the
pending WarnerMedia transaction could affect the impact of ASU
2020-06 on our financial statements (see Note 6).
Government Assistance In November 2021, the FASB issued ASU No.
2021-10, "Government Assistance (Topic 832): Disclosures by
Business Entities about Government Assistance" (ASU 2021-10), which
requires annual disclosures, in the notes to the financial
statements, about transactions with a government that are accounted
for by applying a grant or contribution accounting model by analogy
to other guidance. The annual disclosures include terms and
conditions, accounting treatment and impacted financial statement
lines reflecting the impact of the transactions. ASU 2021-10 will
be effective for annual reporting periods beginning after December
15, 2021, under prospective or retrospective application for all in
scope government transactions in the financial statements as of our
adoption date or thereafter. We are evaluating the disclosure
impacts of our adoption of ASU 2021-10.
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NOTE 2. EARNINGS PER SHARE
A reconciliation of the numerators and denominators of basic and
diluted earnings per share is shown in the table below:
Year Ended December 31, 2021 2020 2019
Numerators
Numerator for basic earnings per share:
Net Income (Loss) Attributable to Common Stock $ 19,874 $(5,369) $13,900
Dilutive potential common shares:
Share-based payment 1 22 23 21
Numerator for diluted earnings per share $ 19,896 $(5,346) $13,921
Denominators (000,000)
Denominator for basic earnings per share:
Weighted average number of common shares outstanding 7,168 7,157 7,319
Dilutive potential common shares:
Share-based payment (in shares) 1 31 26 29
Denominator for diluted earnings per share 7,199 7,183 7,348
========== ======== =======
1 For 2020, dilutive potential common shares are not included in the computation
of diluted earnings per share because their effect is antidilutive as a result
of the net loss.
In the first quarter of 2020, we completed an accelerated share
repurchase agreement with a third-party financial institution to
repurchase AT&T common stock (see Note 17). Under the terms of
the agreement, we paid the financial institution $4,000 and
received 104.8 million shares.
Upon adoption of ASU 2020-06, the ability to settle our Mobility
II preferred interests in stock will be reflected in our diluted
earnings per share calculation. The numerator will include an
adjustment to add back to income the distributions on the Mobility
II preferred interests of $140 per quarter, or $560 annually. The
denominator will include the potential issuance of AT&T common
stock to settle the 320 million Mobility II preferred interests
outstanding. (See Note 1)
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NOTE 3. OTHER COMPREHENSIVE INCOME
Changes in the balances of each component included in
accumulated OCI are presented below. All amounts are net of tax and
exclude noncontrolling interest.
Net
Unrealized
Net Unrealized Gains
Foreign Gains (Losses) (Losses) Accumulated
Currency on on Defined Benefit Other
Translation Available-for-Sale Derivative Postretirement Comprehensive
Adjustment Securities Instruments Plans Income
Balance as of December
31, 2018 $ (3,084) $ (2) $ 818 $ 6,517 $ 4,249
Other comprehensive
income
(loss) before
reclassifications 28 50 (900) 3,457 2,635
Amounts reclassified
from
accumulated OCI - 1 - 1 45 2 (1,459) 3 (1,414)
Net other
comprehensive
income (loss) 28 50 (855) 1,998 1,221
Balance as of December
31, 2019 (3,056) 48 (37) 8,515 5,470
Other comprehensive
income
(loss) before
reclassifications (870) 78 (811) 2,250 647
Amounts reclassified
from
accumulated OCI - 1 (15) 1 69 2 (1,841) 3 (1,787)
Net other
comprehensive
income (loss) (870) 63 (742) 409 (1,140)
Balance as of December
31, 2020 (3,926) 111 (779) 8,924 4,330
Other comprehensive
income
(loss) before
reclassifications (125) (63) (715) (34) (937)
Amounts reclassified
from
accumulated OCI 2,087 1,4 (3) 1 72 2 (2,020) 3 136
Net other
comprehensive
income (loss) 1,962 (66) (643) (2,054) (801)
Balance as of December
31, 2021 $ (1,964) $ 45 $ (1,422) $ 6,870 $ 3,529
========= === ======== ========== ========= ===== ========= ===== ========
1 (Gains) losses are included in "Other income (expense) - net" in the consolidated
statements of income.
2 (Gains) losses are included in "Interest expense" in the consolidated statements
of income (see Note 13).
3 The amortization of prior service credits associated with postretirement benefits
is included in "Other income (expense) - net" in the consolidated statements
of income (see Note 15).
4 Represents unrealized foreign currency translation adjustments at Vrio that
were released upon sale. (See Note 6)
NOTE 4. SEGMENT INFORMATION
Our segments are comprised of strategic business units that
offer products and services to different customer segments over
various technology platforms and/or in different geographies that
are managed accordingly. We analyze our segments based on segment
operating contribution, which consists of operating income,
excluding acquisition-related costs and other significant items (as
discussed below), and equity in net income (loss) of affiliates for
investments managed within each segment. We have three reportable
segments: (1) Communications, (2) WarnerMedia and (3) Latin
America.
We also evaluate segment and business unit performance based on
EBITDA and/or EBITDA margin. EBITDA is defined as operating
contribution excluding equity in net income (loss) of affiliates
and depreciation and amortization. We believe EBITDA to be a
relevant and useful measurement to our investors as it is part of
our internal management reporting and planning processes and it is
an important metric that management uses to evaluate operating
performance. EBITDA does not give effect to depreciation and
amortization expenses incurred in operating contribution nor is it
burdened by cash used for debt service requirements and thus does
not reflect available funds for distributions, reinvestment or
other discretionary uses. EBITDA margin is EBITDA divided by total
revenues.
The Communications segment provides wireless and wireline
telecom and broadband services to consumers located in the U.S. and
businesses globally. Our business strategies reflect bundled
product offerings that cut across product lines and utilize
shared
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assets. This segment contains the following business units:
--Mobility provides nationwide wireless service and equipment.
--Business Wireline provides advanced IP-based services, as well
as traditional voice and data services and related equipment to
business customers.
--Consumer Wireline provides internet, including broadband
fiber, and legacy telephony voice communication services to
residential customers.
The WarnerMedia segment develops, produces and distributes
feature films, television, gaming and other content in various
physical and digital formats globally. WarnerMedia content is
distributed through basic networks, Direct-to-Consumer (DTC) or
theatrical, TV content and games licensing. Segment results also
include Xandr advertising and Otter Media Holdings (Otter Media).
We disposed of substantially all Otter Media assets in the third
quarter of 2021 (see Note 6).
On May 17, 2021, we entered into an agreement to combine our
WarnerMedia segment, subject to certain exceptions, with a
subsidiary of Discovery Inc. (See Note 6)
On December 21, 2021, we entered into an agreement to sell the
marketplace component of Xandr to Microsoft Corporation (Microsoft)
(see Note 6). We applied held-for-sale accounting for Xandr as of
December 31, 2021, and continue to present the Xandr results within
the WarnerMedia segment consistent with how performance was
assessed and resource allocation decision were made through
December 31, 2021.
The Latin America segment provides wireless services and
equipment in Mexico, and prior to the November 2021 disposition of
Vrio, video services in Latin America and the Caribbean. We applied
held-for-sale accounting to Vrio as of June 30, 2021 and continued
to present the Vrio results within the Latin America segment
consistent with how performance was assessed and resource
allocation decisions were made until the transaction closed.
Corporate and Other reconciles our segment results to
consolidated operating income and income before income taxes, and
includes:
--Corporate , which consists of: (1) businesses no longer
integral to our operations or which we no longer actively market,
(2) corporate support functions, (3) impacts of corporate-wide
decisions for which the individual operating segments are not being
evaluated, and (4) the reclassification of the amortization of
prior service credits, which we continue to report with segment
operating expenses, to consolidated "Other income (expense) - net."
Costs previously allocated to the Video business that were retained
after the transaction, net of reimbursements from DIRECTV under
transition service agreements, are reported in Corporate following
the transaction through 2022, to maintain comparability of our
operating segment results, and while operational plans and
continued cost reduction initiatives are implemented.
--Video, which consists of our former U.S. video operations that
were contributed to DIRECTV on July 31, 2021 and also includes our
share of DIRECTV's earnings as equity in net income of affiliates
(see Note 10).
--Acquisition-related items, which consists of items associated
with the merger and integration of acquired or divested businesses,
including amortization of intangible assets.
--Certain significant items, which includes (1) employee
separation charges associated with voluntary and/or strategic
offers, (2) asset impairments and abandonments, and (3) other items
for which the segments are not being evaluated.
--Eliminations and consolidations , which (1) removes
transactions involving dealings between our segments, including
channel distribution between WarnerMedia and Video and Vrio prior
to separation, and (2) includes adjustments for our reporting of
the advertising business.
"Interest expense" and "Other income (expense) - net" are
managed only on a total company basis and are, accordingly,
reflected only in consolidated results.
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For the year ended December 31, 2021
Equity in
Net
Operations Depreciation Operating Income
and Support and Income (Loss) of Operating
Revenues Expenses EBITDA Amortization (Loss) Affiliates Contribution
Communications
Mobility $ 78,254 $ 46,820 $31,434 $ 8,122 $ 23,312 $ - $ 23,312
Business Wireline 23,937 14,755 9,182 5,192 3,990 - 3,990
Consumer Wireline 12,539 8,467 4,072 3,095 977 - 977
Total Communications 114,730 70,042 44,688 16,409 28,279 - 28,279
WarnerMedia 35,632 27,737 7,895 656 7,239 38 7,277
Latin America
Mexico 2,747 2,652 95 605 (510) - (510)
Vrio 2,607 2,302 305 231 74 6 80
Total Latin America 5,354 4,954 400 836 (436) 6 (430)
Segment Total 155,716 102,733 52,983 17,901 35,082 $ 44 $ 35,126
Corporate and Other
Corporate 1 1,264 4,805 (3,541) 372 (3,913) (32) (3,945)
Video 15,513 12,666 2,847 356 2,491 619 3,110
Acquisition-related
items - 299 (299) 4,233 (4,532) - (4,532)
Certain significant
items - 4,961 (4,961) - (4,961) - (4,961)
Eliminations and
consolidations (3,629) (2,809) (820) - (820) - (820)
AT&T Inc. $168,864 $ 122,655 $46,209 $ 22,862 $ 23,347 $ 631 $ 23,978
1 Includes $2,680 for the reclassification of prior service credit amortization
and approximately $200 of retained operation and support costs and $240 of depreciation
expense previously allocated to Video, net of reimbursements.
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For the year ended December 31, 2020
Equity in
Net
Income
Operations Depreciation Operating (Loss)
and Support and Income of Operating
Revenues Expenses EBITDA Amortization (Loss) Affiliates Contribution
Communications
Mobility $ 72,564 $ 42,106 $ 30,458 $ 8,086 $ 22,372 $ - $ 22,372
Business Wireline 25,083 15,303 9,780 5,216 4,564 - 4,564
Consumer Wireline 12,318 8,027 4,291 2,914 1,377 - 1,377
Total Communications 109,965 65,436 44,529 16,216 28,313 - 28,313
WarnerMedia 30,442 21,579 8,863 671 8,192 18 8,210
Latin America
Mexico 2,562 2,636 (74) 513 (587) - (587)
Vrio 3,154 2,800 354 520 (166) 24 (142)
Total Latin America 5,716 5,436 280 1,033 (753) 24 (729)
Segment Total 146,123 92,451 53,672 17,920 35,752 $ 42 $ 35,794
Corporate and Other
Corporate 1 2,207 4,205 (1,998) 310 (2,308) 53 (2,255)
Video 28,610 24,174 4,436 2,262 2,174 - 2,174
Acquisition-related
items - 468 (468) 8,012 (8,480) - (8,480)
Certain significant
items - 19,156 (19,156) 14 (19,170) - (19,170)
Eliminations and
consolidations (5,180) (3,615) (1,565) (2) (1,563) - (1,563)
AT&T Inc. $171,760 $ 136,839 $ 34,921 $ 28,516 $ 6,405 $ 95 $ 6,500
=== ====
1 Includes $2,442 for the reclassification of prior service credit amortization.
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AT&T Inc.
Dollars in millions except per share amounts
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For the year ended December 31, 2019
Equity in
Net
Income
Operations Depreciation Operating (Loss)
and Support and Income of Operating
Revenues Expenses EBITDA Amortization (Loss) Affiliates Contribution
Communications
Mobility $ 71,056 $ 40,681 $30,375 $ 8,054 $ 22,321 $ - $ 22,321
Business Wireline 25,901 15,839 10,062 4,925 5,137 - 5,137
Consumer Wireline 13,012 7,775 5,237 2,880 2,357 - 2,357
Total Communications 109,969 64,295 45,674 15,859 29,815 - 29,815
WarnerMedia 35,259 24,172 11,087 589 10,498 161 10,659
Latin America
Mexico 2,869 3,085 (216) 502 (718) - (718)
Vrio 4,094 3,378 716 660 56 27 83
Total Latin America 6,963 6,463 500 1,162 (662) 27 (635)
Segment Total 152,191 94,930 57,261 17,610 39,651 $ 188 $ 39,839
Corporate and Other
Corporate 1 2,203 3,509 (1,306) 645 (1,951) (182) (2,133)
Video 32,124 27,275 4,849 2,461 2,388 - 2,388
Acquisition-related
items (72) 960 (1,032) 7,460 (8,492) - (8,492)
Certain significant
items - 2,082 (2,082) 43 (2,125) - (2,125)
Eliminations and
consolidations (5,253) (3,735) (1,518) (2) (1,516) - (1,516)
AT&T Inc. $181,193 $ 125,021 $56,172 $ 28,217 $ 27,955 $ 6 $ 27,961
======== ========= =========
1 Includes $1,934 for the reclassification of prior service credit amortization.
75
AT&T Inc.
Dollars in millions except per share amounts
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The following table is a reconciliation of operating income
(loss) to "Income (Loss) Before Income Taxes" reported in our
consolidated statements of income:
2021 2020 2019
Communications $ 28,279 $ 28,313 $29,815
WarnerMedia 7,277 8,210 10,659
Latin America (430) (729) (635)
Segment Contribution 35,126 35,794 39,839
Reconciling Items:
Corporate and Other (3,913) (2,308) (1,951)
Video 2,491 2,174 2,388
Merger costs (299) (468) (1,032)
Amortization of intangibles acquired (4,233) (8,012) (7,460)
Asset impairments and abandonments (4,904) (18,880) (1,458)
Gain on spectrum transaction 1 - 900 -
Employee separation charges and benefit-related
losses (57) (1,177) (624)
Other noncash charges (credits), net - (13) (43)
Segment equity in net income of affiliates (44) (42) (188)
Eliminations and consolidations (820) (1,563) (1,516)
AT&T Operating Income 23,347 6,405 27,955
Interest Expense 6,884 7,925 8,422
Equity in net income of affiliates 631 95 6
Other income (expense) - net 9,853 (1,431) (1,071)
Income (Loss) Before Income Taxes $ 26,947 $(2,856) $18,468
1 Included as a reduction of "Selling, general and administrative expenses"
in the consolidated statements of income.
The following table sets forth revenues earned from customers,
and property, plant and equipment located in different geographic
areas:
2021 2020 2019
Net Net
Property, Property, Net Property,
Plant & Plant & Plant &
Revenues Equipment Revenues Equipment Revenues Equipment
United States $151,631 $ 120,924 $155,899 $ 121,208 $161,689 $ 122,567
Europe 6,079 1,106 5,387 1,152 6,536 1,854
Mexico 3,043 3,462 2,862 3,530 3,198 3,648
Brazil 1,486 20 1,807 694 2,797 1,057
All other Latin
America 3,118 115 2,679 485 3,219 544
Asia/Pacific
Rim 2,637 240 2,322 203 2,793 390
Other 870 37 804 43 961 68
Total $168,864 $ 125,904 $171,760 $ 127,315 $181,193 $ 130,128
76
AT&T Inc.
Dollars in millions except per share amounts
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The following tables present intersegment revenues, assets,
investments in equity affiliates and capital expenditures by
segment:
Intersegment Reconciliation
2021 2020 2019
Intersegment revenues
Communications $ 11 $ 11 $ 26
WarnerMedia 2,573 3,183 3,318
Latin America - - -
Total Intersegment Revenues 2,584 3,194 3,344
Consolidations 1,045 1,986 1,909
Eliminations and consolidations $3,629 $5,180 $5,253
===== ===== =====
At or for the years 2021 2020
ended
December 31,
Investments Investments
in in
Equity Equity
Method Capital Method Capital
Assets Investees Expenditures Assets Investees Expenditures
Communications $ 494,063 $ - $ 14,860 $ 506,102 $ - $ 14,107
WarnerMedia 154,369 1,122 764 148,037 1,123 699
Latin America 8,874 - 580 15,811 590 708
Corporate and
eliminations (105,684) 6,152 323 (144,189) 67 161
Total $ 551,622 $ 7,274 $ 16,527 $ 525,761 $ 1,780 $ 15,675
NOTE 5. REVENUE RECOGNITION
We report our revenues net of sales taxes and record certain
regulatory fees, primarily Universal Service Fund (USF) fees, on a
net basis. No customer accounted for more than 10% of consolidated
revenues in 2021, 2020 or 2019.
Wireless, Advanced Data, Legacy Voice & Data Services and
Equipment Revenue
We offer service-only contracts and contracts that bundle
equipment used to access the services and/or with other service
offerings. Some contracts have fixed terms and others are
cancellable on a short-term basis (i.e., month-to-month
arrangements).
Examples of service revenues include wireless, strategic
services (e.g., virtual private network service), and legacy voice
and data (e.g., traditional local and long-distance). These
services represent a series of distinct services that is considered
a separate performance obligation. Service revenue is recognized
when services are provided, based upon either usage (e.g., minutes
of traffic/bytes of data processed) or period of time (e.g.,
monthly service fees).
Some of our services require customer premises equipment that,
when combined and integrated with AT&T's specific network
infrastructure, facilitates the delivery of service to the
customer. In evaluating whether the equipment is a separate
performance obligation, we consider the customer's ability to
benefit from the equipment on its own or together with other
readily available resources and if so, whether the service and
equipment are separately identifiable (i.e., is the service highly
dependent on, or highly interrelated with the equipment). When the
equipment does not meet the criteria to be a separate performance
obligation (e.g., equipment associated with certain video
services), we allocate the total transaction price to the related
service. When equipment is a separate performance obligation, we
record the sale of equipment when title has passed and the products
are accepted by the customer. For devices sold through indirect
channels (e.g., national dealers), revenue is recognized when the
dealer accepts the device, not upon activation.
Our equipment and service revenues are predominantly recognized
on a gross basis, as most of our services do not involve a third
party and we typically control the equipment that is sold to our
customers.
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AT&T Inc.
Dollars in millions except per share amounts
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Revenue recognized from fixed term contracts that bundle
services and/or equipment is allocated based on the stand-alone
selling price of all required performance obligations of the
contract (i.e., each item included in the bundle). Promotional
discounts are attributed to each required component of the
arrangement, resulting in recognition over the contract term.
Stand-alone selling prices are determined by assessing prices paid
for service-only contracts (e.g., arrangements where customers
bring their own devices) and stand-alone device pricing.
We offer the majority of our customers the option to purchase
certain wireless devices in installments over a specified period of
time, and, in many cases, they may be eligible to trade in the
original equipment for a new device and have the remaining unpaid
balance paid or settled. For customers that elect these equipment
installment payment programs, at the point of sale, we recognize
revenue for the entire amount of revenue allocated to the customer
receivable net of fair value of the trade-in right guarantee. The
difference between the revenue recognized and the consideration
received is recorded as a note receivable when the devices are not
discounted and our right to consideration is unconditional. When
installment sales include promotional discounts (e.g., "buy one get
one free" or equipment discounts with trade-in of a device), the
difference between revenue recognized and consideration received is
recorded as a contract asset to be amortized over the contract
term.
Less commonly, we offer certain customers highly discounted
devices when they enter into a minimum service agreement term. For
these contracts, we recognize equipment revenue at the point of
sale based on a stand-alone selling price allocation. The
difference between the revenue recognized and the cash received is
recorded as a contract asset that will amortize over the contract
term.
Our contracts allow for customers to frequently modify their
arrangement, without incurring penalties in many cases. When a
contract is modified, we evaluate the change in scope or price of
the contract to determine if the modification should be treated as
a new contract or if it should be considered a change of the
existing contract. We generally do not have significant impacts
from contract modifications.
Revenues from transactions between us and our customers are
recorded net of revenue-based regulatory fees and taxes. Cash
incentives given to customers are recorded as a reduction of
revenue. Nonrefundable, upfront service activation and setup fees
associated with service arrangements are deferred and recognized
over the associated service contract period or customer
relationship life.
Subscription Revenue
Subscription revenues from cable networks and premium pay and
basic-tier television services are recognized over the license
period as programming is provided to affiliates or digital
distributors based on negotiated contractual programming rates.
When a distribution contract with an affiliate has expired and a
new distribution contract has not been executed, revenues are based
on estimated rates, giving consideration to factors including the
previous contractual rates, inflation, current payments by the
affiliate and the status of the negotiations on a new contract.
When the new distribution contract terms are finalized, an
adjustment to revenue is recorded, if necessary, to reflect the new
terms.
Subscription revenues from end-user subscribers are recognized
when services are provided, based upon either usage or period of
time. Subscription revenues from streaming services are recognized
as programming services are provided to customers.
Content Revenue
Feature films typically are produced or acquired for initial
exhibition in theaters, followed by distribution, generally
commencing within three years of such initial exhibition. Revenues
from film rentals by theaters are recognized as the films are
exhibited.
Television programs and series are initially produced for
broadcast and may be subsequently licensed or sold in physical
format and/or electronic delivery. Revenues from the distribution
of television programming through broadcast networks, cable
networks, first-run syndication and streaming services are
recognized when the programs or series are available to the
licensee. In certain circumstances, pursuant to the terms of the
applicable contractual arrangements, the availability dates granted
to customers may precede the date in which the customer can be
billed for these sales.
Revenues from sales of feature films and television programming
in physical format are recognized at the later of the delivery date
or the date when made widely available for sale or rental by
retailers based on gross sales less a provision for estimated
returns, rebates and pricing allowances. Revenues from the
licensing of television programs and series for electronic
sell-through or video-on-demand are recognized when the product has
been purchased by and made available to the consumer to either
download or stream.
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AT&T Inc.
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------------------------------------------------
Upfront or guaranteed payments for the licensing of intellectual
property are recognized as revenue at either the inception of the
license term if the intellectual property has significant
standalone functionality or over the corresponding license term if
the licensee's ability to derive utility is dependent on our
continued support of the intellectual property throughout the
license term.
Revenues from the sales of console games are recognized at the
later of the delivery date or the date that the product is made
widely available for sale or rental by retailers based on gross
sales less a provision for estimated returns, rebates and pricing
allowances.
Advertising Revenue
Advertising revenues are recognized, net of agency commissions,
in the period that the advertisements are aired. If there is a
targeted audience guarantee, revenues are recognized for the actual
audience delivery and revenues are deferred for any shortfall until
the guaranteed audience delivery is met, typically by providing
additional advertisements. Advertising revenues from digital
properties are recognized as impressions are delivered or the
services are performed.
Revenue Categories
The following tables set forth reported revenue by category and
by business unit:
For the year ended December 31, 2021
Communications
Business Consumer Latin Corporate
Mobility Wireline Wireline WarnerMedia America & Other Elim. Total
Wireless
service $ 57,260 $ - $ - $ - $ 1,834 $ 74 $ - $ 59,168
Video service - - - - 2,607 14,514 - 17,121
Business
service - 23,224 - - - 70 - 23,294
Broadband - - 9,085 - - - - 9,085
Subscription - - - 15,596 - - - 13,133
DTC (HBO
Max)
1 - - - - - - (1,051)
Other 2 - - - - - - (1,412)
Content - - - 15,621 - - - 12,622
DTC (HBO
Max)
3 - - - (1,923) - - -
Other 3 - - - (1,076) - - -
Advertising 330 - - 6,522 - 909 (909) 6,852
Legacy voice
and
data - - 1,977 - - 429 - 2,406
Other - - 1,384 892 - 691 (257) 2,710
Total
Service 57,590 23,224 12,446 35,632 4,441 16,687 (3,629) 146,391
Equipment 20,664 713 93 - 913 90 - 22,473
Total $ 78,254 $ 23,937 $ 12,539 $ 35,632 $ 5,354 $ 16,777 $(3,629) $168,864
1 Represents DTC (HBO Max) intercompany sales to the Communications segment
($698 with Mobility and $353 with Consumer Wireline).
2 Represents intercompany video distribution arrangements primarily to DIRECTV/U-verse
from WarnerMedia prior to August 1, 2021 (see Note 20).
3 Represents intercompany transactions in the WarnerMedia segment.
79
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------
For the year ended December 31, 2020
Communications
Business Consumer Latin Corporate
Mobility Wireline Wireline WarnerMedia America & Other Elim. Total
Wireless
service $ 55,251 $ - $ - $ - $ 1,656 $ 528 $ - $ 57,435
Video service - - - - 3,154 26,747 - 29,901
Business
service - 24,313 - - - 321 - 24,634
Broadband - - 8,534 - - - - 8,534
Subscription - - - 13,765 - - - 10,655
DTC (HBO
Max)
1 - - - - - - (468)
Other 2 - - - - - - (2,642)
Content - - - 13,083 - - - 9,819
DTC (HBO
Max)
3 - - - (2,249) - - -
Other 3 - - - (1,015) - - -
Advertising 291 - - 6,125 - 1,718 (1,718) 6,416
Legacy voice
and
data - - 2,213 - - 554 - 2,767
Other - - 1,564 733 - 661 (352) 2,606
Total
Service 55,542 24,313 12,311 30,442 4,810 30,529 (5,180) 152,767
Equipment 17,022 770 7 - 906 288 - 18,993
Total $ 72,564 $ 25,083 $ 12,318 $ 30,442 $ 5,716 $ 30,817 $(5,180) $171,760
1 Represents DTC (HBO Max) intercompany sales to the Communications segment
($285 with Mobility and $183 with Consumer Wireline).
2 Represents intercompany video distribution arrangements primarily to DIRECTV/U-verse
from WarnerMedia (see Note 20).
3 Represents intercompany transactions in the WarnerMedia segment.
80
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------
For the year ended December 31, 2019
Communications
Business Consumer Latin Corporate
Mobility Wireline Wireline WarnerMedia America & Other Elim. Total
Wireless
service $ 55,039 $ - $ - $ - $ 1,863 $ 628 $ - $ 57,530
Video service - - - - 4,094 30,451 - 34,545
Business
service - 25,116 - - - 325 - 25,441
Broadband - - 8,403 - - - - 8,403
Subscription - - - 13,651 - - - 10,402
DTC (HBO
Max) 1 - - - - - - -
Other 2 - - - - - - (3,249)
Content - - - 14,938 - - - 13,880
DTC (HBO
Max) 1 - - - - - - -
Other 3 - - - (1,058) - - -
Advertising 292 - - 6,678 - 1,672 (1,672) 6,970
Legacy voice
and
data - - 2,573 - - 565 - 3,138
Other - - 2,029 1,050 - 443 (332) 3,190
Total
Service 55,331 25,116 13,005 35,259 5,957 34,084 (5,253) 163,499
Equipment 15,725 785 7 - 1,006 171 - 17,694
Total $ 71,056 $ 25,901 $ 13,012 $ 35,259 $ 6,963 $ 34,255 $(5,253) $181,193
1 HBO Max was launched in May 2020.
2 Represents intercompany video distribution arrangements primarily to DIRECTV/U-verse
from WarnerMedia (see Note 20).
3 Represents intercompany transactions in the WarnerMedia segment.
Deferred Customer Contract Acquisition and Fulfillment Costs
Costs to acquire and fulfill customer contracts, including
commissions on service activations, for our wireless, business
wireline and consumer wireline services, are deferred and amortized
over the contract period or expected customer relationship life,
which typically ranges from three years to five years.
The following table presents the deferred customer contract
acquisition and fulfillment costs included on our consolidated
balance sheets at December 31:
Consolidated Balance Sheets 2021 2020
Deferred Acquisition Costs
Prepaid and other current assets $ 2,550 $ 3,087
Other Assets 3,248 3,198
Total deferred customer contract acquisition costs $ 5,798 $ 6,285
Deferred Fulfillment Costs
Prepaid and other current assets $ 2,601 $ 4,118
Other Assets 4,148 5,634
Total deferred customer contract fulfillment costs $ 6,749 $ 9,752
81
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------
The decline in deferred acquisition and fulfillment costs from
December 31, 2020 reflects the July 2021 separation of the U.S.
Video business. At separation, we removed $1,218 of deferred
acquisitions costs ($693 originally classified as "Prepaid and
other current assets" and $525 originally classified as "Other
assets") and $2,025 of deferred fulfillment costs ($1,134
originally classified as "Prepaid and other current assets" and
$891 originally classified as "Other assets"). (See Note 6)
The following table presents deferred customer contract
acquisition and fulfillment cost amortization included in "Other
cost of revenue" for the year ended December 31:
Consolidated Statements of Income 2021 2020
Deferred acquisition cost amortization $3,072 $2,755
Deferred fulfillment cost amortization 4,019 5,110
Contract Assets and Liabilities
A contract asset is recorded when revenue is recognized in
advance of our right to bill and receive consideration. The
contract asset will decrease as services are provided and billed.
For example, when installment sales include promotional discounts
(e.g., "buy one get one free") the difference between revenue
recognized and consideration received is recorded as a contract
asset to be amortized over the contract term.
Our contract assets primarily relate to our wireless businesses.
Promotional equipment sales where we offer handset credits, which
are allocated between equipment and service in proportion to their
standalone selling prices, when customers commit to a specified
service period result in additional contract assets recognized.
These contract assets will amortize over the service contract
period, resulting in lower future service revenue.
When consideration is received in advance of the delivery of
goods or services, a contract liability is recorded. Reductions in
the contract liability will be recorded as we satisfy the
performance obligations.
The following table presents contract assets and liabilities on
our consolidated balance sheets at December 31:
Consolidated Balance Sheets 2021 2020
Contract asset $4,517 $3,501
Current portion in "Prepaid and other current assets" 2,684 2,054
Contract liability 5,644 6,879
Current portion in "Advanced billings and customer deposits" 5,112 6,071
Our contract asset balance in 2021 reflects increased
promotional equipment sales in our wireless business. We expect the
amortization of these promotional costs to increase throughout 2022
and the contract asset to flatten in 2023.
Changes in our contract asset and contract liability from
December 31, 2020 include the impact of the July 2021 separation of
the U.S. Video business. At separation, the contract asset was
reduced $303 and the contract liability was reduced $1,098, both of
which were predominantly the current portion. (See Note 6)
Our beginning of period contract liabilities recorded as
customer contract revenue during 2021 was $5,662.
Remaining Performance Obligations
Remaining performance obligations primarily relate to our
Communications segment and represent services we are required to
provide to customers under bundled or discounted arrangements,
which are satisfied as services are provided over the contract
term. In our WarnerMedia segment, the most significant remaining
performance obligations relate to the licensing of theatrical and
television content which will be made available to customers at
some point in the future. In determining the transaction price
allocated, we do not include non-recurring charges and estimates
for usage, nor do we consider arrangements with an original
expected duration of less than one year, which are primarily
prepaid wireless and residential internet agreements.
Remaining performance obligations associated with business
contracts reflect recurring charges billed, adjusted to reflect
estimates for sales incentives and revenue adjustments. Performance
obligations associated with wireless contracts are estimated using
a portfolio approach in which we review all relevant promotional
activities, calculating the remaining performance obligation using
the average service component for the portfolio and the average
device price. As of December 31, 2021, the aggregate amount of the
transaction price allocated to remaining performance obligations
was $42,678, of which we
82
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------
expect to recognize approximately 57% by the end of 2022, with
the balance recognized thereafter.
NOTE 6. ACQUISITIONS, DISPOSITIONS AND OTHER ADJUSTMENTS
Acquisitions
Spectrum Auctions On February 24, 2021, the Federal
Communications Commission (FCC) announced that AT&T was the
winning bidder for 1,621 C-Band licenses, comprised of a total of
80 MHz nationwide, including 40 MHz in Phase I. We provided to the
FCC an upfront deposit of $550 in 2020 and cash payments totaling
$22,856 in the first quarter of 2021, for a total of $23,406. We
received the licenses in July 2021 and classified the auction
deposits, related capitalized interest and billed relocation costs
as "Licenses - Net" on our December 31, 2021 consolidated balance
sheet. In December 2021, we paid $955 of Incentive Payments upon
clearing of Phase I spectrum and estimate that we will pay $2,112
upon clearing of Phase II spectrum, expected by the end of 2023.
Additionally, we are responsible for approximately $1,000 of
compensable relocation costs over the next several years as the
spectrum is being cleared by satellite operators, of which $650 was
paid in the fourth quarter of 2021. Cash paid, including spectrum
deposits (net of refunds), capitalized interest, and any payments
for incentive and relocation costs are included in "Acquisitions,
net of cash acquired" on our consolidated statements of cash flows.
Interest is capitalized until the spectrum is ready for its
intended use. Funding for the purchase price of the spectrum
included a combination of cash on hand and short-term investments,
as well as short- and long-term debt.
On January 14, 2022, the FCC announced that we were the winning
bidder for 1,624 3.45 GHz licenses in Auction 110. We provided the
FCC an upfront deposit of $123 in the third quarter of 2021 and
will pay the remaining $8,956 in the first quarter of 2022, for a
total of $9,079. We intend to fund the purchase price using cash
and short-term investments.
In June 2020, we completed the acquisition of $2,379 of 37/39
GHz spectrum in an FCC auction. Prior to the auction, we exchanged
the 39 GHz licenses with a book value of approximately $300 that
were previously acquired through FiberTower Corporation for
vouchers to be applied against the winning bids and recorded a $900
gain in the first quarter of 2020. These vouchers yielded a value
of approximately $1,200, which was applied toward our gross bids.
In the second quarter of 2020, we made the final cash payment of
$949, bringing the total cash payment to $1,186.
In December 2019, we acquired $982 of 24 GHz spectrum in an FCC
auction.
HBO Latin America Group (HBO LAG) In May 2020, we acquired the
remaining interest in HBO LAG for $141, net of cash acquired. At
acquisition, we remeasured the fair value of the total business,
which exceeded the carrying amount of our equity method investment
and resulted in a pre-tax gain of $68. We consolidated that
business upon close and recorded those assets at fair value,
including $640 of trade names, $271 of distribution networks and
$346 of goodwill that is reported in the WarnerMedia segment.
Dispositions
Video Business On July 31, 2021, we closed our transaction with
TPG to form a new company named DIRECTV, which is jointly governed
by a board with representation from both AT&T and TPG, with TPG
having tie-breaking authority on certain key decisions, most
significantly the appointment and removal of the CEO.
In connection with the transaction, we contributed our U.S.
Video business unit to DIRECTV for $4,250 of junior preferred
units, an additional distribution preference of $4,200 and a 70%
economic interest in common units (collectively "equity
considerations"). TPG contributed approximately $1,800 in cash to
DIRECTV for $1,800 of senior preferred units and a 30% economic
interest in common units. See Note 10 for additional information on
our accounting for our investment in DIRECTV.
Upon close of the transaction in the third quarter, we received
approximately $7,170 in cash from DIRECTV ($7,600, net of $430 cash
on hand) and transferred $195 of DIRECTV debt. Approximately $1,800
of the cash received is reported as cash received from financing
activities in our consolidated statement of cash flows, as it
relates to a note payable to DIRECTV, for which payment is tied to
our agreement to cover net losses under the remaining term of the
NFL SUNDAY TICKET contract up to a cap of $2,100 over the remaining
period of the contract. The remainder of the net proceeds is
reported as cash from investing activities. This transaction did
not result in a material gain or loss.
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AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------
In the first quarter of 2021, we applied held-for-sale
accounting treatment to the assets and liabilities of the U.S.
video business, and, accordingly, included the assets in "Prepaid
and other current assets," and the related liabilities in "Accounts
payable and accrued liabilities," on our consolidated balance
sheet, up until the close of the transaction. The held-for-sale
classification also resulted in ceasing depreciation and
amortization on the designated assets.
The assets and liabilities of the Video operations, transferred
to DIRECTV upon close of the transaction, were as follows:
Current assets $ 4,893
Property, plant and equipment - net 2,673
Licenses - net 5,798
Other intangible assets - net 1,634
Other assets 1,787
Total Video assets $16,785
Current liabilities $ 4,267
Long-term debt 206
Other noncurrent liabilities 343
Total Video liabilities $ 4,816
Vrio On November 15, 2021, we completed the sale of our Latin
America video operations, Vrio, to Grupo Werthein and recorded a
note receivable of $610 to be paid over four years, of which $300
is in the form of seller financing and the remainder is related to
working capital adjustments. In the second quarter of 2021, we
classified the Vrio disposal group as held-for-sale and reported
the disposal group at fair value less cost to sell, which resulted
in a noncash, pre-tax impairment charge of $4,555, including
approximately $2,100 related to accumulated foreign currency
translation adjustments and $2,500 related to property, plant and
equipment and intangible assets. Approximately $80 of the
impairment was attributable to noncontrolling interest. The assets
and liabilities removed from our consolidated balance sheet
included $851 of Vrio held-for-sale assets primarily related to
deferred customer contract acquisition and fulfillment costs,
prepaids and other deferred charges, and $2,872 of related
liabilities primarily for reserves associated with accumulated
foreign currency translation adjustments, which reversed against
accumulated other comprehensive income upon close of the
transaction. This disposition did not result in a net material gain
or loss. We continue to hold a 41.3% interest in SKY Mexico, a
leading pay-TV provider in Mexico.
Otter Media During the third quarter of 2021, we disposed of
substantially all of the assets of Otter Media. We received
approximately $1,540 in cash and removed approximately $1,200 of
goodwill associated with these assets. The dispositions did not
result in a material gain or loss.
Playdemic Ltd. On September 20, 2021, we sold WarnerMedia's
mobile games app studio, Playdemic Ltd. (Playdemic) for
approximately $1,370 in cash and recognized a pre-tax gain of $706
in "Other income (expense) - net," on our consolidated statement of
income. Approximately $600 of goodwill was removed related to this
business. Playdemic was excluded from the pending
WarnerMedia/Discovery transaction.
Central European Media Enterprises Ltd. (CME) On October 13,
2020, we completed the sale of our 65.3% interest in CME, a
European broadcasting company, for approximately $1,100. This
disposition did not result in a material gain or loss. Upon close,
we received relief from a debt guarantee originally covering
approximately $1,100 that was reduced to $600 at the time of the
sale.
Operations in Puerto Rico On October 31, 2020, we completed the
sale of our previously held-for-sale wireless and wireline
operations in Puerto Rico and the U.S. Virgin Islands for
approximately $1,950 and recorded a pre-tax loss of $82. Upon sale
we removed held-for-sale assets ("Prepaid and other current
assets") and held-for-sale liabilities ("Accounts payable and
accrued liabilities") that primarily consisted of FCC licenses
(approximately $1,100), allocated goodwill (approximately $250),
net property, plant and equipment (approximately $850) and net tax
liabilities (approximately $500), previously reported on our
consolidated balance sheets. The proceeds were used to redeem
$1,950 of cumulative preferred interests in a subsidiary that held
notes secured by the proceeds of this sale.
Hudson Yards In June 2019, we sold our ownership in Hudson Yards North Tower Holdings LLC under a sale-leaseback arrangement for cash proceeds of $2,081 and recorded a loss of approximately $100 resulting from transaction costs (primarily real estate transfer taxes).
84
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------
Hulu In April 2019, we sold our ownership interest in Hulu for
cash proceeds of $1,430 and recorded a pre-tax gain of $740.
Pending Dispositions
WarnerMedia On May 17, 2021, we entered into an agreement to
combine our WarnerMedia segment, subject to certain exceptions,
with a subsidiary of Discovery, Inc. (Discovery). The agreement is
structured as a Reverse Morris Trust transaction, under which
WarnerMedia will be distributed to AT&T's shareholders via a
pro rata dividend, an exchange offer, or a combination of both,
followed by its combination with Discovery. The transaction is
expected to be tax-free to AT&T and AT&T's shareholders.
AT&T will receive approximately $43,000 (subject to working
capital and other adjustments) in a combination of cash, debt
securities, and WarnerMedia's retention of certain debt. AT&T's
shareholders will receive stock representing approximately 71% of
the new company; Discovery shareholders will own approximately 29%
of the new company.
On February 1, 2022, we announced that we will structure the
distribution as a spin-off rather than an exchange offer. Upon
closing of the transaction, each AT&T shareholder will receive,
on a tax-free basis, an estimated 0.24 shares of the new company
for each share of AT&T common stock held as of the record date
for the pro rata distribution. The exact number of shares to be
received by AT&T shareholders for each AT&T common share
will be determined closer to the closing based on the number of
shares of AT&T common stock outstanding and the number of
shares of Discovery common stock outstanding on an as-converted and
as-exercised basis. AT&T shareholders will continue to hold the
same number of shares of AT&T common stock after the
transaction closes.
The transaction is expected to close in the second quarter of
2022, subject to approval by Discovery shareholders and customary
closing conditions, including receipt of regulatory approvals. No
vote is required by AT&T shareholders. Upon close of the
transaction, WarnerMedia will be deconsolidated.
The merger agreement contains certain customary termination
rights for AT&T and Discovery, including, without limitation, a
right for either party to terminate if the transaction is not
completed on or before July 15, 2023. Termination fees under
specified circumstances will require Discovery to pay AT&T $720
or AT&T to pay Discovery $1,770.
Magallanes, Inc. (Spinco), a subsidiary of AT&T, entered
into a $41,500 commitment letter (Bridge Loan) on May 17, 2021. On
June 4, 2021, Spinco entered into a $10,000 term loan credit
agreement (Spinco Term Loan) and reduced the aggregate commitment
amount under the Bridge Loan to $31,500. There have been no draws
on the Bridge Loan or the Spinco Term Loan. In the event advances
are made under the Bridge Loan or Spinco Term Loan, those advances
will be used by Spinco to finance a portion of the cash
distribution to AT&T in connection with the transaction.
Xandr On December 21, 2021, we entered into an agreement to sell
the marketplace component of Xandr, primarily representing the
AppNexus business, to Microsoft, which is expected to close in
2022, subject to customary regulatory approvals. This advertising
business is included in our WarnerMedia segment and is excluded
from the WarnerMedia/Discovery transaction. We applied
held-for-sale accounting treatment to the related assets and
liabilities of this business, resulting in approximately $550 of
goodwill and other intangible assets being reclassified to "Prepaid
and other current assets" as of December 31, 2021.
85
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------
NOTE 7. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is summarized as follows at
December 31:
Lives (years) 2021 2020
Land - $ 2,458 $ 2,571
Buildings and improvements 2-44 39,306 39,418
Central office equipment 1 3-10 97,069 95,981
Cable, wiring and conduit 15-50 79,961 75,409
Satellites 14-17 103 908
Other equipment 3-20 86,830 90,883
Software 3-7 17,916 18,482
Under construction - 5,845 4,099
329,488 327,751
Accumulated depreciation and amortization 203,584 200,436
Property, plant and equipment - net $125,904 $127,315
1 Includes certain network software.
Our depreciation expense was $18,629 in 2021, $20,504 in 2020,
and $20,758 in 2019. Depreciation expense included amortization of
software totaling $3,021 in 2021, $3,483 in 2020 and $3,313 in
2019.
In December 2020, we reassessed our grouping of long-lived
assets and identified certain impairment indicators, requiring us
to evaluate the recoverability of the long-lived assets of our
former video business. Based on this evaluation, we determined that
these assets were not fully recoverable and recognized pre-tax
impairment charges totaling $7,255, of which $1,681 relates to
property, plant and equipment, including satellites. The reduced
carrying amounts of the impaired assets became their new cost
basis.
In 2019, we recorded a noncash pre-tax charge of $1,290 to
abandon copper assets that we no longer expect will be utilized to
support future network activity. The abandonment was considered
outside the ordinary course of business.
NOTE 8. LEASES
We have operating and finance leases for certain facilities and
equipment used in our operations. Our leases generally have
remaining lease terms of up to 15 years. Some of our real estate
operating leases contain renewal options that may be exercised, and
some of our leases include options to terminate the leases within
one year.
We have recognized a right-of-use asset for both operating and
finance leases, and a corresponding lease liability that represents
the present value of our obligation to make payments over the lease
term. The present value of the lease payments is calculated using
the incremental borrowing rate for operating and finance leases,
which was determined using a portfolio approach based on the rate
of interest that we would have to pay to borrow an amount equal to
the lease payments on a collateralized basis over a similar term.
We use the unsecured borrowing rate and risk-adjust that rate to
approximate a collateralized rate in the currency of the lease,
which will be updated on a quarterly basis for measurement of new
lease liabilities.
The components of lease expense were as follows:
2021 2020 2019
Operating lease cost $ 5,793 $ 5,896 $ 5,684
Finance lease cost:
Amortization of right-of-use assets $ 256 $ 287 $ 271
Interest on lease obligation 162 156 169
Total finance lease cost $ 418 $ 443 $ 440
86
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------
The following table provides supplemental cash flows information
related to leases:
2021 2020 2019
Cash Flows from Operating Activities
Cash paid for amounts included in lease obligations:
Operating cash flows from operating leases $ 5,012 $ 4,852 $ 4,583
Supplemental Lease Cash Flow Disclosures
Operating lease right-of-use assets obtained
in exchange for
new operating lease obligations $ 4,581 $ 5,270 $ 7,818
==== ==== ====
The following tables set forth supplemental balance sheet
information related to leases at December 31:
2021 2020
Operating Leases
Operating lease right-of-use assets $24,180 $24,714
Accounts payable and accrued liabilities $ 3,706 $ 3,537
Operating lease obligation 21,261 22,202
Total operating lease obligation $24,967 $25,739
Finance Leases
Property, plant and equipment, at cost $ 2,609 $ 3,586
Accumulated depreciation and amortization (1,120) (1,361)
Property, plant and equipment - net $ 1,489 $ 2,225
Current portion of long-term debt $ 137 $ 189
Long-term debt 1,484 1,847
Total finance lease obligation $ 1,621 $ 2,036
2021 2020
Weighted-Average Remaining Lease Term (years)
Operating leases 8.4 8.5
Finance leases 8.4 9.9
Weighted-Average Discount Rate
Operating leases 3.7% 4.1%
Finance leases 7.8% 8.1%
87
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------
The following table provides the expected future minimum
maturities of lease obligations:
At December 31, 2021 Operating Finance
Leases Leases
2022 $ 4,922 $ 299
2023 4,502 283
2024 3,970 257
2025 3,232 246
2026 2,540 243
Thereafter 10,686 1,068
Total lease payments 29,852 2,396
Less: imputed interest (4,885) (775)
Total $ 24,967 $ 1,621
NOTE 9. GOODWILL AND OTHER INTANGIBLE ASSETS
We test goodwill for impairment at a reporting unit level, which
is deemed to be our principal operating segments or one level
below. With our annual impairment testing as of October 1, 2021,
the calculated fair values of the reporting units exceeded their
book values in all circumstances; however, the WarnerMedia fair
value exceeded its book value by less than 10%, with industry
trends and our content distribution strategy affecting fair
value.
Effective January 1, 2021, we updated our reporting units to
reflect recent changes in how WarnerMedia, an integrated content
organization that distributes across various platforms, is managed
and evaluated. With this operational change, the reporting unit is
deemed to be the operating segment. The previous reporting units,
Turner, Home Box Office, Warner Bros., and Xandr, and the new
WarnerMedia reporting unit were tested for goodwill impairment on
January 1, 2021, for which no impairment was identified.
Changes to our goodwill in 2021 primarily resulted from the
following transactions (see Note 6):
-- The agreement to sell our marketplace component of Xandr, our
advertising business within the WarnerMedia segment. Approximately
$400 of goodwill was allocated to the business and classified as
held-for-sale.
-- Our disposition of substantially all the assets of Otter
Media and removal of $885 of associated goodwill.
-- Our sale of WarnerMedia's mobile games app studio, Playdemic
and removal of $600 of associated goodwill.
Other changes to our goodwill in 2021 primarily resulted from
the sale of our Government Solutions business and foreign currency
translation.
In December 2020, we changed our management strategy and
reevaluated our former domestic video business, allowing us to
maximize value in our former domestic video business and further
accelerate our ability to innovate and execute in our fast-growing
broadband and fiber business. The strategy change required us to
reassess the grouping and recoverability of the former video
business long-lived assets. In conjunction with the strategy
change, we separated the former Entertainment Group reporting unit
into two reporting units, Video and Consumer Wireline, which
includes legacy telephony operations. Our recoverability assessment
resulted in $7,255 of long-lived asset impairment in the former
video business, including $4,373 for orbital slots and $1,201 for
customer lists. The change in reporting units required the
historical Entertainment Group goodwill to be assigned to the
separate Video and Consumer Wireline reporting units, for which we
used the relative fair value allocation methodology. The affected
reporting units were then tested for goodwill impairment. We
recorded an impairment of the entire $8,253 of goodwill allocated
to the Video reporting unit. No goodwill impairment was required in
the Consumer Wireline reporting unit. We closed our transaction
with TPG and deconsolidated Video in the third quarter of 2021 (see
Note 6).
In the second quarter of 2020, driven by significant and adverse
economic and political environments in Latin America, including the
impact of COVID-19, we experienced accelerated subscriber losses
and revenue decline in the region, as well as closure of our
operations in Venezuela. When combining these business trends and
higher weighted-average cost of capital resulting from the increase
in country-risk premiums in the region, we concluded that it was
more likely than not that the fair value of the Vrio reporting
unit, estimated using discounted cash flow and market multiple
approaches, was less than its carrying amount. We recorded a $2,212
goodwill impairment in the Vrio reporting unit, with $105
attributable to noncontrolling interest. Vrio was sold in the
fourth quarter of 2021 (see Note 6).
88
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------
Other changes to our goodwill in 2020 resulted from foreign
currency translation, the held-for-sale treatment of Crunchyroll
and our acquisition of the remaining interest in HBO LAG (see Note
6). In 2020, Xandr was combined with our WarnerMedia segment.
At December 31, 2021, our Communications segment has three
reporting units: Mobility, Business Wireline and Consumer Wireline.
The reporting unit is deemed to be the operating segment for
WarnerMedia and Latin America.
89
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------
The following table sets forth the changes in the carrying
amounts of goodwill by operating segment:
2021 2020
Balance Dispositions, Balance Balance Dispositions, Balance
at currency at at currency at
Jan. exchange Dec. Jan. exchange Dec.
1 and other 31 1 Acquisitions Impairments and other 31
Communications $ 91,976 $ (76) $ 91,900 $100,234 $ - $ (8,253) $ (5) $ 91,976
WarnerMedia 42,447 (1,940) 40,507 42,345 415 - (313) 42,447
Latin America 836 (20) 816 3,662 - (2,212) (614) 836
Total $135,259 $ (2,036) $133,223 $146,241 $ 415 $ (10,465) $ (932) $135,259
We review amortizing intangible assets for impairment whenever
events or circumstances indicate that the carrying amount may not
be recoverable over the remaining life of the asset or asset group,
including the video business previously discussed.
In 2021, as a result of the separation of our U.S. video
business (see Note 6), we removed $5,798 of orbital slot licenses
and $1,585 of customer lists that were transferred to DIRECTV. As a
result of the transaction to sell our Latin America video
operations (see Note 6), we classified the Vrio disposal group as
held-for-sale and reported the disposal group at fair value less
cost to sell, which resulted in the impairment of certain
intangibles related to this business, including $241 for customer
lists, $632 for trade names and $89 for amortizable wireless
licenses. Indefinite-lived wireless licenses increased in 2021 due
to recent auction activity (see Note 6).
In 2020, we changed the estimated lives of our orbital slot
licenses from indefinite to finite-lived and began amortizing them
over their average remaining economic life of 15 years (see Note
1).
90
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------
Our other intangible assets at December 31 are summarized as
follows:
2021 2020
Gross Currency Gross Currency
Other Intangible Weighted-Average Carrying Accumulated Translation Carrying Accumulated Translation
Assets Life Amount Amortization Adjustment Amount Amortization Adjustment
Amortized
intangible
assets:
Wireless
licenses 21.6 years $ 3,083 $ 307 $ (440) $ 2,979 $ 271 $ (421)
Orbital slots N/A - - - 5,825 - -
Trademarks and
trade names 38.3 years 18,781 2,077 (7) 20,016 1,518 (442)
Distribution
network 10.0 years 18,399 6,457 - 18,414 4,621 -
Released
television
and film
content 17.8 years 10,939 6,978 - 10,940 6,240 -
Customer lists
and
relationships 11.2 years 637 483 (98) 4,100 1,645 (460)
Other 22.3 years 10,987 3,221 - 11,311 2,615 (5)
Total 24.6 years $ 62,826 $ 19,523 $ (545) $ 73,585 $ 16,910 $ (1,328)
Indefinite-lived intangible assets not subject to
amortization:
Wireless licenses $111,494 $85,728
Trade names 5,241 5,241
Total $116,735 $90,969
Amortized intangible assets are definite-life assets, and, as
such, we record amortization expense based on a method that most
appropriately reflects our expected cash flows from these assets.
Amortization expense for definite-life intangible assets in 2021
reflected the separation of our U.S. video and Vrio businesses and
was $4,288 for the year ended December 31, 2021, $8,239 for the
year ended December 31, 2020 and $7,932 for the year ended December
31, 2019.
Estimated amortization expense for the next five years is as
follows:
Attributable
to
WarnerMedia
Year AT&T Inc. 1
2022 $ 3,907 $ 3,747
2023 3,895 3,741
2024 3,524 3,377
2025 3,394 3,258
2026 3,309 3,174
1 The pending WarnerMedia/Discovery transaction
is expected to close in the second quarter of
2022, subject to approval by Discovery shareholders
and customary closing conditions. (See Note 6)
91
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------
NOTE 10. EQUITY METHOD INVESTMENTS
Investments in partnerships, joint ventures and less than
majority-owned subsidiaries in which we have significant influence
are accounted for under the equity method.
On July 31, 2021, we closed our transaction with TPG to form a
new company named DIRECTV (see Note 6). The transaction resulted in
our deconsolidation of the Video Business, with DIRECTV being
accounted for under the equity method beginning August 1, 2021.
In May 2020, we acquired the remaining interest in HBO LAG and
fully consolidated that entity. In October 2020, we sold our
ownership interest in CME. (See Note 6)
In 2019, we sold our investments in Hudson Yards and Hulu. (See
Note 6)
Our investments in equity affiliates at December 31, 2021
primarily included our interests in DIRECTV, SKY Mexico and The CW
Network.
DIRECTV We account for our investment in DIRECTV under the
equity method of accounting. DIRECTV is considered a variable
interest entity for accounting purposes. As DIRECTV is jointly
governed by a board with representation from both AT&T and TPG,
with TPG having tie-breaking authority on certain key decisions,
most significantly the appointment and removal of the CEO, we have
concluded that we are not the primary beneficiary of DIRECTV.
The ownership interests in DIRECTV, based on seniority are as
follows:
--Preferred units with distribution rights of $1,800 held by
TPG, which were fully distributed by December 31, 2021.
--Junior preferred units with distribution rights of $4,250 held
by AT&T, of which $3,212 of distribution rights remain as of
December 31, 2021.
--Distribution preference associated with Common units of $4,200
held by AT&T.
--Common units, with 70% held by AT&T and 30% held by
TPG.
The initial fair value of the equity considerations on July 31,
2021 was $6,852, which was determined using a discounted cash flow
model reflecting distribution rights and preference of the
individual instruments. During 2021, we recognized $619 of equity
in net income of affiliates and received total distributions of
$1,942 from DIRECTV. The book value of our investment in DIRECTV at
December 31, 2021 was $5,539.
Our share of net income or loss may differ from the stated
ownership percentage interest of DIRECTV as the terms of the
arrangement prescribe substantive non-proportionate cash
distributions, both from operations and in liquidation, that are
based on classes of interests held by investors. In the event that
DIRECTV records a loss, that loss will be allocated to ownership
interests based on their seniority, beginning with the most
subordinated interests.
SKY Mexico We hold a 41.3% interest in SKY Mexico, which is a leading pay-TV provider in Mexico.
The CW Network (The CW) We hold a 50.0% interest in The CW,
which is an advertising supported broadcasting and licensing joint
venture between Warner Bros. and CBS Corporation.
92
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------
The following table is a reconciliation of our investments in
equity affiliates as presented on our consolidated balance
sheets:
2021 2020
Beginning of year $ 1,780 $ 3,695
Additional investments 265 178
Receipt of equity interest in DIRECTV 6,852 -
Distributions from DIRECTV in excess of cumulative equity
in earnings (1,323) -
Other capital distributions (26) (22)
Dividends and distributions of cumulative earnings received (815) (133)
Equity in net income of affiliates 631 95
Acquisition of remaining interest in HBO LAG - (1,141)
Disposition of CME - (749)
Impairments - (146)
Disposition of various investments (68) -
Currency translation adjustments (16) (10)
Other adjustments (6) 13
End of year $ 7,274 $ 1,780
NOTE 11. INVENTORIES AND THEATRICAL FILM AND TELEVISION
PRODUCTION COSTS
Film and television production costs are stated at the lower of
cost, less accumulated amortization, or fair value and include the
unamortized cost of completed theatrical films and television
episodes, theatrical films and television series in production and
undeveloped film and television rights. The amount of capitalized
film and television production costs recognized as broadcast,
programming and operations expenses for a given period is
determined using the film forecast computation method.
In the fourth quarter of 2020, we recognized an impairment of
$524 based on a change in these estimates for various film titles.
This change in estimates was driven by the continued shutdown of
theaters during the pandemic, including the resurgence of an
outbreak in the fourth quarter and the impact of our decision to
release our 2021 movies in theaters and on HBO Max at the same
time.
93
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------
The following table summarizes inventories and theatrical film
and television production costs as of December 31:
2021 2020
Inventories:
Programming costs, less amortization 1 $ 7,101 $ 6,010
Other inventory, primarily DVD and Blu-ray Discs 134 103
Total inventories 7,235 6,113
Less: current portion of inventory (134) (103)
Total noncurrent inventories 7,101 6,010
Theatrical film production costs: 2
Released, less amortization 525 487
Completed and not released 343 616
In production 1,687 1,130
Development and pre-production 143 190
Television production costs: 2
Released, less amortization 3,335 2,495
Completed and not released 1,350 1,381
In production 4,376 2,353
Development and pre-production 123 90
Total theatrical film and television production costs 11,882 8,742
Total noncurrent inventories and theatrical film and television
production costs $18,983 $14,752
1 Includes the costs of certain programming rights, primarily sports, for which
payments have been made prior to the related rights being received.
2 Does not include $3,961 and $4,699 of acquired film and television library
intangible assets as of December 31, 2021 and 2020, respectively, which are
included in "Other Intangible Assets - Net" on our consolidated balance sheets.
Approximately 89% of unamortized film costs for released
theatrical and television content are expected to be amortized
within three years from December 31, 2021. In addition,
approximately $3,464 of the film costs of released and completed
and not released theatrical and television product are expected to
be amortized during 2022.
94
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------
NOTE 12. DEBT
Long-term debt of AT&T and its subsidiaries, including
interest rates and maturities, is summarized as follows at December
31:
2021 2020
Notes and debentures
Interest
Rates Maturities 1
0.69% -2.99% 2021 -2039 $ 31,841 $ 25,549
3.00% -4.99% 2021 -2061 108,003 110,317
5.00% -6.99% 2021 -2095 23,360 24,259
7.00% -9.15% 2021 -2097 5,645 5,006
Credit agreement borrowings 10,400 300
Fair value of interest rate swaps recorded
in debt 16 20
179,265 165,451
Unamortized (discount) premium - net (9,610) (9,710)
Unamortized issuance costs (508) (532)
Total notes and debentures 169,147 155,209
Finance lease obligations 1,621 2,036
Total long-term debt, including current
maturities 170,768 157,245
Current maturities of long-term debt (7,944) (3,470)
Current maturities of credit agreement
borrowings (10,100) -
Total long-term debt $152,724 $153,775
1 Maturities assume puttable debt is redeemed by the holders at
the next opportunity.
We had outstanding Euro, British pound sterling, Canadian
dollar, Mexican peso, Australian dollar, and Swiss franc
denominated debt of approximately $41,249 and $43,399 at December
31, 2021 and 2020, respectively.
The weighted-average interest rate of our long-term debt
portfolio, including, credit agreement borrowings and the impact of
derivatives, was approximately 3.8% as of December 31, 2021 and
4.1% as of December 31, 2020.
Debt maturing within one year consisted of the following at
December 31:
2021 2020
Current maturities of long-term debt $ 7,944 $3,470
Commercial paper 6,586 -
Credit agreement borrowings 10,100 -
Total $24,630 $3,470
95
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------
Financing Activities
During 2021, we received net proceeds of $8,931 on the issuance
of $8,949 in long-term debt and proceeds of $10,100 on the issuance
of credit agreement borrowings in various markets, with an average
weighted maturity of approximately 2.3 years and a weighted average
interest rate of 1.4%. We repaid $2,904 in borrowings of various
notes with a weighted average coupon of 3.5%. Our debt activity
during 2021 primarily consisted of the following:
First Second Third Fourth Full Year
Quarter Quarter Quarter Quarter 2021
Net commercial paper borrowings 1 $ 7,072 $ (513) $ (2) $ 4 $ 6,561
Issuance of Notes and Debentures 2 :
U.S. dollar denominated global notes $ 6,000 $ - $ - $ - $ 6,000
Initial average rate of 1.27%
Euro denominated global notes (converted
to USD at issuance) 1,461 - - - 1,461
Rate of 0.00%
2021 Syndicated Term Loan 7,350 - - - 7,350
BAML Bilateral Term Loan 2,000 - - - 2,000
Private financing 750 - - - 750
Other 636 - 835 - 1,471
Debt Issuances $ 18,197 $ - $ 835 $ - $ 19,032
Repayments:
Private financing $ (649) $ - $ - $ - $ (649)
2.650% Euro denominated global notes due
2021 - - - (1,349) (1,349)
Other (253) (253) (498) (140) (1,144)
Repayments of long-term debt $ (902) $ (253) $ (498) $(1,489) $ (3,142)
1 Includes $1,316 net issuance of commercial paper with original maturities
of three months or less, $12,755 of commercial paper issued greater than 90
days and $7,510 of commercial paper repaid greater than 90 days.
2 Includes credit agreement borrowing.
Tender Offers and Debt Exchanges
In August 2020, we repurchased $11,384 of AT&T global notes
and subsidiary notes due 2021 to 2025 through cash tender
offers.
In September 2020, we exchanged $17,677 of AT&T and
subsidiary notes, with interest rates ranging from 4.350% to 8.750%
and original maturities ranging from 2031 to 2058 for $1,459 of
cash and $21,500 of three new series of AT&T Inc. global notes,
with interest rates ranging from 3.500% to 3.650% and maturities
ranging from 2053 to 2059.
In December 2020, we also exchanged $8,280 of AT&T and
subsidiary notes, with interest rates ranging from 2.950% to 7.125%
and original maturities ranging from 2026 to 2048 for $8 of cash
and $9,678 of two new series of AT&T global notes, with
interest rates of 2.550% and 3.800% and maturities of 2033 and
2057, respectively.
96
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------
As of December 31, 2021 and 2020, we were in compliance with all
covenants and conditions of instruments governing our debt.
Substantially all of our outstanding long-term debt is unsecured.
Maturities of outstanding long-term notes and debentures, as of
December 31, 2021, and the corresponding weighted-average interest
rate scheduled for repayment are as follows:
2022 2023 2024 2025 2026 Thereafter
Debt repayments 1 $18,185 $7,739 $11,562 $6,484 $10,557 $126,922
Weighted-average
interest
rate 2 1.9% 3.4% 2.9% 3.9% 3.3% 4.2%
1 Debt repayments represent maturity value and assume puttable debt is redeemed
at the next opportunity. Foreign debt includes the impact from hedges, when
applicable. Includes credit agreement borrowings.
2 Includes credit agreement borrowings.
Credit Facilities
General
In April 2020, we entered into and drew on a $5,500 Term Loan
Credit Agreement (Term Loan) with 11 commercial banks and Bank of
America, N.A. as lead agent. We repaid and terminated the Term Loan
in May 2020.
On January 29, 2021, we entered into a $14,700 Term Loan Credit
Agreement (2021 Syndicated Term Loan), with Bank of America, N.A.,
as agent. On March 23, 2021, we borrowed $7,350 under the 2021
Syndicated Term Loan, and the remaining $7,350 of lenders'
commitments was terminated. As of December 31, 2021, $7,350 was
outstanding and is due on March 22, 2022.
In March 2021, we entered into and drew on a $2,000 term loan
credit agreement (BAML Bilateral Term Loan) consisting of (i) a
$1,000 facility originally due December 31, 2021 (BAML Tranche A
Facility) and subsequently extended to December 31, 2022 in the
fourth quarter of 2021, and (ii) a $1,000 facility due December 31,
2022 (BAML Tranche B Facility), with Bank of America, N.A., as
agent. At December 31, 2021, $2,000 was outstanding under these
facilities.
Revolving Credit Agreements
In November 2020, we amended one of our $7,500 revolving credit
agreements by extending the termination date. In total, we have two
$7,500 revolving credit agreements, totaling $15,000, with one
terminating on December 11, 2023 and the other terminating on
November 17, 2025. No amounts were outstanding under either
agreement as of December 31, 2021.
Each of our credit and loan agreements contains covenants that
are customary for an issuer with an investment grade senior debt
credit rating as well as a net debt-to-EBITDA financial ratio
covenant requiring AT&T to maintain, as of the last day of each
fiscal quarter through June 30, 2023, a ratio of not more than
4.0-to-1, and a ratio of not more than 3.5-to-1 for any fiscal
quarter thereafter. As of December 31, 2021, we were in compliance
with the covenants for our credit facilities.
The events of default are customary for agreements of this type
and such events would result in the acceleration of, or would
permit the lenders to accelerate, as applicable, required payments
and would increase each agreement's relevant Applicable Margin by
2.00% per annum.
The obligations of the lenders under two revolving credit
agreements to provide advances will terminate on December 11, 2023,
and November 17, 2025, unless the commitments are terminated in
whole prior to that date. All advances must be repaid no later than
the date on which lenders are no longer obligated to make any
advances under the applicable credit agreement.
Each of the credit agreements provides that we and lenders
representing more than 50% of the facility amount may agree to
extend their commitments under such Credit Agreement for two
one-year periods beyond the initial termination date. We have the
right to terminate, in whole or in part, amounts committed by the
lenders under each of the credit agreements in excess of any
outstanding advances; however, any such terminated commitments may
not be reinstated.
97
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------
Advances under these agreements would bear interest, at our
option, either:
--at a variable annual rate equal to: (1) the highest of (but
not less than zero) (a) the rate of interest announced publicly by
Citibank in New York, New York, from time to time, as Citibank's
base rate, (b) 0.5% per annum above the federal funds rate, and (c)
the London interbank offered rate (or the successor thereto)
("LIBOR") applicable to dollars for a period of one month plus
1.00%, plus (2) an applicable margin, as set forth in the
applicable Credit Agreement (the "Applicable Margin for Base
Advances"); or
--at a rate equal to: (i) LIBOR (adjusted upwards to reflect any
bank reserve costs) for a period of one, two, three or six months,
as applicable, plus (ii) an applicable margin, as set forth in the
applicable Credit Agreement (the "Applicable Margin for Eurodollar
Rate Advances").
We pay a facility fee of 0.070%, 0.080%, 0.100% or 0.125% per
annum of the amount of the lender commitments, depending on
AT&T's credit rating.
NOTE 13. FAIR VALUE MEASUREMENTS AND DISCLOSURE
The Fair Value Measurement and Disclosure framework in ASC 820,
"Fair Value Measurement," provides a three-tiered fair value
hierarchy based on the reliability of the inputs used to determine
fair value. Level 1 refers to fair values determined based on
quoted prices in active markets for identical assets. Level 2
refers to fair values estimated using significant other observable
inputs and Level 3 includes fair values estimated using significant
unobservable inputs.
The level of an asset or liability within the fair value
hierarchy is based on the lowest level of any input that is
significant to the fair value measurement. Our valuation techniques
maximize the use of observable inputs and minimize the use of
unobservable inputs.
The valuation methodologies described above may produce a fair
value calculation that may not be indicative of future net
realizable value or reflective of future fair values. We believe
our valuation methods are appropriate and consistent with other
market participants. The use of different methodologies or
assumptions to determine the fair value of certain financial
instruments could result in a different fair value measurement at
the reporting date. There have been no changes in the methodologies
used since December 31, 2020.
Long-Term Debt and Other Financial Instruments
The carrying amounts and estimated fair values of our long-term
debt, including current maturities, and other financial
instruments, are summarized as follows:
December 31, 2021 December 31, 2020
Carrying Fair Carrying Fair
Amount Value Amount Value
Notes and debentures 1 $ 169,147 $194,891 $ 155,209 $187,224
Commercial paper 6,586 6,586 - -
Investment securities 2 3,374 3,374 3,249 3,249
1 Includes credit agreement borrowings. Excludes note payable to
DIRECTV.
2 Excludes investments accounted for under the equity
method.
The carrying amount of debt with an original maturity of less
than one year approximates fair value. The fair value measurements
used for notes and debentures are considered Level 2 and are
determined using various methods, including quoted prices for
identical or similar securities in both active and inactive
markets.
98
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------
Following is the fair value leveling for investment securities
that are measured at fair value and derivatives as of December 31,
2021 and December 31, 2020. Derivatives designated as hedging
instruments are reflected as "Other assets," "Other noncurrent
liabilities," "Prepaid and other current assets" and "Accounts
payable and accrued liabilities" on our consolidated balance
sheets.
December 31, 2021
Level 1 Level 2 Level 3 Total
Equity Securities
Domestic equities $ 1,256 $ - $ - $ 1,256
International equities 227 - - 227
Fixed income equities 230 - - 230
Available-for-Sale Debt Securities - 1,384 - 1,384
Asset Derivatives
Cross-currency swaps - 211 - 211
Foreign exchange contracts - 8 - 8
Liability Derivatives
Cross-currency swaps - (3,170) - (3,170)
Foreign exchange contracts - (41) - (41)
December 31, 2020
Level 1 Level 2 Level 3 Total
Equity Securities
Domestic equities $ 1,010 $ - $ - $ 1,010
International equities 180 - - 180
Fixed income equities 236 - - 236
Available-for-Sale Debt Securities - 1,479 - 1,479
Asset Derivatives
Cross-currency swaps - 1,721 - 1,721
Foreign exchange contracts - 6 - 6
Liability Derivatives
Cross-currency swaps - (1,814) - (1,814)
Foreign exchange contracts - (9) - (9)
Investment Securities
Our investment securities include both equity and debt
securities that are measured at fair value, as well as equity
securities without readily determinable fair values. A substantial
portion of the fair values of our investment securities is
estimated based on quoted market prices. Investments in equity
securities not traded on a national securities exchange are valued
at cost, less any impairment, and adjusted for changes resulting
from observable, orderly transactions for identical or similar
securities. Investments in debt securities not traded on a national
securities exchange are valued using pricing models, quoted prices
of securities with similar characteristics or discounted cash
flows.
The components comprising total gains and losses in the period
on equity securities are as follows:
For the years ended December 31, 2021 2020 2019
Total gains (losses) recognized on equity securities $293 $171 $301
Gains (Losses) recognized on equity securities
sold (5) (25) 100
Unrealized gains (losses) recognized on equity
securities held at end of period $298 $196 $201
At December 31, 2021, available-for-sale debt securities
totaling $1,384 have maturities as follows - less than one year:
$41; one to three years: $171; three to five years: $179; five or
more years: $993.
99
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------
Our cash equivalents (money market securities), short-term
investments (certificate and time deposits) and nonrefundable
customer deposits are recorded at amortized cost, and the
respective carrying amounts approximate fair values. Short-term
investments and nonrefundable customer deposits are recorded in
"Prepaid and other current assets" and our investment securities
are recorded in "Other Assets" on the consolidated balance
sheets.
Derivative Financial Instruments
We enter into derivative transactions to manage certain market
risks, primarily interest rate risk and foreign currency exchange
risk. This includes the use of interest rate swaps, interest rate
locks, foreign exchange forward contracts and combined interest
rate foreign exchange contracts (cross-currency swaps). We do not
use derivatives for trading or speculative purposes. We record
derivatives on our consolidated balance sheets at fair value that
is derived from observable market data, including yield curves and
foreign exchange rates (all of our derivatives are Level 2). Cash
flows associated with derivative instruments are presented in the
same category on the consolidated statements of cash flows as the
item being hedged.
Fair Value Hedging Periodically, we enter into and designate
fixed-to-floating interest rate swaps as fair value hedges. The
purpose of these swaps is to manage interest rate risk by managing
our mix of fixed-rate and floating-rate debt. These swaps involve
the receipt of fixed-rate amounts for floating interest rate
payments over the life of the swaps without exchange of the
underlying principal amount.
We also designate some of our cross-currency swaps as fair value
hedges. The purpose of these contracts is to hedge foreign currency
risk associated with changes in spot rates on foreign denominated
debt. For these hedges we have elected to exclude the change in
fair value of the cross-currency swap related to both time value
and cross-currency basis spread from the assessment of hedge
effectiveness.
Unrealized and realized gains or losses from fair value hedges
impact the same category on the consolidated statements of income
as the item being hedged, including the earnings impact of excluded
components. In instances where we have elected to exclude
components from the assessment of hedge effectiveness related to
fair value hedges, unrealized gains or losses on such excluded
components are recorded as a component of accumulated OCI and
recognized into earnings through the swap accrual over the life of
the hedging instrument. Unrealized gains on derivatives designated
as fair value hedges are recorded at fair value as assets, and
unrealized losses are recorded at fair value as liabilities. Except
for excluded components, changes in the fair value of derivative
instruments designated as fair value hedges are offset against the
change in fair value of the hedged assets or liabilities through
earnings. In the years ended December 31, 2021 and 2020, no
ineffectiveness was measured on fair value hedges.
Cash Flow Hedging We designate most of our cross-currency swaps
as cash flow hedges. We have entered into multiple cross-currency
swaps to hedge our exposure to variability in expected future cash
flows that are attributable to foreign currency risk generated from
our foreign-denominated debt. These agreements include initial and
final exchanges of principal from fixed foreign currency
denominated amounts to fixed U.S. dollar denominated amounts, to be
exchanged at a specified rate that is usually determined by the
market spot rate upon issuance. They also include an interest rate
swap of a fixed or floating foreign currency-denominated interest
rate to a fixed U.S. dollar denominated interest rate.
We also designate some of our foreign exchange contracts as cash
flow hedges. The purpose of these contracts is to hedge certain
forecasted film production costs and film tax incentives
denominated in foreign currencies.
Unrealized gains on derivatives designated as cash flow hedges
are recorded at fair value as assets, and unrealized losses are
recorded at fair value as liabilities. For derivative instruments
designated as cash flow hedges, changes in fair value are reported
as a component of accumulated OCI and are reclassified into the
consolidated statements of income in the same period the hedged
transaction affects earnings.
Periodically, we enter into and designate interest rate locks to
partially hedge the risk of changes in interest payments
attributable to increases in the benchmark interest rate during the
period leading up to the probable issuance of fixed-rate debt. We
designate our interest rate locks as cash flow hedges. Gains and
losses when we settle our interest rate locks are amortized into
income over the life of the related debt. Over the next 12 months,
we expect to reclassify $73 from accumulated OCI to "Interest
expense" due to the amortization of net losses on historical
interest rate locks.
100
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------
Net Investment Hedging We have designated EUR1,450 million
aggregate principal amount of debt as a hedge of the variability of
some of the Euro-denominated net investments of our subsidiaries.
The gain or loss on the debt that is designated as, and is
effective as, an economic hedge of the net investment in a foreign
operation is recorded as a currency translation adjustment within
accumulated OCI, net on the consolidated balance sheets. Net gains
on net investment hedges recognized in accumulated OCI for 2021
were $122.
Collateral and Credit-Risk Contingency We have entered into
agreements with our derivative counterparties establishing
collateral thresholds based on respective credit ratings and
netting agreements. At December 31, 2021, we had posted collateral
of $135 (a deposit asset) and held collateral of $7 (a receipt
liability). Under the agreements, if AT&T's credit rating had
been downgraded two ratings levels by Fitch Ratings, one level by
S&P and one level by Moody's, before the final collateral
exchange in December, we would have been required to post
additional collateral of $36. If AT&T's credit rating had been
downgraded three ratings levels by Fitch Ratings, two levels by
S&P, and two levels by Moody's, we would have been required to
post additional collateral of $2,816. At December 31, 2020, we had
posted collateral of $53 (a deposit asset) and held collateral of
$694 (a receipt liability). We do not offset the fair value of
collateral, whether the right to reclaim cash collateral (a
receivable) or the obligation to return cash collateral (a payable)
exists, against the fair value of the derivative instruments.
Following are the notional amounts of our outstanding derivative
positions at December 31:
2021 2020
Cross-currency swaps $40,737 $40,745
Foreign exchange contracts 30 90
Total $40,767 $40,835
Following are the related hedged items affecting our financial
position and performance:
Effect of Derivatives on the Consolidated Statements
of Income
Fair Value Hedging Relationships
For the years ended December 31, 2021 2020 2019
Interest rate swaps (Interest expense):
Gain (Loss) on interest rate swaps $(4) $(6) $ 58
Gain (Loss) on long-term debt 4 6 (58)
Cross-currency swaps:
Gain (Loss) on cross-currency swaps (91) - -
Gain (Loss) on long-term debt 91 - -
Gain (Loss) recognized in accumulated OCI (17) - -
In addition, the net swap settlements that accrued and settled
in the periods above were offset against "Interest expense."
Cash Flow Hedging Relationships
For the years ended December 31, 2021 2020 2019
Cross-currency swaps:
Gain (Loss) recognized in accumulated OCI $(873) $(378) $(1,066)
Foreign exchange contracts:
Gain (Loss) recognized in accumulated OCI (17) 3 10
Other income (expense) - net reclassified from
accumulated OCI into income 1 (3) 6
Interest rate locks:
Gain (Loss) recognized in accumulated OCI - (648) (84)
Interest income (expense) reclassified from
accumulated OCI into income (92) (84) (63)
101
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------
Nonrecurring Fair Value Measurements
In addition to assets and liabilities that are recorded at fair
value on a recurring basis, impairment indicators may subject
goodwill, long-lived assets and film costs to nonrecurring fair
value measurements. The implied fair values of the U.S. video and
Vrio businesses were estimated using both the discounted cash flow
as well as market multiple approaches. The fair values of
long-lived assets in the U.S. video business were determined using
a present value approach of probability-weighted expected cash
flows. The fair values of film productions were estimated using a
discounted cash flow approach. The inputs to all of these
approaches are considered Level 3.
Our nonrecurring fair value measurements also include the
valuation of our initial investment in DIRECTV at July 31, 2021
(see Note 10). This nonrecurring fair value measurement was
estimated using a discounted cash flow approach. The inputs to
these models are considered Level 3.
During 2020, goodwill amounts related to the Video and Vrio
reporting units were fully impaired. At December 31, 2020,
nonrecurring fair value measurements in our Video business unit
totaled $9,744 and were comprised of $5,873 for orbital slots,
$1,613 for customer lists and $2,258 for property, plant and
equipment (see Notes 7 and 9). Nonrecurring fair value measurements
for film costs within our WarnerMedia segment totaled $844 (see
Note 11).
NOTE 14. INCOME TAXES
Significant components of our deferred tax liabilities (assets)
are as follows at December 31:
2021 2020
Depreciation and amortization $47,433 $46,952
Licenses and nonamortizable intangibles 15,576 13,930
Employee benefits (3,338) (5,279)
Deferred fulfillment costs 1,797 2,691
Equity in partnership 3,285 -
Net operating loss and other carryforwards (6,703) (7,355)
Other - net 2,308 4,562
Subtotal 60,358 55,501
Deferred tax assets valuation allowance 4,638 4,773
Net deferred tax liabilities $64,996 $60,274
Noncurrent deferred tax liabilities $65,226 $60,472
Less: Noncurrent deferred tax assets (230) (198)
Net deferred tax liabilities $64,996 $60,274
At December 31, 2021, we had combined net operating and capital
loss carryforwards (tax effected) for federal income tax purposes
of $452, state of $1,012 and foreign of $2,709, expiring through
2041. Additionally, we had federal credit carryforwards of $604 and
state credit carryforwards of $1,926, expiring primarily through
2041.
We recognize a valuation allowance if, based on the weight of
available evidence, it is more likely than not that some portion,
or all, of a deferred tax asset will not be realized. Our valuation
allowances at December 31, 2021 and 2020 related primarily to state
and foreign net operating losses and state credit
carryforwards.
We consider post-1986 unremitted foreign earnings subjected to
the one-time transition tax not to be indefinitely reinvested as
such earnings can be repatriated without any significant
incremental tax costs. We consider other types of unremitted
foreign earnings to be indefinitely reinvested. U.S. income and
foreign withholding taxes have not been recorded on temporary
differences related to investments in certain foreign subsidiaries
as such differences are considered indefinitely reinvested.
Determination of the amount of unrecognized deferred tax liability
is not practicable.
102
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------
We recognize the financial statement effects of a tax return
position when it is more likely than not, based on the technical
merits, that the position will ultimately be sustained. For tax
positions that meet this recognition threshold, we apply our
judgment, taking into account applicable tax laws, our experience
in managing tax audits and relevant GAAP, to determine the amount
of tax benefits to recognize in our financial statements. For each
position, the difference between the benefit realized on our tax
return and the benefit reflected in our financial statements is
recorded on our consolidated balance sheets as an unrecognized tax
benefit (UTB). We update our UTBs at each financial statement date
to reflect the impacts of audit settlements and other resolutions
of audit issues, the expiration of statutes of limitation,
developments in tax law and ongoing discussions with taxing
authorities. A reconciliation of the change in our UTB balance from
January 1 to December 31 for 2021 and 2020 is as follows:
Federal, State and Foreign Tax 2021 2020
Balance at beginning of year $10,001 $10,979
Increases for tax positions related to the current year 677 1,580
Increases for tax positions related to prior years 443 112
Decreases for tax positions related to prior years (1,344) (994)
Lapse of statute of limitations (29) (24)
Settlements (342) (1,646)
Current year dispositions (4) -
Foreign currency effects - (6)
Balance at end of year 9,402 10,001
Accrued interest and penalties 2,221 2,450
Gross unrecognized income tax benefits 11,623 12,451
Less: Deferred federal and state income tax benefits (799) (878)
Less: Tax attributable to timing items included above (3,515) (3,588)
Total UTB that, if recognized, would impact the
effective income tax rate as of the end of the year $ 7,309 $ 7,985
Periodically we make deposits to taxing jurisdictions which
reduce our UTB balance but are not included in the reconciliation
above. The amount of deposits that reduced our UTB balance was $377
at December 31, 2021 and $702 at December 31, 2020.
Accrued interest and penalties included in UTBs were $2,221 as
of December 31, 2021 and $2,450 as of December 31, 2020. We record
interest and penalties related to federal, state and foreign UTBs
in income tax expense. The net interest and penalty expense
(benefit) included in income tax expense was $(155) for 2021, $149
for 2020 and $267 for 2019.
We file income tax returns in the U.S. federal jurisdiction and
various state, local and foreign jurisdictions. As a large
taxpayer, our income tax returns are regularly audited by the
Internal Revenue Service (IRS) and other taxing authorities.
The IRS has completed field examinations of our tax returns
through 2012. All audit periods prior to 2005 are closed for
federal examination purposes and we have effectively resolved all
outstanding audit issues for years through 2010 with the IRS
Appeals Division. Those years will be closed as the final paperwork
is processed in the coming months.
While we do not expect material changes, we are generally unable
to estimate the range of impacts on the balance of the remaining
uncertain tax positions or the impact on the effective tax rate
from the resolution of these issues until each year is closed; and
it is possible that the amount of unrecognized benefit with respect
to our uncertain tax positions could increase or decrease within
the next 12 months.
103
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------
The components of income tax (benefit) expense are as
follows:
2021 2020 2019
Federal:
Current $(1,198) $(687) $ 584
Deferred 5,296 1,039 1,656
4,098 352 2,240
State and local:
Current 646 (6) 603
Deferred 456 263 144
1,102 257 747
Foreign:
Current 516 413 605
Deferred (248) (57) (99)
268 356 506
Total $ 5,468 $ 965 $3,493
"Income (Loss) Before Income Taxes" in the Consolidated
Statements of Income included the following components for the
years ended December 31:
2021 2020 2019
U.S. income (loss) before income taxes $30,223 $ (452) $18,301
Foreign income (loss) before income taxes (3,276) (2,404) 167
Total $26,947 $(2,856) $18,468
A reconciliation of income tax expense (benefit) and the amount
computed by applying the statutory federal income tax rate of 21%
to income from continuing operations before income taxes is as
follows:
2021 2020 2019
Taxes computed at federal statutory rate $5,659 $(600) $3,878
Increases (decreases) in income taxes resulting
from:
State and local income taxes - net of federal
income tax benefit 967 193 611
CARES Act federal NOL carryback (471) - -
Tax on foreign investments (68) (141) (115)
Noncontrolling interest (294) (285) (230)
Permanent items and R&D credit (163) (239) (285)
Audit resolutions (298) (112) (156)
Divestitures (112) 107 -
Goodwill impairment 1 250 2,120 -
Other - net (2) (78) (210)
Total $5,468 $ 965 $3,493
Effective Tax Rate 20.3% (33.8)% 18.9%
1 Goodwill impairments are not deductible for tax purposes.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic
Security (CARES) Act was enacted, which allows for a Net Operating
Loss (NOL) generated in 2020 to be carried back to a year with a
federal rate of 35%. During 2021, we recorded a $471 tax benefit
for the rate impact of the 2020 NOL carryback adjusted for the
domestic manufacturing deduction limitation in the carryback year
and applicable unrecognized tax benefits.
AT&T is subject to the Global Intangible Low Taxed Income
(GILTI) provisions created under the Tax Cuts and Jobs Act of 2017.
We report the tax impact of GILTI as a period cost when
incurred.
104
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------
NOTE 15. PENSION AND POSTRETIREMENT BENEFITS
We offer noncontributory pension programs covering the majority
of domestic nonmanagement employees in our Communications business.
Nonmanagement employees' pension benefits are generally calculated
using one of two formulas: a flat dollar amount applied to years of
service according to job classification or a cash balance plan with
negotiated annual pension band credits as well as interest credits.
Most employees can elect to receive their pension benefits in
either a lump sum payment or an annuity.
Pension programs covering U.S. management employees are closed
to new entrants. These programs continue to provide benefits to
participants that were generally hired before January 1, 2015, who
receive benefits under either cash balance pension programs that
include annual or monthly credits based on salary as well as
interest credits, or a traditional pension formula (i.e., a stated
percentage of employees' adjusted career income).
We also provide a variety of medical, dental and life insurance
benefits to certain retired employees under various plans and
accrue actuarially determined postretirement benefit costs as
active employees earn these benefits.
WarnerMedia and certain of its subsidiaries have both funded and
unfunded defined benefit pension plans, the substantial majority of
which are noncontributory plans covering domestic employees.
WarnerMedia also sponsors unfunded domestic postretirement benefit
plans covering certain retirees and their dependents. At
acquisition, the plans were already closed to new entrants and
frozen for new accruals.
During the fourth quarter of 2020, we committed to, and
reflected in our results, plan changes impacting retiree life and
death coverage and health and medical subsidy benefits. Changes
were also communicated that impact future pension accruals for
certain management employees. These plan changes align our benefit
plans to, or above market level.
Obligations and Funded Status
For defined benefit pension plans, the benefit obligation is the
projected benefit obligation, the actuarial present value, as of
our December 31 measurement date, of all benefits attributed by the
pension benefit formula to employee service rendered to that date.
The amount of benefit to be paid depends on a number of future
events incorporated into the pension benefit formula, including
estimates of the average life of employees and their beneficiaries
and average years of service rendered. It is measured based on
assumptions concerning future interest rates and future employee
compensation levels as applicable.
For postretirement benefit plans, the benefit obligation is the
accumulated postretirement benefit obligation, the actuarial
present value as of the measurement date of all future benefits
attributed under the terms of the postretirement benefit plans to
employee service.
The following table presents the change in the projected benefit
obligation for the years ended December 31:
Pension Benefits Postretirement Benefits
2021 2020 2021 2020
Benefit obligation at beginning
of
year $ 62,158 $59,873 $ 13,928 $ 16,041
Service cost - benefits earned
during
the period 957 1,029 45 53
Interest cost on projected
benefit
obligation 1,276 1,687 210 416
Amendments - (340) - (2,655)
Actuarial (gain) loss (1,237) 5,054 (275) 1,423
Benefits paid, including
settlements (5,942) (5,124) (1,356) (1,370)
Curtailment - (1) - -
Plan transfers - (20) - 20
Benefit obligation at end of year $ 57,212 $62,158 $ 12,552 $ 13,928
105
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------
The following table presents the change in the fair value of
plan assets for the years ended December 31 and the plans' funded
status at December 31:
Pension Benefits Postretirement Benefits
2021 2020 2021 2020
Fair value of plan assets at
beginning
of year $ 54,606 $ 53,530 $ 3,843 $ 4,145
Actual return on plan assets 5,737 6,199 210 302
Benefits paid, including
settlements
1 (5,942) (5,124) (1,163) (1,029)
Contributions - 2 308 425
Plan transfers - (1) - -
Fair value of plan assets at
end of
year 54,401 54,606 3,198 3,843
Unfunded status at end of year
2 $ (2,811) $ (7,552) $ (9,354) $ (10,085)
1 At our discretion, certain postretirement benefits may be paid from our cash
accounts, which does not reduce Voluntary Employee Benefit Association (VEBA)
assets. Future benefit payments may be made from VEBA trusts and thus reduce
those asset balances.
2 Funded status is not indicative of our ability to pay ongoing pension benefits
or of our obligation to fund retirement trusts. Required pension funding is
determined in accordance with the Employee Retirement Income Security Act of
1974, as amended (ERISA) and applicable regulations.
Amounts recognized on our consolidated balance sheets at
December 31 are listed below:
Pension Benefits Postretirement Benefits
2021 2020 2021 2020
Current portion of employee
benefit
obligation 1 $ - $ - $ (1,106) $ (1,213)
Employee benefit obligation 2 (2,811) (7,552) (8,248) (8,872)
Net amount recognized $ (2,811) $ (7,552) $ (9,354) $ (10,085)
1 Included in "Accounts payable and accrued liabilities."
2 Included in "Postemployment benefit obligation," combined with international
pension obligations and other postemployment obligations of $364 and $1,226
at December 31, 2021, and $553 and $1,299 at December 31, 2020, respectively.
The accumulated benefit obligation for our pension plans
represents the actuarial present value of benefits based on
employee service and compensation as of a certain date and does not
include an assumption about future compensation levels. The
accumulated benefit obligation for our pension plans was $56,159 at
December 31, 2021, and $60,848 at December 31, 2020.
106
AT&T Inc.
Dollars in millions except per share amounts
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Net Periodic Benefit Cost and Other Amounts Recognized in Other
Comprehensive Income
Periodic Benefit Costs
The service cost component of net periodic pension cost (credit)
is recorded in operating expenses in the consolidated statements of
income while the remaining components are recorded in "Other income
(expense) - net." Our combined net pension and postretirement cost
(credit) recognized in our consolidated statements of income was
$(7,652), $711 and $2,762 for the years ended December 31, 2021,
2020 and 2019.
The following table presents the components of net periodic
benefit cost (credit):
Pension Benefits Postretirement Benefits
2021 2020 2019 2021 2020 2019
Service cost -
benefits earned
during the
period $ 957 $ 1,029 $ 1,019 $ 45 $ 53 $ 71
Interest cost
on projected
benefit
obligation 1,276 1,687 1,960 210 416 675
Expected return
on assets (3,513) (3,557) (3,561) (151) (178) (227)
Amortization of
prior service
credit (144) (113) (113) (2,537) (2,329) (1,820)
Net periodic
benefit cost
(credit) before
remeasurement (1,424) (954) (695) (2,433) (2,038) (1,301)
Actuarial (gain)
loss (3,461) 2,404 3,088 (334) 1,299 1,670
Net pension and
postretirement
cost (credit) $(4,885) $ 1,450 $ 2,393 $(2,767) $ (739) $ 369
Other Changes in Benefit Obligations Recognized in Other
Comprehensive Income
The following table presents the after-tax changes in benefit
obligations recognized in OCI and the after-tax prior service
credits that were amortized from OCI into net periodic benefit
costs:
Pension Benefits Postretirement Benefits
2021 2020 2019 2021 2020 2019
Balance at
beginning of year $ 525 $361 $447 $ 8,416 $ 8,171 $ 6,086
Prior service
(cost) credit - 250 - - 2,001 3,457
Amortization of
prior service
credit (109) (86) (86) (1,912) (1,756) (1,372)
Total recognized
in other
comprehensive
(income) loss (109) 164 (86) (1,912) 245 2,085
Balance at end of
year $ 416 $525 $361 $ 6,504 $ 8,416 $ 8,171
107
AT&T Inc.
Dollars in millions except per share amounts
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Assumptions
In determining the projected benefit obligation and the net
pension and postretirement benefit cost, we used the following
significant weighted-average assumptions:
Pension Benefits Postretirement Benefits
2021 2020 2019 2021 2020 2019
Weighted-average
discount
rate for
determining
benefit obligation
at
December 31 3.00% 2.70% 3.40% 2.80% 2.40% 3.20%
Discount rate in
effect
for determining
service cost 1 3.30% 3.60% 4.10% 2.90% 3.50% 4.40%
Discount rate in
effect
for determining
interest
cost 1 2.30% 2.90% 3.50% 1.60% 2.70% 3.70%
Weighted-average
interest
credit rate for
cash balance
pension programs 2 3.20% 3.10% 3.30% -% -% -%
Long-term rate of
return
on plan assets 6.75% 7.00% 7.00% 4.50% 4.75% 5.75%
Composite rate of
compensation
increase for
determining
benefit
obligation 3.00% 3.00% 3.00% 3.00% 3.00% 3.00%
Composite rate of
compensation
increase for
determining
net cost
(benefit) 3.00% 3.00% 3.00% 3.00% 3.00% 3.00%
1 Weighted-average discount rates shown for years with interim remeasurements:
2021 and 2019 for pension benefits and 2019 for postretirement benefits.
2 Weighted-average interest crediting rates for cash balance pension programs
relate only to the cash balance portion of total pension benefits. A 0.50% increase
in the weighted-average interest crediting rate would increase the pension benefit
obligation by $125.
We recognize gains and losses on pension and postretirement plan
assets and obligations immediately in "Other income (expense) -
net" in our consolidated statements of income. These gains and
losses are generally measured annually as of December 31 and
accordingly, will normally be recorded during the fourth quarter,
unless an earlier remeasurement is required. Should actual
experience differ from actuarial assumptions, the projected pension
benefit obligation and net pension cost and accumulated
postretirement benefit obligation and postretirement benefit cost
would be affected in future years.
Discount Rate Our assumed weighted-average discount rate for
pension and postretirement benefits of 3.00% and 2.80%
respectively, at December 31, 2021, reflects the hypothetical rate
at which the projected benefit obligation could be effectively
settled or paid out to participants. We determined our discount
rate based on a range of factors, including a yield curve composed
of the rates of return on several hundred high-quality, fixed
income corporate bonds available at the measurement date and
corresponding to the related expected durations of future cash
outflows. These bonds had an average rating of at least Aa3 or AA-
by the nationally recognized statistical rating organizations,
denominated in U.S. dollars, and neither callable, convertible nor
index linked. For the year ended December 31, 2021, when compared
to the year ended December 31, 2020, we increased our pension
discount rate by 0.30%, resulting in a decrease in our pension plan
benefit obligation of $1,645 and increased our postretirement
discount rate by 0.40%, resulting in a decrease in our
postretirement benefit obligation of $341. For the year ended
December 31, 2020, we decreased our pension discount rate by 0.70%,
resulting in an increase in our pension plan benefit obligation of
$5,594 and decreased our postretirement discount rates by 0.80%,
resulting in an increase in our postretirement benefit obligation
of $1,311.
We utilize a full yield curve approach in the estimation of the
service and interest components of net periodic benefit costs for
pension and other postretirement benefits. Under this approach, we
apply discounting using individual spot rates from a yield curve
composed of the rates of return on several hundred high-quality,
fixed income corporate bonds available at the measurement date.
These spot rates align to each of the projected benefit obligations
and service cost cash flows. The service cost component relates to
the active participants in the plan, so the relevant cash flows on
which to apply the yield curve are considerably longer in duration
on average than the total projected benefit obligation cash flows,
which also include benefit payments to retirees. Interest cost is
computed by multiplying each spot rate by the corresponding
discounted projected benefit obligation cash flows. The full yield
curve approach reduces any actuarial gains and losses based upon
interest rate expectations (e.g., built-in gains in interest cost
in an upward sloping yield curve scenario), or gains and losses
merely resulting from the timing and magnitude of cash outflows
associated with our benefit obligations. Neither the annual
measurement of our total benefit obligations nor annual net benefit
cost is affected by the full yield curve approach.
108
AT&T Inc.
Dollars in millions except per share amounts
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Expected Long-Term Rate of Return In 2022, our expected
long-term rate of return is 6.75% on pension plan assets and 4.50%
on postretirement plan assets. Our long-term rates of return
reflect the average rate of earnings expected on the funds
invested, or to be invested, to provide for the benefits included
in the projected benefit obligations. In setting the long-term
assumed rate of return, management considers capital markets'
future expectations, the asset mix of the plans' investment and
average historical asset return. Actual long-term returns can, in
relatively stable markets, also serve as a factor in determining
future expectations. We consider many factors that include, but are
not limited to, historical returns on plan assets, current market
information on long-term returns (e.g., long-term bond rates) and
current and target asset allocations between asset categories. The
target asset allocation is determined based on consultations with
external investment advisers. If all other factors were to remain
unchanged, we expect that a 0.50% decrease in the expected
long-term rate of return would cause 2022 combined pension and
postretirement cost to increase $272. However, any differences in
the rate and actual returns will be included with the actuarial
gain or loss recorded in the fourth quarter when our plans are
remeasured.
Composite Rate of Compensation Increase Our expected composite
rate of compensation increase cost of 3.00% in 2021 and 2020
reflects the long-term average rate of salary increases.
Healthcare Cost Trend Our healthcare cost trend assumptions are
developed based on historical cost data, the near-term outlook and
an assessment of likely long-term trends. Based on our assessment
of expectations of healthcare industry inflation, our 2022 assumed
annual healthcare prescription drug cost trend and medical cost
trend for eligible participants will increase from an annual and
ultimate trend rate of 4.00% to an annual and ultimate trend rate
of 4.25%. This change in assumption increased our obligation by
$31. For 2021, our assumed annual healthcare prescription drug cost
trend and medical cost trend for eligible participants remained at
4.00% annual and ultimate rate.
Plan Assets
Plan assets consist primarily of private and public equity,
government and corporate bonds, and real assets (real estate and
natural resources). The asset allocations of the pension plans are
maintained to meet ERISA requirements. Any plan contributions, as
determined by ERISA regulations, are made to a pension trust for
the benefit of plan participants. We do not have significant ERISA
required contributions to our pension plans for 2022.
We maintain VEBA trusts to partially fund postretirement
benefits; however, there are no ERISA or regulatory requirements
that these postretirement benefit plans be funded annually. We made
discretionary contributions of $308 in December 2021 and $425 in
December 2020 to our postretirement plan.
The principal investment objectives are to ensure the
availability of funds to pay pension and postretirement benefits as
they become due under a broad range of future economic scenarios,
maximize long-term investment return with an acceptable level of
risk based on our pension and postretirement obligations, and
diversify broadly across and within the capital markets to insulate
asset values against adverse experience in any one market. Each
asset class has broadly diversified characteristics. Substantial
biases toward any particular investing style or type of security
are sought to be avoided by managing the aggregation of all
accounts with portfolio benchmarks. Asset and benefit obligation
forecasting studies are conducted periodically, generally every two
to three years, or when significant changes have occurred in market
conditions, benefits, participant demographics or funded status.
Decisions regarding investment policy are made with an
understanding of the effect of asset allocation on funded status,
future contributions and projected expenses.
109
AT&T Inc.
Dollars in millions except per share amounts
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The plans' weighted-average asset targets and actual allocations
as a percentage of plan assets, including the notional exposure of
future contracts by asset categories at December 31 are as
follows:
Pension Assets Postretirement (VEBA) Assets
Target 2021 2020 Target 2021 2020
Equity securities:
Domestic 12 % -22 % 16 % 19 % 14 % -24 % 19 % 19 %
International 8 % -18 % 13 15 14 % -24 % 19 14
Fixed income
securities 35 % -45 % 38 35 34 % -44 % 39 45
Real assets 7 % -17 % 10 8 -% - 6 % 1 1
Private equity 3 % -13 % 12 9 -% - 6 % 1 1
Preferred
interests 5% -15 % 10 10 -% - -% - -
Other -% - 5 % 1% 4 17 % -27 % 21 20
Total 100 % 100 % 100 % 100 %
The pension trust holds preferred equity interests valued at
$5,562 in AT&T Mobility II LLC (Mobility II), the primary
holding company for our wireless business (see Note 17). During
2020, the trust sold a portion of these preferred interests valued
at $2,885 to third party investors. The preferred equity interests
were valued at $5,771 as of December 31, 2020.
At December 31, 2021, AT&T securities represented 11% of
assets held by our pension trust, including the preferred interests
in Mobility II. The VEBA trusts included in these financial
statements no longer hold AT&T securities.
Investment Valuation
Investments are stated at fair value. Fair value is the price
that would be received to sell an asset or paid to transfer a
liability at the measurement date.
Investments in securities traded on a national securities
exchange are valued at the last reported sales price on the final
business day of the year. If no sale was reported on that date,
they are valued at the last reported bid price. Investments in
securities not traded on a national securities exchange are valued
using pricing models, quoted prices of securities with similar
characteristics or discounted cash flows. Shares of registered
investment companies are valued based on quoted market prices,
which represent the net asset value of shares held at year-end.
Other commingled investment entities are valued at quoted
redemption values that represent the net asset values of units held
at year-end which management has determined approximates fair
value.
Real estate and natural resource direct investments are valued
at amounts based upon appraisal reports. Fixed income securities
valuation is based upon observable prices for comparable assets,
broker/dealer quotes (spreads or prices), or a pricing matrix that
derives spreads for each bond based on external market data,
including the current credit rating for the bonds, credit spreads
to Treasuries for each credit rating, sector add-ons or credits,
issue-specific add-ons or credits as well as call or other
options.
The preferred interests in Mobility II are valued by an
independent fiduciary using an income approach.
Purchases and sales of securities are recorded as of the trade
date. Realized gains and losses on sales of securities are
determined on the basis of average cost. Interest income is
recognized on the accrual basis. Dividend income is recognized on
the ex-dividend date.
Non-interest bearing cash and overdrafts are valued at cost,
which approximates fair value.
Fair Value Measurements
See Note 13 for a discussion of the fair value hierarchy that
prioritizes the inputs to valuation techniques used to measure fair
value.
110
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------
The following tables set forth by level, within the fair value
hierarchy, the pension and postretirement assets and liabilities at
fair value as of December 31, 2021:
Pension Assets and Liabilities at Fair Value as of December 31, 2021
Level 1 Level 2 Level 3 Total
Non-interest bearing cash $ 167 $ - $ - $ 167
Interest bearing cash 11 - - 11
Foreign currency contracts - 5 - 5
Equity securities:
Domestic equities 7,693 - 1 7,694
International equities 4,117 - 7 4,124
Preferred interests - - 5,562 5,562
Fixed income securities:
Corporate bonds and other investments - 11,168 2 11,170
Government and municipal bonds - 6,977 - 6,977
Mortgage-backed securities - 268 - 268
Real estate and real assets - - 3,318 3,318
Securities lending collateral 1,645 1,285 - 2,930
Receivable for variation margin 8 - - 8
Assets at fair value 13,641 19,703 8,890 42,234
Investments sold short and other
liabilities
at fair value (529) (3) (1) (533)
Total plan net assets at fair value $ 13,112 $19,700 $ 8,889 $41,701
Assets held at net asset value practical
expedient
Private equity funds 6,454
Real estate funds 2,329
Commingled funds 6,780
Total assets held at net asset value
practical expedient 15,563
Other assets (liabilities) 1 (2,863)
Total Plan Net Assets $54,401
=========== =======
1 Other assets (liabilities) include amounts receivable, accounts payable and
net adjustment for securities lending payable.
Postretirement Assets and Liabilities at Fair Value as of December 31, 2021
Level 1 Level 2 Level 3 Total
Interest bearing cash $ 371 $ 295 $ - $ 666
Equity securities:
Domestic equities 323 - - 323
International equities 287 - 1 288
Fixed income securities:
Corporate bonds and other investments 1 - - 1
Securities lending collateral - 9 - 9
Assets at fair value 982 304 1 1,287
Securities lending payable and other
liabilities - (9) - (9)
Total plan net assets at fair value $ 982 $ 295 $ 1 $ 1,278
Assets held at net asset value practical
expedient
Commingled funds 1,883
Private equity 19
Real estate funds 16
Total assets held at net asset value
practical expedient 1,918
Other assets (liabilities) 1 2
Total Plan Net Assets $ 3,198
1 Other assets (liabilities) include amounts receivable and accounts payable.
111
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------
The tables below set forth a summary of changes in the fair
value of the Level 3 pension and postretirement assets for the year
ended December 31, 2021:
Fixed Income Real Estate
Pension Assets Equities Funds and Real Assets Total
Balance at beginning of year $ 5,793 $ 53 $ 2,544 $8,390
Realized gains (losses) 2 - (31) (29)
Unrealized gains (losses) (203) - 558 355
Transfers in - 1 - 1
Transfers out (7) (8) - (15)
Purchases 7 1 425 433
Sales (23) (45) (178) (246)
Balance at end of year $ 5,569 $ 2 $ 3,318 $8,889
===
Fixed Income Real Estate
Postretirement Assets Equities Funds and Real Assets Total
Balance at beginning of year $ - $ 4 $ - $ 4
Realized gains (losses) - (1) - (1)
Unrealized gains (losses) - 1 - 1
Transfers in 1 - - 1
Sales - (4) - (4)
Balance at end of year $ 1 $ - $ - $ 1
112
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------
The following tables set forth by level, within the fair value
hierarchy, the pension and postretirement assets and liabilities at
fair value as of December 31, 2020:
Pension Assets and Liabilities at Fair Value as of December 31, 2020
Level 1 Level 2 Level 3 Total
Non-interest bearing cash $ 173 $ - $ - $ 173
Interest bearing cash 7 - - 7
Foreign currency contracts - 3 - 3
Equity securities:
Domestic equities 9,784 - 11 9,795
International equities 4,821 11 12 4,844
Preferred interests - - 5,771 5,771
Fixed income securities:
Corporate bonds and other investments - 11,043 52 11,095
Government and municipal bonds - 6,039 - 6,039
Mortgage-backed securities - 442 1 443
Real estate and real assets - - 2,544 2,544
Securities lending collateral 621 1,435 - 2,056
Receivable for variation margin 23 - - 23
Assets at fair value 15,429 18,973 8,391 42,793
Investments sold short and other
liabilities
at fair value (450) (8) (1) (459)
Total plan net assets at fair value $ 14,979 $18,965 $ 8,390 $42,334
Assets held at net asset value practical
expedient
Private equity funds 5,154
Real estate funds 1,694
Commingled funds 7,706
Total assets held at net asset value
practical expedient 14,554
Other assets (liabilities) 1 (2,282)
Total Plan Net Assets $54,606
=========== =======
1 Other assets (liabilities) include amounts receivable, accounts payable and
net adjustment for securities lending payable.
113
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------
Postretirement Assets and Liabilities at Fair Value as of December 31, 2020
Level 1 Level 2 Level 3 Total
Interest bearing cash $ 497 $ 302 $ - $ 799
Equity securities:
Domestic equities 363 - - 363
International equities 282 - - 282
Fixed income securities:
Corporate bonds and other investments 5 307 3 315
Government and municipal bonds 6 132 1 139
Mortgage-backed securities - 94 - 94
Securities lending collateral - 28 - 28
Assets at fair value 1,153 863 4 2,020
Securities lending payable and other
liabilities (1) (29) - (30)
Total plan net assets at fair value $ 1,152 $ 834 $ 4 $ 1,990
Assets held at net asset value practical
expedient
Private equity funds 24
Real estate funds 22
Commingled funds 1,843
Total assets held at net asset value
practical expedient 1,889
Other assets (liabilities) 1 (36)
Total Plan Net Assets $ 3,843
1 Other assets (liabilities) include amounts receivable and accounts payable.
The tables below set forth a summary of changes in the fair
value of the Level 3 pension and postretirement assets for the year
ended December 31, 2020:
Fixed Income Real Estate
Pension Assets Equities Funds and Real Assets Total
Balance at beginning of year $ 8,816 $ 6 $ 2,817 $ 11,639
Realized gains (losses) (150) - 255 105
Unrealized gains (losses) 3 - (178) (175)
Transfers in 4 51 36 91
Transfers out - (3) - (3)
Purchases 9,114 1 223 9,338
Sales (11,994) (2) (609) (12,605)
Balance at end of year $ 5,793 $ 53 $ 2,544 $ 8,390
===
Fixed Income Real Estate
Postretirement Assets Equities Funds and Real Assets Total
Balance at beginning of year $ - $ 32 $ - $ 32
Transfers in - 3 - 3
Transfers out - (11) - (11)
Sales - (20) - (20)
Balance at end of year $ - $ 4 $ - $ 4
========
114
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------
Estimated Future Benefit Payments
Expected benefit payments are estimated using the same
assumptions used in determining our benefit obligation at December
31, 2021. Because benefit payments will depend on future employment
and compensation levels; average years employed; average life
spans; and payment elections, among other factors, changes in any
of these assumptions could significantly affect these expected
amounts. The following table provides expected benefit payments
under our pension and postretirement plans:
Postretirement
Pension Benefits Benefits
2022 $ 5,922 $ 1,262
2023 4,237 1,181
2024 4,121 888
2025 4,113 842
2026 3,934 794
Years 2027 - 2031 18,292 3,544
Supplemental Retirement Plans
We also provide certain senior- and middle-management employees
with nonqualified, unfunded supplemental retirement and savings
plans. While these plans are unfunded, we have assets in a
designated non-bankruptcy remote trust that are independently
managed and used to provide for certain of these benefits. These
plans include supplemental pension benefits as well as
compensation-deferral plans, some of which include a corresponding
match by us based on a percentage of the compensation deferral. For
our supplemental retirement plans, the projected benefit obligation
was $2,326 and the net supplemental retirement pension credit was
$41 at and for the year ended December 31, 2021. The projected
benefit obligation was $2,687 and the net supplemental retirement
pension cost was $330 at and for the year ended December 31,
2020.
We use the same significant assumptions for the composite rate
of compensation increase in determining our projected benefit
obligation and the net pension and postemployment benefit cost. Our
discount rates of 2.70% at December 31, 2021 and 2.30% at December
31, 2020 were calculated using the same methodologies used in
calculating the discount rate for our qualified pension and
postretirement benefit plans.
Deferred compensation expense was $171 in 2021, $183 in 2020 and
$199 in 2019.
Contributory Savings Plans
We maintain contributory savings plans that cover substantially
all employees. Under the savings plans, we match in cash or company
stock a stated percentage of eligible employee contributions,
subject to a specified ceiling. There are no debt-financed shares
held by the Employee Stock Ownership Plans, allocated or
unallocated.
Our match of employee contributions to the savings plans is
fulfilled with purchases of our stock on the open market or company
cash. Benefit cost, which is based on the cost of shares or units
allocated to participating employees' accounts or the cash
contributed to participant accounts, was $760, $814 and $793 for
the years ended December 31, 2021, 2020 and 2019.
NOTE 16. SHARE-BASED PAYMENTS
Under our various plans, senior and other management employees
and nonemployee directors have received nonvested stock and stock
units. In conjunction with the 2018 acquisition of Time Warner,
restricted stock units issued under Time Warner plans were
converted to AT&T share units that will be distributed in the
form of AT&T common stock and cash. The shares will vest over a
period of one to four years in accordance with the terms of those
plans. In addition, outstanding Time Warner stock options were
converted to AT&T stock options that vested within one year. We
do not intend to issue any additional grants under the Time Warner
Inc. plans. Future grants to eligible employees will be issued
under AT&T plans.
115
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------
We grant performance stock units, which are nonvested stock
units, based upon our stock price at the date of grant and award
them in the form of AT&T common stock and cash at the end of a
three-year period, subject to the achievement of certain
performance goals. We treat the cash settled portion of these
awards as a liability. We grant forfeitable restricted stock and
stock units, which are valued at the market price of our common
stock at the date of grant and predominantly vest over a three- to
five-year period. We also grant other nonvested stock units and
award them in cash at the end of a three-year period, subject to
the achievement of certain market-based conditions. As of December
31, 2021, we were authorized to issue up to approximately 139
million shares of common stock (in addition to shares that may be
issued upon exercise of outstanding options or upon vesting of
performance stock units or other nonvested stock units) to
officers, employees and directors pursuant to these various
plans.
We account for our share-based payment arrangements based on the
fair value of the awards on their respective grant date, which may
affect our ability to fully realize the value shown on our
consolidated balance sheets of deferred tax assets associated with
compensation expense. We record a valuation allowance when our
future taxable income is not expected to be sufficient to recover
the asset. Accordingly, there can be no assurance that the current
stock price of our common shares will rise to levels sufficient to
realize the entire tax benefit currently reflected on our
consolidated balance sheets. However, to the extent we generate
excess tax benefits (i.e., those additional tax benefits in excess
of the deferred taxes associated with compensation expense
previously recognized) the potential future impact on income would
be reduced.
Our consolidated statements of income include the compensation
cost recognized for those plans as operating expenses, as well as
the associated tax benefits, which are reflected in the table
below:
2021 2020 2019
Performance stock units $245 $348 $544
Restricted stock and stock units 385 290 273
Other nonvested stock units 7 - 7
Stock options - - (5)
Total $637 $638 $819
Income tax benefit $157 $157 $202
A summary of the status of our nonvested stock units as of
December 31, 2021, and changes during the year then ended is
presented as follows (shares in millions):
Weighted-Average
Grant-
Nonvested Stock Units Shares Date Fair Value
Nonvested at January 1, 2021 43 $ 34.50
Granted 36 28.79
Vested (26) 31.56
Forfeited (4) 31.52
Nonvested at December 31, 2021 49 $ 32.06
As of December 31, 2021, there was $916 of total unrecognized
compensation cost related to nonvested share-based payment
arrangements granted. That cost is expected to be recognized over a
weighted-average period of 1.95 years. The total fair value of
shares vested during the year was $811 for 2021, compared to $647
for 2020 and $798 for 2019.
It is our intent to satisfy share option exercises using our
treasury stock. Cash received from stock option exercises was $60
for 2021, $65 for 2020 and $446 for 2019.
116
AT&T Inc.
Dollars in millions except per share amounts
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NOTE 17. STOCKHOLDERS' EQUITY
Authorized Shares We have authorized 14 billion common shares of
AT&T stock and 10 million preferred shares of AT&T stock,
each with a par value of $1.00 per share. Cumulative perpetual
preferred shares consist of the following:
--Series A: 48 thousand shares outstanding at December 31, 2021
and December 31, 2020, with a $25,000 per share liquidation
preference and a dividend rate of 5.000%.
--Series B: 20 thousand shares outstanding at December 31, 2021
and December 31, 2020, with a EUR100,000 per share liquidation
preference, and an initial rate of 2.875%, subject to reset after
May 1, 2025.
--Series C: 70 thousand shares outstanding at December 31, 2021
and December 31, 2020, with a $25,000 per share liquidation
preference, and a dividend rate of 4.75%.
So long as the quarterly preferred dividends are declared and
paid on a timely basis on each series of preferred shares, there
are no limitations on our ability to declare a dividend on or
repurchase AT&T common shares. The preferred shares are
optionally redeemable by AT&T at the liquidation price on or
after five years from the issuance date, or upon certain other
contingent events.
Stock Repurchase Program From time to time, we repurchase shares
of common stock for distribution through our employee benefit plans
or in connection with certain acquisitions. Our Board of Directors
has approved the following authorization to repurchase common
stock: (1) March 2013 authorization program of 300 million shares,
which was completed in 2020 and (2) March 2014 authorization
program for 300 million shares, with approximately 178 million
outstanding at December 31, 2021.
To implement these authorizations, we used open market
repurchases, relying on Rule 10b5-1 of the Securities Exchange Act
of 1934, where feasible. We also used accelerated share repurchase
agreements with large financial institutions to repurchase our
stock. During 2020, we repurchased approximately 142 million shares
totaling $5,278 under the March 2013 and March 2014 authorizations.
During 2021, there were no shares repurchased under the March 2014
authorization.
Dividend Declarations In December 2021 and December 2020,
AT&T declared a quarterly preferred dividend of $36 and a
quarterly common dividend of $0.52 per share of common stock.
Preferred Interests Issued by Subsidiaries We have issued
cumulative perpetual preferred membership interests in certain
subsidiaries. The preferred interests are entitled to cash
distributions, subject to declaration. The preferred interests are
included in "Noncontrolling interest" on the consolidated balance
sheets.
Mobility II
We previously issued 320 million Series A Cumulative Perpetual
Preferred Membership Interests in Mobility II (Mobility preferred
interests), representing all currently outstanding Mobility
preferred equity interests, which pay cash distributions of $560
per annum, subject to declaration. So long as the distributions are
declared and paid, the terms of the Mobility preferred equity
interests will not impose any limitations on cash movements between
affiliates, or our ability to declare a dividend on or repurchase
AT&T shares.
A holder of the Mobility preferred interests may put the
interests to Mobility II. Mobility II may redeem the interests upon
a change in control of Mobility II or on or after September 9,
2022. When either option arises due to a passage of time, that
option may be exercised only during certain periods.
The price at which a put option or a redemption option can be
exercised is the greater of (1) the market value of the interests
as of the last date of the quarter preceding the date of the
exercise of a put or redemption option and (2) the sum of (a)
twenty-five dollars ($8,000 in the aggregate) plus (b) any accrued
and unpaid distributions. The redemption price may be paid with
cash, AT&T common stock, or a combination of cash and AT&T
common stock, at Mobility II's sole election. In no event shall
Mobility II be required to deliver more than 250 million shares of
AT&T common stock to settle put and redemption options. We have
the intent and ability to settle the Mobility preferred equity
interests with cash.
Tower Holdings
In 2019, we issued $6,000 nonconvertible cumulative preferred
interests in a wireless subsidiary (Tower Holdings) that holds
interests in various tower assets and have the right to receive
approximately $6,000 if the purchase options from the tower
companies are exercised.
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The membership interests in Tower Holdings consist of (1) common
interests, which are held by a consolidated subsidiary of AT&T,
and (2) two series of preferred interests (collectively the "Tower
preferred interests"). The September series (Class A-1) of the
preferred interests totals $1,500 and pays an initial preferred
distribution of 5.0%, and the December series (Class A-2) totals
$4,500 and pays an initial preferred distribution of 4.75%.
Distributions are paid quarterly, subject to declaration, and reset
every five years. Any failure to declare or pay distributions on
the Tower preferred interests would not impose any limitation on
cash movements between affiliates, or our ability to declare a
dividend on or repurchase AT&T shares. We can call the Tower
preferred interests at the issue price beginning five years from
the issuance date or upon the receipt of proceeds from the sale of
the underlying assets.
The holders of the Tower preferred interests have the option to
require redemption upon the occurrence of certain contingent
events, such as the failure of AT&T to pay the preferred
distribution for two or more periods or to meet certain other
requirements, including a minimum credit rating. If notice is given
upon such an event, all other holders of equal or more subordinate
classes of membership interests in Tower Holdings are entitled to
receive the same form of consideration payable to the holders of
the preferred interests, resulting in a deemed liquidation for
accounting purposes.
Telco LLC
In September 2020, we issued $2,000 nonconvertible cumulative
preferred interests out of a newly created limited liability
company (Telco LLC) that was formed to hold
telecommunication-related assets.
Members' equity in Telco LLC consist of (1) member's interests,
which are held by a consolidated subsidiary of AT&T, and (2)
preferred interests (Telco preferred interests), which pay an
initial preferred distribution of 4.25% annually, subject to
declaration, and subject to reset every seven years. Failure to pay
distributions on the Telco preferred interests would not limit cash
movements between affiliates, or our ability to declare a dividend
on or repurchase AT&T shares. We can call the Telco preferred
interests at the issue price beginning seven years from the
issuance date.
The holders of the Telco preferred interests have the option to
require redemption upon the occurrence of certain contingent
events, such as the failure of Telco LLC to pay the preferred
distribution for two or more periods or to meet certain other
requirements, including a minimum credit rating. If notice is
given, all other holders of equal or more subordinate classes of
members' equity are entitled to receive the same form of
consideration payable to the holders of the preferred interests,
resulting in a deemed liquidation for accounting purposes.
PR Holdings
In 2019, we issued $1,950 nonconvertible cumulative preferred
interests in a subsidiary (PR Holdings) that held notes secured by
the proceeds from our agreement to sell wireless and wireline
operations in Puerto Rico and the U.S. Virgin Islands. These
preferred interests were redeemed on November 6, 2020. (See Note
6)
The membership interests in PR Holdings consisted of (1) common
interests, which were held by consolidated subsidiaries of
AT&T, and (2) preferred interests (PR preferred interests). The
PR preferred interests paid an initial preferred distribution at an
annual rate of 4.75%. Distributions were paid quarterly, subject to
declaration.
NOTE 18. SALES OF RECEIVABLES
We have agreements with various third-party financial
institutions pertaining to the sales of certain types of our
accounts receivable. The most significant of these programs are
discussed in detail below and generally consist of (1) receivables
arising from equipment installment plans, which are sold for cash
and a deferred purchase price, and (2) revolving service and trade
receivables. Under these programs, we transfer receivables to
purchasers in exchange for cash and additional consideration upon
settlement of the receivables, where applicable. Under the terms of
our agreements for these programs, we continue to bill and collect
the payments from our customers on behalf of the financial
institutions.
The sales of receivables did not have a material impact on our
consolidated statements of income or to "Total Assets" reported on
our consolidated balance sheets. We reflect cash receipts on sold
receivables as cash flows from operations in our consolidated
statements of cash flows. Cash receipts on the deferred purchase
price are classified as cash flows from investing activities.
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Our equipment installment and revolving receivables programs are
discussed in detail below. The following table sets forth a summary
of the receivables and accounts being serviced at December 31:
2021 2020
Equipment Equipment
Installment Revolving Installment Revolving
Gross receivables: $ 4,361 $ 3,527 $ 5,565 $ 3,909
Balance sheet classification
Accounts receivable
Notes receivable 1,846 - 2,716 -
Trade receivables 606 3,337 554 3,715
Other Assets
Noncurrent notes and trade
receivables 1,909 190 2,295 194
Outstanding portfolio of
receivables
derecognized from
our consolidated balance
sheets 9,767 6,280 7,827 5,300
Cash proceeds received, net of
remittances
1 6,644 6,280 5,646 5,300
1 Represents amounts to which financial institutions remain
entitled, excluding the deferred purchase price.
Equipment Installment Receivables Program
We offer our customers the option to purchase certain wireless
devices in installments over a specified period of time and, in
many cases, once certain conditions are met, they may be eligible
to trade in the original equipment for a new device and have the
remaining unpaid balance paid or settled.
We maintain a program under which we transfer a portion of these
receivables through our bankruptcy-remote subsidiary in exchange
for cash and additional consideration upon settlement of the
receivables, referred to as the deferred purchase price. In the
event a customer trades in a device prior to the end of the
installment contract period, we agree to make a payment to the
financial institutions equal to any outstanding remaining
installment receivable balance. Accordingly, we record a guarantee
obligation for this estimated amount at the time the receivables
are transferred.
The following table sets forth a summary of equipment
installment receivables sold under this program:
2021 2020 2019
Gross receivables sold $10,793 $7,270 $9,921
Net receivables sold 1 10,502 7,026 9,483
Cash proceeds received 9,740 6,089 8,189
Deferred purchase price recorded 1,080 1,021 1,451
Guarantee obligation recorded 434 157 341
1 Receivables net of allowance, imputed interest and equipment
trade-in right guarantees.
The deferred purchase price and guarantee obligation are
initially recorded at estimated fair value and subsequently
adjusted for changes in present value of expected cash flows. The
estimation of their fair values is based on remaining installment
payments expected to be collected and the expected timing and value
of device trade-ins. The estimated value of the device trade-ins
considers prices offered to us by independent third parties and
contemplate changes in value after the launch of a device model.
The fair value measurements used for the deferred purchase price
and the guarantee obligation are considered Level 3 under the Fair
Value Measurement and Disclosure framework (see Note 13).
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The following table presents the previously transferred
equipment installment receivables, which we repurchased in exchange
for the associated deferred purchase price:
2021 2020 2019
Fair value of repurchased receivables $1,424 $1,271 $1,418
Carrying value of deferred purchase price 1,334 1,235 1,350
Gain on repurchases 1 $ 90 $ 36 $ 68
1 These gains are included in "Selling, general and
administrative" in the consolidated statements of income.
At December 31, 2021 and December 31, 2020, our deferred
purchase price receivable was $3,177 and $1,991, respectively, of
which $2,123 and $1,476 are included in "Prepaid and other current
assets" on our consolidated balance sheets, with the remainder in
"Other Assets." The guarantee obligation at December 31, 2021 and
December 31, 2020 was $371 and $228, respectively, of which $101
and $161 are included in "Accounts payable and accrued liabilities"
on our consolidated balance sheets, with the remainder in "Other
noncurrent liabilities." Our maximum exposure to loss as a result
of selling these equipment installment receivables is limited to
the total amount of our deferred purchase price and guarantee
obligation.
Revolving Receivables Program
We have a revolving agreement to transfer up to $6,680 of
certain receivables (primarily from WarnerMedia) through our
bankruptcy-remote subsidiaries to various financial institutions on
a recurring basis in exchange for cash equal to the gross
receivables transferred. This agreement is subject to renewal on an
annual basis and the transfer limit may be expanded or reduced from
time to time. As customers pay their balances, we transfer
additional receivables into the program, resulting in our gross
receivables sold exceeding net cash flow impacts (e.g., collect and
reinvest). The transferred receivables are fully guaranteed by our
bankruptcy-remote subsidiaries, which hold additional receivables
in the amount of $3,527 that are pledged as collateral under this
agreement. The transfers are recorded at fair value of the proceeds
received and obligations assumed less derecognized receivables. The
obligation is subsequently adjusted for changes in estimated
expected credit losses and interest rates. Our maximum exposure to
loss related to these receivables transferred is limited to the
amount outstanding.
The fair value measurement used for the obligation is considered
Level 3 under the Fair Value Measurement and Disclosure framework
(see Note 13).
The following table sets forth a summary of receivables
sold:
2021 2020 2019
Gross receivables sold/cash proceeds received
1 $20,060 $15,888 $11,989
Total collections under revolving agreement 2 18,910 14,888 7,689
Receivables repurchased 170 - -
Net cash proceeds received $ 980 $ 1,000 $ 4,300
Net receivables sold 3 $19,775 $15,760 $11,604
Obligations recorded 18 271 530
1 Includes initial sale of receivables of $1,380, $1,000 and
$4,300 for 2021, 2020 and 2019, respectively.
2 Includes collections of $400, $0 and $0 for 2021, 2020 and
2019, respectively, that were not reinvested under the revolving
agreement.
3 Receivables net of allowance, return and incentive reserves
and imputed interest.
NOTE 19. TOWER TRANSACTION
In December 2013, we closed our transaction with Crown Castle
International Corp. (Crown Castle) in which Crown Castle gained the
exclusive rights to lease and operate 9,048 wireless towers and
purchased 627 of our wireless towers for $4,827 in cash. The leases
have various terms with an average length of approximately 28
years. As the leases expire, Crown Castle will have fixed price
purchase options for these towers totaling approximately $4,200,
based on their estimated fair market values at the end of the lease
terms. We sublease space on the towers from Crown Castle for an
initial term of ten years at current market rates, subject to
optional renewals in the future.
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We determined that we did not transfer control of the tower
assets, which prevented us from achieving sale-leaseback accounting
for the transaction, and we accounted for the cash proceeds from
Crown Castle as a financing obligation on our consolidated balance
sheets. We record interest on the financing obligation using the
effective interest method at a rate of approximately 3.9%. The
financing obligation is increased by interest expense and estimated
future net cash flows generated and retained by Crown Castle from
operation of the tower sites, and reduced by our contractual
payments. We continue to include the tower assets in "Property,
Plant and Equipment - Net" on our consolidated balance sheets and
depreciate them accordingly. At December 31, 2021 and 2020, the
tower assets had a balance of $725 and $764, respectively. Our
depreciation expense for these assets was $39 for each of 2021,
2020 and 2019.
Payments made to Crown Castle under this arrangement were $253
for 2021. At December 31, 2021, the future minimum payments under
the sublease arrangement are $258 for 2022, $264 for 2023, $269 for
2024, $274 for 2025, $280 for 2026 and $707 thereafter.
NOTE 20. TRANSACTIONS WITH DIRECTV
On July 31, 2021, we closed our transaction with TPG to form a
new company named DIRECTV (see Note 6). The transaction resulted in
our deconsolidation of the Video business. Effective August 1,
2021, we began accounting for our investment in DIRECTV under the
equity method and recorded our share of DIRECTV earnings as equity
in net income of affiliates, with DIRECTV considered a related
party (see Note 10).
For the five months ended December 31, 2021, our share of
DIRECTV's earnings included in equity in net income of affiliates
was $619. Cash distributions from DIRECTV totaled $1,942, with $619
classified as operating activities and $1,323 classified as
investing activities in our consolidated statement of cash
flows.
In addition to the assets and liabilities contributed to
DIRECTV, we recorded total obligations of approximately $2,100 to
cover certain net losses under the NFL SUNDAY TICKET contract, of
which $1,800 is in the form of a note payable to DIRECTV (see Note
6). Cash payments to DIRECTV on the note totaled $459 and were
classified as financing activities in our consolidated statement of
cash flows. Amounts due under the DIRECTV note were $1,341 at
December 31, 2021.
Through our WarnerMedia properties, we license content and
programming and provide advertising services to DIRECTV. Revenue
recognized from DIRECTV, which was previously eliminated, totaled
approximately $670 for the five months ended December 31, 2021. We
also provide DIRECTV with network transport for U-verse products
and sales services under commercial arrangements for up to five
years.
Pursuant to a commercial agreement, WarnerMedia continues to
sell DIRECTV's advertising inventory under a revenue sharing
agreement. WarnerMedia records amounts billed as advertising
revenue and recognizes expense for DIRECTV's revenue share, which
was approximately $600 for the five months ended December 31, 2021.
Under separate transition services agreements, we provide DIRECTV
certain operational support, including servicing of certain of
their customer receivables for up to three years. For the five
months ended December 31, 2021, we billed DIRECTV approximately
$550 for these costs, which were primarily recorded as a reduction
to the operations and support expenses incurred and resulted in net
retained costs to AT&T of approximately $200.
At December 31, 2021, we had accounts receivable from DIRECTV of
$436 and accounts payable to DIRECTV of $329.
We are not committed, implicitly or explicitly, to provide
financial or other support, other than noted above, as our
involvement with DIRECTV is limited to the carrying amount of the
assets and liabilities recognized on our balance sheet.
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NOTE 21. FIRSTNET
In 2017, the First Responder Network Authority (FirstNet)
selected AT&T to build and manage the first nationwide
broadband network dedicated to America's first responders. Under
the 25-year agreement, FirstNet provides 20 MHz of valuable
telecommunications spectrum and success-based payments of $6,500
over the first five years to support network buildout. We are
required to construct a network that achieves coverage and
nationwide interoperability requirements and have a contractual
commitment to make sustainability payments of $18,000 over the
25-year contract. These sustainability payments represent our
commitment to fund FirstNet's operating expenses and future
reinvestments in the network which we own and operate, which we
estimate in the $3,000 or less range over the life of the 25-year
contract. After FirstNet's operating expenses are paid, we
anticipate the remaining amount, expected to be in the $15,000
range, will be reinvested into the network.
During 2021, we submitted $120 in sustainability payments, with
future payments under the agreement of $195 for 2022, 2023, 2024
and 2025; $1,590 for 2026; and $15,030 thereafter. Amounts paid to
FirstNet, which are not expected to be returned to AT&T to be
reinvested into our network, will be expensed in the period paid.
In the event FirstNet does not reinvest any funds to construct,
operate, improve and maintain this network, our maximum exposure to
loss is the total amount of the sustainability payments, which
would be reflected in higher expense.
The $6,500 of initial funding from FirstNet is contingent on the
achievement of six operating capability milestones and certain
first responder subscriber adoption targets. These milestones are
based on coverage objectives of the first responder network during
the construction period, which is expected to be over five years,
and subscriber adoption targets. Funding payments received from
FirstNet are reflected as a reduction from the costs capitalized in
the construction of the network and, as appropriate, a reduction of
associated operating expenses. As of December 31, 2021, we have
collected approximately $5,860 for the completion of certain tasks
and anticipate collecting the remainder of the $6,500 as we achieve
milestones set out by FirstNet in 2022. We also received
approximately $170 in 2021 from FirstNet for reinvestment above the
original success-based payments.
NOTE 22. CONTINGENT LIABILITIES
We are party to numerous lawsuits, regulatory proceedings and
other matters arising in the ordinary course of business. In
evaluating these matters on an ongoing basis, we take into account
amounts already accrued on the balance sheet. In our opinion,
although the outcomes of these proceedings are uncertain, they
should not have a material adverse effect on our financial
position, results of operations or cash flows.
We have contractual obligations to purchase certain goods or
services from various other parties. Our purchase obligations are
expected to be approximately $28,860 in 2022, $24,585 in total for
2023 and 2024, $11,636 in total for 2025 and 2026 and $12,540 in
total for years thereafter.
See Note 13 for a discussion of collateral and credit-risk
contingencies.
NOTE 23. ADDITIONAL FINANCIAL INFORMATION
December 31,
Consolidated Balance Sheets 2021 2020
Accounts payable and accrued liabilities:
Accounts payable $30,756 $31,836
Accrued payroll and commissions 3,449 2,988
Current portion of employee benefit obligation 1,278 1,415
Accrued participations and residuals 2,966 2,708
Accrued interest 2,463 2,454
Accrued taxes 1,402 1,019
Other 8,347 7,631
Total accounts payable and accrued liabilities $50,661 $50,051
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Consolidated Statements of Income 2021 2020 2019
Advertising expense $ 6,316 $ 5,253 $ 6,121
Interest expense incurred $ 7,838 $ 8,048 $ 8,622
Capitalized interest - capital expenditures (173) (123) (200)
Capitalized interest - spectrum 1 (781) - -
Total interest expense $ 6,884 $ 7,925 $ 8,422
1 Included in "Acquisitions, net of cash acquired" on our consolidated statement
of cash flows.
Cash and Cash Flows We typically maintain our restricted cash
balances for purchases and sales of certain investment securities
and funding of certain deferred compensation benefit payments.
The following table summarizes cash and cash equivalents and
restricted cash balances on our consolidated balance sheets:
December 31,
Cash and Cash Equivalents and Restricted
Cash 2021 2020 2019 2018
Cash and cash equivalents $21,169 $9,740 $12,130 $5,204
Restricted cash in Other current assets 3 9 69 61
Restricted cash in Other Assets 144 121 96 135
Cash and cash equivalents and restricted
cash $21,316 $9,870 $12,295 $5,400
The following table summarizes cash paid during the periods for
interest income taxes and spectrum:
Consolidated Statements of Cash Flows 2021 2020 2019
Cash paid (received) during the year for:
Interest $ 7,673 $ 8,237 $ 8,693
Income taxes, net of refunds 700 993 1,421
Spectrum acquisitions 1 24,672 1,613 1,576
1 Included as cash paid for "Acquisitions, net of cash acquired" on our consolidated
statement of cash flows. Excludes interest during construction.
Noncash Investing and Financing Activities In connection with
capital improvements and the acquisition of other productive
assets, we negotiate favorable payment terms (referred to as vendor
financing), which are reported as financing activities in our
statements of cash flows when paid. We recorded $5,282 of vendor
financing commitments related to capital investments in 2021,
$4,664 in 2020 and $2,632 in 2019.
Total vendor financing payables included in our December 31,
2021 consolidated balance sheet were approximately $5,000, with
$3,950 due within one year (in "Accounts payable and accrued
liabilities") and the remainder predominantly due within five years
(in "Other noncurrent liabilities").
Labor Contracts As of January 31, 2022, we employed
approximately 203,000 persons. Approximately 37% of our employees
are represented by the Communications Workers of America (CWA), the
International Brotherhood of Electrical Workers (IBEW) or other
unions. After expiration of the agreements, work stoppages or labor
disruptions may occur in the absence of new contracts or other
agreements being reached. The main contracts included the
following:
--A contract covering approximately 12,000 Mobility employees in
36 states and the District of Columbia is set to expire in February
2022.
--A contract covering approximately 6,000 wireline employees in
five Midwest states that was set to expire in April 2022 was
extended for a four-year period until April 2026.
--A contract covering approximately 3,000 MW IBEW employees is
set to expire in June 2022.
--A contract covering approximately 2,000 AT&T Corp.
employees nationwide that was set to expire in April 2022 was
extended for a four-year period until April 2026.
--A contract covering approximately 170 Teamsters Alascom
employees in Alaska is set to expire in February 2022.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
During our two most recent fiscal years, there has been no
change in the independent accountant engaged as the principal
accountant to audit our financial statements, and the independent
accountant has not expressed reliance on other independent
accountants in its reports during such time period.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
The registrant maintains disclosure controls and procedures that
are designed to ensure that information required to be disclosed by
the registrant is recorded, processed, summarized, accumulated and
communicated to its management, including its principal executive
and principal financial officers, to allow timely decisions
regarding required disclosure, and reported within the time periods
specified in the SEC's rules and forms. The Chief Executive Officer
and Chief Financial Officer have performed an evaluation of the
effectiveness of the design and operation of the registrant's
disclosure controls and procedures as of December 31, 2021. Based
on that evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that the registrant's disclosure controls and
procedures were effective as of December 31, 2021.
There have not been any changes in our internal control over
financial reporting during our most recent fiscal quarter that have
materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
Internal Control Over Financial Reporting
a.Management's Annual Report on Internal Control over Financial
Reporting
The management of AT&T is responsible for establishing and
maintaining adequate internal control over financial reporting.
AT&T's internal control system was designed to provide
reasonable assurance as to the integrity and reliability of the
published financial statements. AT&T management assessed the
effectiveness of the company's internal control over financial
reporting as of December 31, 2021. In making this assessment, it
used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in Internal Control
- Integrated Framework (2013 framework). Based on its assessment,
AT&T management believes that, as of December 31, 2021, the
Company's internal control over financial reporting is effective
based on those criteria.
b.Attestation Report of the Independent Registered Public
Accounting Firm
The independent registered public accounting firm that audited
the financial statements included in the Annual Report containing
the disclosure required by this Item, Ernst & Young LLP, has
issued an attestation report on the Company's internal control over
financial reporting.
ITEM 9B. OTHER INFORMATION
There is no information that was required to be disclosed in a
report on Form 8-K during the fourth quarter of 2021 but was not
reported.
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PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE
Information regarding executive officers required by Item 401 of
Regulation S-K is furnished in a separate disclosure at the end of
Part I of this report entitled "Information about our Executive
Officers." Information regarding directors required by Item 401 of
Regulation S-K is incorporated herein by reference pursuant to
General Instruction G(3) from the registrant's 2022 definitive
proxy statement (Proxy Statement) under the heading "Management
Proposal Item No. 1. Election of Directors."
Information required by Item 405 of Regulation S-K is
incorporated herein by reference pursuant to General Instruction
G(3) from the registrant's Proxy Statement under the heading
"Delinquent Section 16(a) Reports."
The registrant has a separately-designated standing audit
committee established in accordance with Section 3(a)(58)(A) of the
Securities Exchange Act of 1934. The members of the committee are
Messrs. Di Piazza, Jr., Luczo and McCallister, and Ms. Taylor. The
additional information required by Item 407(d)(5) of Regulation S-K
is incorporated herein by reference pursuant to General Instruction
G(3) from the registrant's Proxy Statement under the heading "Audit
Committee."
The registrant has adopted a code of ethics entitled "Code of
Ethics" that applies to the registrant's principal executive
officer, principal financial officer, principal accounting officer,
or controller or persons performing similar functions. The
additional information required by Item 406 of Regulation S-K is
provided in this report under the heading "General" under Part I,
Item 1. Business.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this Item is incorporated herein by
reference pursuant to General Instruction G(3) from the
registrant's Proxy Statement under the headings "Director
Compensation," "CEO Pay Ratio," and the pages beginning with the
heading "Compensation Discussion and Analysis" and ending with, and
including, the pages under the heading "Potential Payments upon
Change in Control."
Information required by Item 407(e)(5) of Regulation S-K is
included in the registrant's Proxy Statement under the heading
"Compensation Committee Report" and is incorporated herein by
reference pursuant to General Instruction G(3) and shall be deemed
furnished in this Annual Report on Form 10-K and will not be deemed
incorporated by reference into any filing under the Securities Act
of 1933 or the Securities Exchange Act of 1934.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Information required by Item 403 of Regulation S-K is included
in the registrant's Proxy Statement under the heading "Common Stock
Ownership," which is incorporated herein by reference pursuant to
General Instruction G(3).
Equity Compensation Plan Information
The following table provides information as of December 31,
2021, concerning shares of AT&T common stock authorized for
issuance under AT&T's existing equity compensation plans.
Equity Compensation Plan Information
Number of securities
remaining available
Number of securities Weighted average for future issuance
to be issued upon exercise price under equity compensation
exercise of of outstanding plans (excluding securities
outstanding options, options, warrants reflected in column
warrants and rights and rights (a))
Plan Category (a) (b) (c)
Equity compensation plans
approved by security holders 78,313,573 (1) $ 29.87 115,401,058 (2)
Equity compensation plans
not approved by security
holders - - -
Total 78,313,573 (3) $ 29.87 115,401,058 (2)
(1) Includes the issuance of stock in connection with the
following stockholder approved plans: (a) 349 stock options under
the Stock Purchase and Deferral Plan (SPDP), (b) 97,731 phantom
stock units under the Stock Savings Plan (SSP), 14,455,686 phantom
stock units under the SPDP, 0 restricted stock units under the 2011
Incentive Plan, 806,254 restricted stock units under the 2016
Incentive Plan and 32,316,464 restricted stock units under the 2018
Incentive Plan, (c) 0 target number of stock-settled performance
shares under the 2011 Incentive Plan, 0 target number of
stock-settled performance shares under the 2016 Incentive Plan, and
27,341,555 target number of stock-settled performance shares under
the 2018 Incentive Plan. At payout, the target number of
performance shares may be reduced to zero or increased by up to
150%. Each phantom stock unit and performance share is settleable
in stock on a 1-to-1 basis. The weighted-average exercise price in
the table does not include outstanding performance shares or
phantom stock units.
The SSP was approved by stockholders in 1994 and then was
amended by the Board of Directors in 2000 to increase the number of
shares available for purchase under the plan (including shares from
the Company match and reinvested dividend equivalents). Stockholder
approval was not required for the amendment. To the extent
applicable, the amount shown for approved plans in column (a), in
addition to the above amounts, includes 3,295,534 phantom stock
units (computed on a first-in-first-out basis) that were approved
by the Board in 2000. Under the SSP, shares could be purchased with
payroll deductions and reinvested dividend equivalents by mid-level
and above managers and limited Company partial matching
contributions. No new contributions may be made to the plan.
(2) Includes 25,799,904 shares that may be issued under the
SPDP, 87,034,186 shares that may be issued under the 2018 Incentive
Plan, and up to 2,566,969 shares that may be purchased through
reinvestment of dividends on phantom shares held in the SSP.
(3) Does not include certain stock options issued by companies
acquired by AT&T that were converted into options to acquire
AT&T stock. As of December 31, 2021, there were 2,861,614
shares of AT&T common stock subject to the converted options,
having a weighted-average exercise price of $21.63. Also, does not
include 355,008 outstanding phantom stock units that were issued by
companies acquired by AT&T that are convertible into stock on a
1-to-1 basis, along with an estimated 111,755 shares that may be
purchased with reinvested dividend equivalents paid on the
outstanding phantom stock units. No further phantom stock units,
other than reinvested dividends, may be issued under the assumed
plans. The weighted-average exercise price in the table does not
include outstanding performance shares or phantom stock units.
126
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENCE
Information required by Item 404 of Regulation S-K is included
in the registrant's Proxy Statement under the heading "Related
Person Transactions," which is incorporated herein by reference
pursuant to General Instruction G(3). Information required by Item
407(a) of Regulation S-K is included in the registrant's Proxy
Statement under the heading "Director Independence," which is
incorporated herein by reference pursuant to General Instruction
G(3).
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information required by this Item is included in the
registrant's Proxy Statement under the heading "Principal
Accountant Fees and Services," which is incorporated herein by
reference pursuant to General Instruction G(3).
Part IV
ITEM 15. EXHIBITS and FINANCIAL STATEMENT SCHEDULES
(a)Documents filed as a part of the report:
Page
(1) Report of Independent Registered Public Accounting Firm (PCAOB
ID: 42) 55
Financial Statements covered by Report of Independent Registered
Public Accounting Firm:
Consolidated Statements of Income 59
Consolidated Statements of Comprehensive Income 6 0
Consolidated Balance Sheets 61
Consolidated Statements of Cash Flows 62
Consolidated Statements of Changes in Stockholders' Equity 63
Notes to Consolidated Financial Statements 65
(2) Financial Statement Schedules:
II - Valuation and Qualifying Accounts 131
Financial statement schedules other than those listed above have
been omitted because the required information is contained in the
financial statements and notes thereto, or because such schedules
are not required or applicable.
128
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------
129
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------
130
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Allowance for Credit Losses
COL. A COL. B COL. C COL. D COL. E
Additions
(1) (2) (3)
Charged to Balance at
Balance at Charged to Other End
Beginning Costs and Accounts Deductions of Period
of Period Expenses (a) (b) Acquisitions (c) (d)
Year 2021 $ 1,589 $ 1,240 $ - $ - $ 1,693 $ 1,136
Year 2020 $ 1,235 $ 1,972 $ 405 $ - $ 2,023 $ 1,589
Year 2019 $ 907 $ 2,575 $ - $ - $ 2,247 $ 1,235
(a)Includes amounts previously written off which were credited
directly to this account when recovered.
Excludes direct charges and credits to expense for nontrade
receivables in the consolidated statements of income.
Includes the impact to operating expenses, for the year ended
December 31, 2020, after adoption of ASC 326.
(b)Opening adjustments upon adoption of ASC 326, with modified
retrospective application, as of January 1, 2020 (see Note 1).
(c)Amounts written off as uncollectible, or related to divested
entities.
(d)Includes balances applicable to trade receivables, loans,
contract assets and other assets subject to credit loss measurement
(see Note 1).
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Allowance for Deferred Tax Assets
COL. A COL. B COL. C COL. D COL. E
Additions
(1) (2) (3)
Charged to
Balance at Charged to Other Balance at
Beginning Costs and Accounts End
of Period Expenses (a) Acquisitions Deductions of Period
Year 2021 $ 4,773 (135) - - - $ 4,638
Year 2020 $ 4,941 (168) - - - $ 4,773
Year 2019 $ 4,588 (18) 371 - - $ 4,941
(a)Includes current year reclassifications from other balance sheet accounts.
131
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized, on the 16th day of February, 2022.
AT&T INC.
/s/ Pascal Desroches
Pascal Desroches
Senior Executive Vice
President
and Chief Financial
Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the date
indicated.
Principal Executive Officer:
John T. Stankey*
Chief Executive Officer
and President
Principal Financial and Accounting Officer:
Pascal Desroches
Senior Executive Vice President
and Chief Financial Officer
/s/ Pascal Desroches
Pascal Desroches, as attorney-in-fact
and on his own behalf as
Principal
Financial Officer and Principal
Accounting Officer
February 16, 2022
Directors:
John T. Stankey* Michael B. McCallister*
Samuel A. Di Piazza, Jr.* Beth E. Mooney*
Scott T. Ford* Matthew K. Rose*
Glenn H. Hutchins* Cynthia B. Taylor*
William E. Kennard* Luis A. Ubiñas*
Debra L. Lee* Geoffrey Y. Yang*
Stephen J. Luczo*
* by power of attorney
132
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END
FR VFLFLLXLEBBK
(END) Dow Jones Newswires
March 22, 2022 03:00 ET (07:00 GMT)
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