REG - AT & T Inc. - Annual Financial Report
22/03/2022 07:00
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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 T PRA New York Stock Exchange
5.000% Perpetual Preferred Stock, Series A
Depositary Shares, each representing a 1/1000th interest in a share of T PRC New York Stock Exchange
4.750% Perpetual Preferred Stock, Series C
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 (#BKMK_14)
1. Business (#BKMK_15) 1 (#BKMK_15)
1A. (#BKMK_16) Risk Factors (#BKMK_16) 13 (#BKMK_16)
2. (#BKMK_17) Properties (#BKMK_17) 25 (#BKMK_17)
3. (#BKMK_18) Legal Proceedings (#BKMK_18) 25 (#BKMK_18)
4. (#BKMK_19) Mine Safety Disclosures (#BKMK_19) 25 (#BKMK_19)
Information about our Executive Officers (#BKMK_20) 26 (#BKMK_20)
PART II (#BKMK_21)
5. (#BKMK_22) Market for Registrant's Common Equity, Related Stockholder Matters and Issuer 27 (#BKMK_22)
Purchases of Equity (#BKMK_22)
Securities (#BKMK_22)
6. (#BKMK_23) Item 6. Reserved (#BKMK_23) 29 (#BKMK_23)
7. (#BKMK_24) Management's Discussion and Analysis of Financial Condition and Results of 29 (#BKMK_24)
Operations (#BKMK_24)
7A. (#BKMK_25) Quantitative and Qualitative Disclosures about Market Risk (#BKMK_25) 52 (#BKMK_25)
8. (#BKMK_26) Financial Statements and Supplementary Data (#BKMK_26) 59 (#BKMK_26)
9. (#BKMK_27) Changes in and Disagreements with Accountants on Accounting and Financial 124 (#BKMK_27)
Disclosure (#BKMK_27)
9A. (#BKMK_28) Controls and Procedures (#BKMK_28) 124 (#BKMK_28)
9B. (#BKMK_29) Other Information (#BKMK_29) 124 (#BKMK_29)
PART III (#BKMK_30)
10. (#BKMK_31) Directors, Executive Officers and Corporate Governance (#BKMK_31) 125 (#BKMK_31)
11. (#BKMK_32) Executive Compensation (#BKMK_32) 125 (#BKMK_32)
12. (#BKMK_33) Security Ownership of Certain Beneficial Owners and Management and Related 126 (#BKMK_33)
Stockholder Matters (#BKMK_33)
13. (#BKMK_34) Certain Relationships and Related Transactions, and Director Independence 127 (#BKMK_34)
(#BKMK_34)
14. (#BKMK_35) Principal Accountant Fees and Services (#BKMK_35) 127 (#BKMK_35)
PART IV (#BKMK_36)
15. (#BKMK_37) Exhibits and Financial Statement Schedules (#BKMK_37) 127 (#BKMK_37)
16. (#BKMK_38) Form 10-K Summary (#BKMK_38) 130 (#BKMK_38)
AT&T Inc.
Dollars in millions except per share amounts
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
•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
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
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 PREPAIDSM 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.
Dollars in millions except per share amounts
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.
Dollars in millions except per share amounts
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.
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AT&T Inc.
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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.
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AT&T Inc.
Dollars in millions except per share amounts
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 service1 34 % 32 % 30 %
Business service 14 14 14
Equipment 13 10 9
Latin America Segment
Video Services2 2 2 2
Wireless service 1 1 1
Equipment 1 1 1
Corporate and Other
Video services2,3 9 16 17
1Excludes advertising revenues included as Wireless service in our Mobility
business unit of $330, $291 and $292 in 2021, 2020 and 2019, respectively.
2U.S. video operations were separated in July 2021 and Vrio was sold in
November 2021. See Note 6
3Excludes 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.
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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.
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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.
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AT&T Inc.
Dollars in millions except per share amounts
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.
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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.
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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.
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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.
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AT&T Inc.
Dollars in millions except per share amounts
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
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.
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AT&T Inc.
Dollars in millions except per share amounts
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.
Dollars in millions except per share amounts
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
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.
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AT&T Inc.
Dollars in millions except per share amounts
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
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
Pascal Desroches 57 Senior Executive Vice President and Chief Financial Officer 4/2021
Edward W. Gillespie 60 Senior Executive Vice President - External and Legislative Affairs, AT&T 4/2020
Services, Inc.
David S. Huntley 63 Senior Executive Vice President and Chief Compliance Officer 12/2014
Jason Kilar 50 Chief Executive Officer, Warner Media, LLC 5/2020
Lori M. Lee 56 Chief Executive Officer-AT&T Latin America and Global Marketing Officer 8/2017
David R. McAtee II 53 Senior Executive Vice President and General Counsel 10/2015
Jeffery S. McElfresh 51 Chief Executive Officer, AT&T Communications, LLC 10/2019
Angela R. Santone 50 Senior Executive Vice President - Human 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)
Period Total Number of Average Price Paid Per Share (or Unit) Total Number of Shares (or Units) Purchased Maximum Number (or Approximate Dollar Value) of Shares (or Units) That May Yet
Be Purchased Under The Plans or Programs
Shares (or Units) Purchased1,2,3 as Part of Publicly Announced Plans or Programs1
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 -
1In 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.
2Of 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.
3Of 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 Other1 (11,148) (29,294) (11,878) 61.9 -
AT&T Operating Contribution $ 23,978 $ 6,500 $ 27,961 - % (76.8) %
1Includes 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 2020 2019 2021 vs. 2020 vs.
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 $ 19,874 $ (5,369) $ 13,900 - % - %
Common Stock
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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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Dollars in millions except per share amounts
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 2020 2019 2021 vs. 2020 vs.
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.
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AT&T Inc.
Dollars in millions except per share amounts
Communications Business Unit Discussion
Mobility Results
Percent Change
2021 2020 2019 2021 vs. 2020 vs.
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
(in 000s) 2021 2020 2019 2021 vs. 2020 vs.
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 devices1 95,116 80,767 65,986 17.8 22.4
Total Mobility Subscribers 201,791 182,558 165,889 10.5 % 10.0 %
1Includes data-centric devices such as session-based tablets, monitoring
devices and primarily wholesale automobile systems.
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AT&T Inc.
Dollars in millions except per share amounts
Mobility Net Additions
Percent Change
(in 000s) 2021 2020 2019 2021 vs. 2020 vs.
2020 2019
Postpaid Phone Net Additions 3,196 1,457 483 - % - %
Total Phone Net Additions 3,850 1,640 989 - 65.8
Postpaid2 4,482 2,183 (435) - -
Prepaid 956 379 677 - (44.0)
Reseller (534) (449) (928) (18.9) 51.6
Connected devices3 14,328 14,785 14,645 (3.1) 1.0
Mobility Net Subscriber Additions1 19,232 16,898 13,959 13.8 % 21.1 %
Postpaid Churn4 0.94 % 0.98 % 1.18 % (4) BP (20) BP
Postpaid Phone-Only Churn4 0.76 % 0.79 % 0.95 % (3) BP (16) BP
1 Excludes acquisition-related additions during the period.
2In 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.
3Includes 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.
4Calculated 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.
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Dollars in millions except per share amounts
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 2020 2019 2021 vs. 2020 vs.
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.
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AT&T Inc.
Dollars in millions except per share amounts
Consumer Wireline Results
Percent Change
2021 2020 2019 2021 vs. 2020 vs.
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
(in 000s) 2021 2020 2019 2021 vs. 2020 vs.
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
(in 000s) 2021 2020 2019 2021 vs. 2020 vs.
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.
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AT&T Inc.
Dollars in millions except per share amounts
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 2020 2019 2021 vs. 2020 vs.
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.
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AT&T Inc.
Dollars in millions except per share amounts
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 2020 2019 2021 vs. 2020 vs.
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.
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Dollars in millions except per share amounts
Latin America Business Unit Discussion
Mexico Results
Percent Change
2021 2020 2019 2021 vs. 2020 vs.
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
(in 000s) 2021 2020 2019 2021 vs. 2020 vs.
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
(in 000s) 2021 2020 2019 2021 vs. 2020 vs.
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.
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AT&T Inc.
Dollars in millions except per share amounts
Vrio Results
Percent Change
2021 2020 2019 2021 vs. 2020 vs.
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 TRENDS 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.
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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.
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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).
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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 2021
Quarter
Quarter
Quarter
Quarter
Net commercial paper borrowings1 $ 7,072 $ (513) $ (2) $ 4 $ 6,561
Issuance of Notes and Debentures2:
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)
1Includes $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.
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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)
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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
Total Less than 1-3 3-5 More than
5 Years
1 Year Years Years
Long-term debt obligations1 $ 181,449 $ 18,185 $ 19,301 $ 17,041 $ 126,922
Interest payments on long-term debt2 117,454 6,710 12,624 11,400 86,720
Purchase obligations3 77,621 28,860 24,585 11,636 12,540
Operating lease obligations4 29,852 4,922 8,472 5,772 10,686
FirstNet sustainability payments5 17,400 195 390 1,785 15,030
Unrecognized tax benefits6 10,108 268 - - 9,840
Other finance obligations7 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
1Represents 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.
2Includes credit agreement borrowings.
3We 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)
4Represents operating lease payments (see Note 8).
5Represents 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)
6The 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).
7Represents 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.
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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 €1,450 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 the Matter At December 31, 2021, the Company's pension benefit obligation 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.
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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 the operating
Addressed the Matter in Our effectiveness of certain controls over management's review of the
Audit determination of the discount rates used in the 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 the Matter At December 31, 2021, the Company's goodwill balance was $133,223 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 the We obtained an understanding, evaluated the design and tested the operating
Matter in Our effectiveness of controls over the Company's impairment evaluation processes.
Audit Our procedures included testing controls 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 the Matter As discussed in Notes 6 and 10, on July 31, 2021, the Company 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 the We obtained an understanding, evaluated the design and tested the operating
Matter in Our effectiveness of controls over the Company's application of the variable
Audit interest entity consolidation model, including 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 31,232 32,909 34,356
and amortization shown separately below)
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 (127) (929) 19
noncontrolling interest), net of taxes of $(44), $(42) and $18
Reclassification adjustment included in net income (loss), net of taxes of 2,087 - -
$204, $0 and $0
Securities:
Net unrealized gains (losses), net of taxes of $(21), $27 and $17 (63) 78 50
Reclassification adjustment included in net income (loss), (3) (15) -
net of taxes of $(1), $(5) and $0
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 72 69 45
of $19, $18 and $12
Defined benefit postretirement plans:
Net prior service (cost) credit arising during period, net of taxes of $(8), (34) 2,250 3,457
$735 and $1,134
Amortization of net prior service credit included in net income (loss), (2,020) (1,841) (1,459)
net of taxes of $(660), $(601) and $(475)
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 17,571 20,215
$1,221
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 7,621 7,621
and
December 31, 2020: issued 7,620,748,598 at December 31, 2021 and
December 31, 2020)
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 (17,280) (17,910)
December 31, 2020, at cost)
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 (16,472) (13,070) (12,852)
production costs
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 1,316 (17) (276)
three months or less
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 - 67 -
common stock
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 - 4 (14)
interests held by noncontrolling
owners
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 - (293) 316
changes and other adjustments
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, (14,964) (14,871) (15,028)
and $2.05 per share)
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 (8) (237) (150) (5,631) (67) (2,492)
common stock
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) (801) (1,140) 1,221
attributable to AT&T
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 - (7) 29
changes and other adjustments
Adjusted beginning balance 17,567 17,706 9,824
Net income attributable to 1,398 1,355 1,072
noncontrolling interest
Issuance and acquisition of 7 1,979 7,881
noncontrolling owners
Redemption of noncontrolling interest - (1,950) -
Distributions (1,447) (1,464) (1,055)
Translation adjustments attributable to (2) (59) (9)
noncontrolling interest, net of taxes
Balance at end of year $ 17,523 $ 17,567 $ 17,713
Total Stockholders' Equity at $ 179,240 $ 201,934 $ 193,884
beginning of year
Total Stockholders' Equity at $ 183,855 $ 179,240 $ 201,934
end of year
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.
65
AT&T Inc.
Dollars in millions except per share amounts
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.
66
AT&T Inc.
Dollars in millions except per share amounts
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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AT&T Inc.
Dollars in millions except per share amounts
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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AT&T Inc.
Dollars in millions except per share amounts
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.
69
AT&T Inc.
Dollars in millions except per share amounts
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 payment1 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
1For 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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AT&T Inc.
Dollars in millions except per share amounts
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.
Foreign Net Unrealized Net Unrealized Defined Benefit Accumulated Other
Currency
Gains (Losses) on
Gains (Losses) on
Postretirement
Comprehensive
Translation
Available-for-Sale
Derivative Instruments
Plans
Income
Adjustment
Securities
Balance as of December 31, 2018 $ (3,084) $ (2) $ 818 $ 6,517 $ 4,249
Other comprehensive income 28 50 (900) 3,457 2,635
(loss) before reclassifications
Amounts reclassified from - 1 - 1 45 2 (1,459) 3 (1,414)
accumulated OCI
Net other comprehensive 28 50 (855) 1,998 1,221
income (loss)
Balance as of December 31, 2019 (3,056) 48 (37) 8,515 5,470
Other comprehensive income (870) 78 (811) 2,250 647
(loss) before reclassifications
Amounts reclassified from - 1 (15) 1 69 2 (1,841) 3 (1,787)
accumulated OCI
Net other comprehensive (870) 63 (742) 409 (1,140)
income (loss)
Balance as of December 31, 2020 (3,926) 111 (779) 8,924 4,330
Other comprehensive income (125) (63) (715) (34) (937)
(loss) before reclassifications
Amounts reclassified from 2,087 1,4 (3) 1 72 2 (2,020) 3 136
accumulated OCI
Net other comprehensive 1,962 (66) (643) (2,054) (801)
income (loss)
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).
3The 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).
4Represents 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
71
AT&T Inc.
Dollars in millions except per share amounts
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.
72
AT&T Inc.
Dollars in millions except per share amounts
For the year ended December 31, 2021
Revenues Operations EBITDA Depreciation Operating Equity in Net Operating
and Support
Income
Income (Loss) of
Contribution
Expenses and
(Loss)
Affiliates
Amortization
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
Corporate1 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
1Includes $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.
73
AT&T Inc.
Dollars in millions except per share amounts
For the year ended December 31, 2020
Revenues Operations EBITDA Depreciation Operating Equity in Net Operating
and Support
and
Income
Income
Contribution
Expenses
Amortization
(Loss)
(Loss) of
Affiliates
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
Corporate1 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
1Includes $2,442 for the reclassification of prior service credit
amortization.
74
AT&T Inc.
Dollars in millions except per share amounts
For the year ended December 31, 2019
Revenues Operations EBITDA Depreciation Operating Equity in Net Operating
and Support
and
Income
Income
Contribution
Expenses
Amortization
(Loss)
(Loss) of
Affiliates
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
Corporate1 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
1Includes $1,934 for the reclassification of prior service credit
amortization.
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AT&T Inc.
Dollars in millions except per share amounts
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 transaction1 - 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
Revenues Net Property, Revenues Net Property, Revenues Net Property,
Plant &
Plant & Plant &
Equipment
Equipment 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
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 ended December 31, 2021 2020
Assets Investments in Capital Assets Investments in Capital
Equity Method
Expenditures
Equity Method
Expenditures
Investees
Investees
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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Dollars in millions except per share amounts
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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Dollars in millions except per share amounts
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
Mobility Business Wireline Consumer Wireline WarnerMedia Latin America Corporate & 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)
Other2 - - - - - - (1,412)
Content - - - 15,621 - - - 12,622
DTC (HBO Max)3 - - - (1,923) - - -
Other3 - - - (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
1Represents DTC (HBO Max) intercompany sales to the Communications segment
($698 with Mobility and $353 with Consumer Wireline).
2Represents intercompany video distribution arrangements primarily to
DIRECTV/U-verse from WarnerMedia prior to August 1, 2021 (see Note 20).
3Represents intercompany transactions in the WarnerMedia segment.
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Dollars in millions except per share amounts
For the year ended December 31, 2020
Communications
Mobility Business Wireline Consumer Wireline WarnerMedia Latin America Corporate & 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)
Other2 - - - - - - (2,642)
Content - - - 13,083 - - - 9,819
DTC (HBO Max)3 - - - (2,249) - - -
Other3 - - - (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
1Represents DTC (HBO Max) intercompany sales to the Communications segment
($285 with Mobility and $183 with Consumer Wireline).
2Represents intercompany video distribution arrangements primarily to
DIRECTV/U-verse from WarnerMedia (see Note 20).
3Represents intercompany transactions in the WarnerMedia segment.
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Dollars in millions except per share amounts
For the year ended December 31, 2019
Communications
Mobility Business Wireline Consumer Wireline WarnerMedia Latin America Corporate & 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 - - - - - - -
Other2 - - - - - - (3,249)
Content - - - 14,938 - - - 13,880
DTC (HBO Max)1 - - - - - - -
Other3 - - - (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
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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
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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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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).
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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.
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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 equipment1 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 $ 4,581 $ 5,270 $ 7,818
new operating lease obligations
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 Leases Finance
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 at Dispositions, Balance at Balance at Acquisitions Impairments Dispositions, Balance at
Jan. 1
currency
Dec. 31
Jan. 1
currency
Dec. 31
exchange
exchange
and other
and other
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
Other Intangible Assets Weighted-Average Life Gross Carrying Accumulated Currency Gross Carrying Accumulated Currency
Amount
Amortization
Translation
Amount
Amortization
Translation
Adjustment
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:
Year AT&T Inc. Attributable to
WarnerMedia1
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 amortization1 $ 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 $ 18,983 $ 14,752
costs
1Includes the costs of certain programming rights, primarily sports, for which
payments have been made prior to the related rights being received.
2Does 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 Maturities1
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
1Maturities 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 2021
Quarter
Quarter
Quarter
Quarter
Net commercial paper borrowings1 $ 7,072 $ (513) $ (2) $ 4 $ 6,561
Issuance of Notes and Debentures2:
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)
1Includes $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 repayments1 $ 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 %
1Debt 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.
2Includes 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 debentures1 $ 169,147 $ 194,891 $ 155,209 $ 187,224
Commercial paper 6,586 6,586 - -
Investment securities2 3,374 3,374 3,249 3,249
1Includes credit agreement borrowings. Excludes note payable to DIRECTV.
2Excludes 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 $ 298 $ 196 $ 201
period
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 €1,450 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 1 (3) 6
accumulated OCI into income
Interest rate locks:
Gain (Loss) recognized in accumulated OCI - (648) (84)
Interest income (expense) reclassified from (92) (84) (63)
accumulated OCI into income
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 $ 7,309 $ 7,985
effective income tax rate as of the end of the year
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)
1At 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.
2Funded 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)
1Included in "Accounts payable and accrued liabilities."
2Included 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
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 $ 957 $ 1,029 $ 1,019 $ 45 $ 53 $ 71
during the period
Interest cost on projected benefit 1,276 1,687 1,960 210 416 675
obligation
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 (1,424) (954) (695) (2,433) (2,038) (1,301)
remeasurement
Actuarial (gain) loss (3,461) 2,404 3,088 (334) 1,299 1,670
Net pension and postretirement $ (4,885) $ 1,450 $ 2,393 $ (2,767) $ (739) $ 369
cost (credit)
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 (109) 164 (86) (1,912) 245 2,085
comprehensive (income) loss
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
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 3.00 % 2.70 % 3.40 % 2.80 % 2.40 % 3.20 %
determining benefit obligation at
December 31
Discount rate in effect for determining 3.30 % 3.60 % 4.10 % 2.90 % 3.50 % 4.40 %
service cost1
Discount rate in effect for determining interest cost1 2.30 % 2.90 % 3.50 % 1.60 % 2.70 % 3.70 %
Weighted-average interest credit rate for cash balance pension programs2 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 3.00 % 3.00 % 3.00 % 3.00 % 3.00 % 3.00 %
increase for determining benefit
obligation
Composite rate of compensation 3.00 % 3.00 % 3.00 % 3.00 % 3.00 % 3.00 %
increase for determining net cost
(benefit)
1Weighted-average discount rates shown for years with interim remeasurements:
2021 and 2019 for pension benefits and 2019 for postretirement benefits.
2Weighted-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
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.
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AT&T Inc.
Dollars in millions except per share amounts
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.
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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
1Other 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
1Other assets (liabilities) include amounts receivable and accounts payable.
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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:
Pension Assets Equities Fixed Income Funds Real Estate 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
Postretirement Assets Equities Fixed Income Funds Real Estate 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
1Other assets (liabilities) include amounts receivable, accounts payable and
net adjustment for securities lending payable.
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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
1Other 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:
Pension Assets Equities Fixed Income Funds Real Estate 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
Postretirement Assets Equities Fixed Income Funds Real Estate 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
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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:
Pension Benefits Postretirement 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.
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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):
Nonvested Stock Units Shares Weighted-Average Grant-
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.
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AT&T Inc.
Dollars in millions except per share amounts
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 €100,000 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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AT&T Inc.
Dollars in millions except per share amounts
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.
118
AT&T Inc.
Dollars in millions except per share amounts
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 Installment Revolving Equipment 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 9,767 6,280 7,827 5,300
our consolidated balance sheets
Cash proceeds received, net of remittances1 6,644 6,280 5,646 5,300
1Represents 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 sold1 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
1Receivables 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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AT&T Inc.
Dollars in millions except per share amounts
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 repurchases1 $ 90 $ 36 $ 68
1These 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 received1 $ 20,060 $ 15,888 $ 11,989
Total collections under revolving agreement2 18,910 14,888 7,689
Receivables repurchased 170 - -
Net cash proceeds received $ 980 $ 1,000 $ 4,300
Net receivables sold3 $ 19,775 $ 15,760 $ 11,604
Obligations recorded 18 271 530
1Includes initial sale of receivables of $1,380, $1,000 and $4,300 for 2021,
2020 and 2019, respectively.
2Includes collections of $400, $0 and $0 for 2021, 2020 and 2019,
respectively, that were not reinvested under the revolving agreement.
3Receivables 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.
120
AT&T Inc.
Dollars in millions except per share amounts
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.
121
AT&T Inc.
Dollars in millions except per share amounts
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
122
AT&T Inc.
Dollars in millions except per share amounts
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 - spectrum1 (781) - -
Total interest expense $ 6,884 $ 7,925 $ 8,422
1Included 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 acquisitions1 24,672 1,613 1,576
1Included 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.
123
AT&T Inc.
Dollars in millions except per share amounts
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.
124
AT&T Inc.
Dollars in millions except per share amounts
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.
125
AT&T Inc.
Dollars in millions except per share amounts
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
Plan Category Number of securities to be issued upon Weighted average Number of securities
exercise of
exercise price of outstanding
outstanding options, warrants and rights
options, warrants remaining available for future issuance under equity compensation plans
(a)
and rights (excluding securities reflected in column (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
INDEPENDENCE
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 (#BKMK_152)
Financial Statements covered by Report of Independent Registered Public
Accounting Firm:
Consolidated Statements of Income 59 (#BKMK_163)
Consolidated Statements of Comprehensive Income 6 (#BKMK_165) 0 (#BKMK_165)
Consolidated Balance Sheets 61 (#BKMK_168)
Consolidated Statements of Cash Flows 62 (#BKMK_171)
Consolidated Statements of Changes in Stockholders' Equity 63 (#BKMK_174)
Notes to Consolidated Financial Statements 65 (#BKMK_182)
(2) Financial Statement Schedules:
II - Valuation and Qualifying Accounts 131 (#BKMK_350)
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
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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)
Balance at Beginning of Period Charged to Charged to Other Acquisitions Deductions (c) Balance at End
Costs and Expenses (a)
Accounts (b)
of Period (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)
Balance at Beginning of Period Charged to Charged to Other Acquisitions Deductions Balance at End
Costs and Expenses
Accounts (a)
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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