REG - AT & T Inc. - Annual Financial Report
17/04/2023 07:00
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RNS Number : 3370W AT & T Inc. 14 April 2023
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, 2022
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. 2.500% 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. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by
check mark whether the financial statements of the registrant included in the
filing reflect the correction of an error to previously issued financial
statements. ☐
Indicate by check mark whether any of those error corrections are restatements
that required a recovery analysis of incentive-based compensation received by
any of the registrant's executive officers during the relevant recovery period
pursuant to §240.10D-1(b). ☐
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 $20.96 per share on June 30, 2022, the aggregate
market value of our voting and non-voting common stock held by non-affiliates
was $149 billion.
At February 8, 2023, common shares outstanding were 7,129,870,323.
DOCUMENTS INCORPORATED BY REFERENCE
(1)Portions of AT&T Inc.'s Notice of 2022 Annual Meeting and Proxy
Statement dated on or about April 3, 2023 to be filed within the period
permitted under General Instruction G(3) (Part III).
TABLE OF CONTENTS
Item Page
PART I (#BKMK_14)
1. Business (#BKMK_15) 1 (#BKMK_15)
1A. (#BKMK_16) Risk Factors (#BKMK_16) 8 (#BKMK_16)
2. (#BKMK_17) Properties (#BKMK_17) 15 (#BKMK_17)
3. (#BKMK_18) Legal Proceedings (#BKMK_18) 15 (#BKMK_18)
4. (#BKMK_19) Mine Safety Disclosures (#BKMK_19) 15 (#BKMK_19)
Information about our Executive Officers (#BKMK_20) 16 (#BKMK_20)
PART II (#BKMK_21)
5. (#BKMK_22) Market for Registrant's Common Equity, Related Stockholder Matters and Issuer 17 (#BKMK_22)
Purchases of Equity (#BKMK_22)
Securities (#BKMK_22)
6. (#BKMK_23) Item 6. Reserved (#BKMK_23) 18 (#BKMK_23)
7. (#BKMK_24) Management's Discussion and Analysis of Financial Condition and Results of 18 (#BKMK_24)
Operations (#BKMK_24)
7A. (#BKMK_25) Quantitative and Qualitative Disclosures about Market Risk (#BKMK_25) 38 (#BKMK_25)
8. (#BKMK_26) Financial Statements and Supplementary Data (#BKMK_26) 43 (#BKMK_26)
9. (#BKMK_27) Changes in and Disagreements with Accountants on Accounting and Financial 98 (#BKMK_27)
Disclosure (#BKMK_27)
9A. (#BKMK_28) Controls and Procedures (#BKMK_28) 98 (#BKMK_28)
9B. (#BKMK_29) Other Information (#BKMK_29) 98 (#BKMK_29)
PART III (#BKMK_30)
10. (#BKMK_31) Directors, Executive Officers and Corporate Governance (#BKMK_31) 99 (#BKMK_31)
11. (#BKMK_32) Executive Compensation (#BKMK_32) 99 (#BKMK_32)
12. (#BKMK_33) Security Ownership of Certain Beneficial Owners and Management and Related 100 (#BKMK_33)
Stockholder Matters (#BKMK_33)
13. (#BKMK_34) Certain Relationships and Related Transactions, and Director Independence 101 (#BKMK_34)
(#BKMK_34)
14. (#BKMK_35) Principal Accountant Fees and Services (#BKMK_35) 101 (#BKMK_35)
PART IV (#BKMK_36)
15. (#BKMK_37) Exhibits and Financial Statement Schedules (#BKMK_37) 101 (#BKMK_37)
16. (#BKMK_38) Form 10-K Summary (#BKMK_38) 104 (#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.
Following our formation, we expanded our communications footprint and
operations and invested in entertainment businesses, most significantly:
•Our subsidiaries merged with incumbent local exchange carriers (ILEC)
Pacific Telesis Group in 1997 and Ameritech Corporation in 1999.
•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 acquired ILEC BellSouth Corporation (BellSouth), which included
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.
•In 2015, we acquired wireless properties in Mexico and acquired DIRECTV, a
leading provider of digital television entertainment services in both the
United States (included in our Video business) and Latin America (referred to
as Vrio).
•From 2018 through April 2022, we acquired and held various investments in
entertainment businesses, namely Time Warner Inc., which comprised a
substantial portion of our WarnerMedia segment.
•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 (DIRECTV 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 April 2022, we completed the separation of our WarnerMedia business in a
Reverse Morris Trust transaction (WarnerMedia/Discovery Transaction). Upon its
separation and distribution, the WarnerMedia business met the criteria for
discontinued operations, as did other dispositions that were part of a single
plan, including Vrio, Xandr and Playdemic Ltd. (Playdemic). These businesses
are reflected in our historical financial statements as discontinued
operations, including for periods prior to the consummation of the WarnerMedia
separation.
1
AT&T Inc.
Dollars in millions except per share amounts
General
We are a leading provider of telecommunications 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 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 assets. This segment contains the following
business units:
•Mobility provides nationwide wireless service and equipment.
•Business Wireline provides advanced ethernet-based fiber services, IP Voice
and managed professional services, as well as traditional voice and data
services and related equipment to business customers.
•Consumer Wireline provides broadband services, including fiber connections
that provide our multi-gig services to residential customers in select
locations. Consumer Wireline also provides legacy telephony voice
communication services.
The Latin America segment provides wireless services and equipment in Mexico.
Corporate and Other reconciles our segment results to consolidated operating
income and income before income taxes.
Corporate includes:
•DTV-related retained costs, which are costs previously allocated to the
Video business that were retained after the transaction, net of reimbursements
from DIRECTV under transition service agreements.
•Parent administration support, which includes costs borne by AT&T where
the business units do not influence decision making.
•Securitization fees associated with our sales of receivables (see Note 17).
•Value portfolio, which are businesses no longer integral to our operations
or which we no longer actively market.
Other items consist of:
•Video, which includes our former U.S. video operations that were
contributed to DIRECTV on July 31, 2021, and our share of DIRECTV's earnings
as equity in net income of affiliates (see Note 19).
•Held-for-sale and other reclassifications, which includes our former
Crunchyroll, Government Solutions and wireless and wireline operations in
Puerto Rico and the U.S. Virgin Islands.
•Reclassification of prior service credits, which includes the
reclassification of prior service credit amortization, where we present the
impact of benefit plan amendments in our business unit results. Prior service
credit amortization is presented in "Other income (expense) - net" in the
consolidated statements of income and therefore has no impact on consolidated
operating income or EBITDA (EBITDA is defined as operating income excluding
depreciation and amortization).
•Certain significant items, which includes items associated with the merger
and integration of acquired or divested businesses, including amortization of
intangible assets, employee separation charges associated with voluntary
and/or strategic offers, asset impairments and abandonments and restructuring,
and other items for which the segments are not being evaluated.
•Eliminations and consolidations, which removes transactions involving
dealings between Mobility and our Video business, prior to the July 31, 2021
separation of Video.
Areas of Focus
We are a leader in providing connectivity services through our market focus
areas of 5G and fiber. Fiber underpins the connectivity we deliver, both wired
and wireless. Building on that fiber foundation is our solid spectrum
portfolio, strengthened through recent years' Federal Communications
Commission (FCC) auction acquisitions and 5G deployment. We believe our hybrid
fixed wireline and mobile approach will differentiate our services and provide
us with additional growth opportunities in the future as bandwidth demands
continue to grow. 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 are
expected to continue to drive greater demand for broadband and capitalize on
our fiber and 5G deployments. During 2023, we will continue to develop and
provide high-value, integrated mobile and broadband solutions.
Wireless Service We continue to experience 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 3.45 GHz band. Our
2
AT&T Inc.
Dollars in millions except per share amounts
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 441 million people with 4G LTE and
over 285 million with 5G technology. In the United States, our network covers
all major metropolitan areas and more than 337 million people with our LTE
technology and more than 285 million people with our 5G technology.
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
expect to 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 and enhanced our focus to expand our fiber footprint and grow
customers. At December 31, 2022, we had more than 7 million fiber consumer
wireline broadband customers, adding more than 1.2 million during the year.
The expansion builds on our recent investments 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 supports next-generation applications like 5G and
broadband-based services quickly and efficiently.
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 441 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 have two reportable segments: Communications
and 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 97% of 2022 segment operating revenues and
accounted for all of our 2022 total segment income. 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. As of December 31,
2022, we served 217 million Mobility subscribers, including 85 million
postpaid (70 million phone), 19 million prepaid, 6 million reseller and 107
million connected devices. Our Mobility business unit revenue includes the
following categories: service and equipment.
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 FirstNet
services, we also provide a nationwide wireless broadband network dedicated to
public safety.
3
AT&T Inc.
Dollars in millions except per share amounts
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.
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
that bring their own devices or retain handsets for longer periods 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: service and
equipment.
Services
We offer advanced IP-based services, such as Virtual Private Networks (VPN),
AT&T Dedicated Internet, and Ethernet as well as traditional data
services, cloud solutions, outsourcing and managed professional 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 and intrusion detection.
We continue to reconfigure our wireline network to take advantage of the
latest technologies and services, and rely on our SDN and NFV to enhance
business customers' digital agility in a rapidly evolving environment. Some of
the services we have offered historically are in secular decline and going
forward we will focus on our owned and operated connectivity services powered
by 5G and fiber.
Equipment
Equipment revenues include customer premises equipment.
Consumer Wireline - Our Consumer Wireline business unit provides broadband
services, including fiber connections, and legacy telephony voice
communication services 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 Services
We provide broadband and internet services to approximately 15 million
customer locations, with 7 million fiber broadband connections at
December 31, 2022. 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. With our focus on fiber that brings efficiencies and owner
economics, we continue to evaluate opportunities where we can turn down
existing copper infrastructure.
We believe that our flexible platform with a broadband and wireless connection
is the most efficient way to transport direct-to-consumer video and data
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.
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.
Other Services and Equipment
Other service revenues include AT&T U-verse voice services (which use VoIP
technology), customer fees and equipment.
4
AT&T Inc.
Dollars in millions except per share amounts
Additional information on our Communications segment is contained in the
"Overview" section of Item 7.
LATIN AMERICA
Our Latin America segment provides wireless services in 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.
Services
We provide postpaid and prepaid wireless services in Mexico to approximately
22 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 and (2) service contracts for
periods up to 36 months for subscribers who purchase their equipment under the
traditional device subsidy model. We also offer prepaid services to customers
who prefer to pay in advance.
Equipment
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.
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
2022 2021 2020
Communications Segment
Wireless service 50 % 43 % 39 %
Business service 18 17 17
Equipment 18 16 12
Latin America Segment
Wireless service 2 1 1
Equipment 1 1 1
Corporate and Other
Video services1 - 12 20
1U.S. video operations were separated in July 2021. See Note 6
Additional information on our geographical distribution of revenues is
contained in Note 4 of Item 8.
GOVERNMENT REGULATION
Facilities-based wireless communications providers in the United States, like
AT&T, must be licensed by the FCC to provide communications services at
specified spectrum frequencies within defined geographic areas and must comply
with FCC rules and policies governing the use of the spectrum. 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 10 to
15 years, and we must seek renewal of these licenses. While the FCC has
generally renewed licenses, 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 laws give the FCC broad
authority to regulate the U.S. operations of our satellite and interstate
telecommunications services. In addition, 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
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AT&T Inc.
Dollars in millions except per share amounts
services, provided such state regulation is consistent with federal law. Some
states have eliminated or reduced regulations on our retail offerings. 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.
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.
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.
For a discussion of significant regulatory issues directly affecting our
operations, please see the information contained under the headings "Operating
Environment Overview" and "Regulatory Developments" of Item 7, which
information is incorporated herein by reference.
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 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 from third parties 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, pay
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 2022,
2021 or 2020.
COMPETITION
Competition continues to increase for communications 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 three 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.
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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).
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.
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 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 $1,236 in 2022,
$1,325 in 2021, and $1,013 in 2020.
HUMAN CAPITAL
Number of Employees As of January 31, 2023, we employed approximately 160,700
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.
Labor Contracts Approximately 42% 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 7,000 Mobility
employees in nine states, for which we reached tentative agreement in February
2023. A contract covering approximately 400 employees supporting
internet-based products is set to expire in July 2023. A contract covering
approximately 200 employees in Illinois is set to expire in May 2023.
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, 2022, we had approximately 506,000 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. 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 remote-work environment.
Diversity, Equity and Inclusion We believe that championing diversity and
fostering inclusion does more than just make us a better company, it
contributes to a world where people are empowered to be their very best. That
is why we are committed to equality and why our company purpose is to connect
people to greater possibilities. This focus on diversity emanates from our
diverse and inclusive workforce, which is a product of our 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.
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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 and project
management. 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.
Macro-economic Factors:
Adverse changes in the U.S. securities markets, interest rates, rising
inflation 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, in part due to inflation, 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, an increase in
our benefit obligations, and higher than assumed medical and prescription drug
costs will increase expenses.
The Financial Accounting Standards Board (FASB) 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.
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. Beginning in 2021 and continuing through the early part of 2023,
the costs of these inputs and the costs of labor necessary to develop, deploy
and maintain our networks and our products and services 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. Inflationary and supply
pressures may continue into the future and could have an adverse impact on our
ability to source materials.
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 a period of inflationary pressure or 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.
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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 2022, uncertainty surrounding global growth rates, inflation, an
increasing interest rate environment 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.
The U.K. Financial Conduct Authority, which regulates the London Interbank
Offering Rate (LIBOR), has announced that it intends to phase out LIBOR in
2023. Although our securities and other debt obligations 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 increase our exposure to political instability,
to changes in the international economy and to regulation on our business and
these risks could offset our expected growth opportunities.
We have international operations, particularly in Mexico, and other countries
worldwide where we need to comply with a wide variety of complex local laws,
regulations and treaties. In addition, we are exposed to, among other factors,
fluctuations in currency values, changes in relationships between U.S. and
foreign governments, war or other hostilities, and other regulations that may
materially affect our earnings. Involvement with foreign firms also 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 related to 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. These effects
include, but are not limited to closure of retail stores; impact on our
customers' ability to pay for our products and services; reduction in
international roaming revenue; and reduced staffing levels in call centers and
field operations. 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.
The COVID-19 pandemic and mitigation measures have caused, and may continue to
cause, adverse impacts on global supply chains and economic conditions. These
impacts could affect our network development, deployment and maintenance, and
the 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.
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 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
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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. These measures have been subsequently modified from
time to time. 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.
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, including, 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 and learn 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.
We have spent, and plan to continue spending, significant capital and other
resources on the ongoing development and deployment of our 5G and fiber
wireline networks. This deployment and other network service enhancements and
product launches may not occur as scheduled or at the cost expected due to
many factors, including unexpected inflation, 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, our 5G and fiber
offerings fail to gain acceptance in the marketplace or we otherwise fail to
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.
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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 or
promotional 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 inadequate to take advantage of business
opportunities, which may materially adversely affect our operations.
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. 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, could
materially adversely impact our operations.
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. 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. We currently are, 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.
Company-Specific Financial Factors:
Customer adoption of new software-based technologies may require higher
quality services from us, and meeting these demands could create supply chain
issues and could increase capital costs.
The communications industry has experienced rapid changes in the past several
years. An increasing number of our customers are using mobile devices as their
primary means of viewing video. 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
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.
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We depend on various suppliers to provide equipment to operate our business
and satisfy customer demand and interruption or delay in supply can adversely
impact our operating results.
We depend on suppliers to provide us, directly or through other suppliers,
with items such as network equipment, customer premises equipment and
wireless-related equipment such as mobile hotspots, handsets, wirelessly
enabled computers, wireless data cards and other connected devices for our
customers. These suppliers could fail to provide equipment on a timely or cost
effective basis, or fail to meet our performance expectations, for a number of
reasons, including difficulties in obtaining export licenses for certain
technologies, inflationary pressures, inability to secure component parts,
general business disruption, natural disasters, safety issues, economic and
political instability, including the outbreak of war and other hostilities,
and public health emergencies such as the COVID-19 pandemic. These factors
have caused, and may again cause, delays in the development, manufacturing
(including the sourcing of key components) and shipment of products to the
extent that we or our suppliers are impacted. In certain limited
circumstances, suppliers have been unable to supply products in a timely
fashion, affecting our ability 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 or be
unable to meet customer demand for certain products or services. 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
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.
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,
including the WarnerMedia/Discovery Transaction, 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). 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.
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, breach of contract, 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 impacting our networks or systems may have a material adverse
affect on our operations.
Cyberattacks, including through the use of malware, computer viruses,
distributed denial of services attacks, ransomware attacks, credential
harvesting, social engineering and other means for obtaining unauthorized
access to or disrupting the operation of our networks and systems and those of
our suppliers, vendors and other service providers, could have a material
adverse effect on our operations. Cyberattacks can cause equipment or network
failures, loss of information, including sensitive personal information of
customers or employees or proprietary information, as well as disruptions to
our or our customers', suppliers' or vendors' operations, which could result
in significant expenses, potential investigations and legal liability, a loss
of
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current or future customers and reputational damage. Our wired network in
particular is becoming increasingly reliant on software as it evolves to
handle growing demands for video transmission. Cyberattacks against companies,
including the Company and its suppliers and vendors, have occurred and will
continue to occur and have increased in frequency, scope and potential harm in
recent years. The development and maintenance of systems to prevent such
attacks is costly and requires ongoing monitoring and updating. While, to
date, we have not been subject to cyberattacks that, individually or in the
aggregate, have been material to our operations or financial condition, the
preventive actions we take to reduce the risks associated with cyberattacks
may be insufficient to repel or mitigate the effects of a major cyberattack in
the future.
Natural disasters, extreme weather conditions or terrorist or other hostile
acts could cause damage to our infrastructure and result in significant
disruptions to our operations.
Our business operations could be subject to interruption by equipment
failures, power outages, terrorist or other hostile acts, and natural
disasters, such as flooding, hurricanes and forest fires, whether caused by
discrete severe weather events and/or precipitated by long-term climate
change. Such events could cause significant damage to the infrastructure upon
which our business operations rely, resulting in degradation or disruption of
service to our customers, as well as significant recovery time and
expenditures to resume operations. Our system redundancy and other measures we
take to protect our infrastructure and operations from the impacts of such
events may be ineffective or inadequate to sustain our operations through all
such events. Any of these occurrences could result in lost revenues from
business interruption, damage to our reputation and reduced profits.
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 the 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 and the Inflation Reduction Act of 2022) may be
uncertain and subject to differing interpretations, especially when evaluated
against ever changing products and services provided by our global
telecommunications 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.
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 under audit, then we could be subject to
significant tax liability.
In connection with the WarnerMedia/Discovery Transaction, AT&T received a
favorable Private Letter Ruling from the IRS. Nonetheless, 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 the facts,
representations or undertakings made in connection with the request for the
ruling were incorrect or are violated. We may be entitled to indemnification
from Warner Bros. Discovery (Warner Bros.) in the case of certain breaches of
representations or undertakings by Warner Bros. 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 Warner
Bros., and such indemnification is subject to Warner Bros.' 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.
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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 or war or other
hostilities in the markets served by us or in countries in which we have
investments and/or operations, including inflationary pressures, 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; rules concerning digital discrimination;
competition policy; privacy; net neutrality; 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.
•U.S. and foreign laws and regulations regarding intellectual property
rights protection and privacy, personal data protection and user consent,
which 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.
•Our ability to compete in an increasingly competitive industry and against
competitors that can 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, vendor fraud, economic and political
instability, including the outbreak of war or other hostilities, and public
health emergencies.
•The continued development and delivery of attractive and profitable
wireless, and broadband offerings and devices; 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.
•The availability and cost and our ability to adequately fund additional
wireless spectrum and network development, deployment and maintenance; 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.
•The impact from major equipment or software failures on our networks or
cyber incidents; 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 or other climate related
events including flooding and hurricanes, natural disasters including
earthquakes and forest fires, pandemics, energy shortages, wars or terrorist
attacks.
•The issuance by the FASB or other accounting oversight bodies of new
accounting standards or changes to existing standards.
•Our response 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, 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.
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ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 2. PROPERTIES
Our properties do not lend themselves to description by character and location
of principal units. At December 31, 2022, 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 26%;
other equipment, comprised principally of wireless network equipment attached
to towers, furniture and office equipment and vehicles and other work
equipment, represented 25%; land, building and wireless communications towers
represented 12%; 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.
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.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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Information about our Executive Officers
(As of February 1, 2023)
Name Age Position Held Since
John T. Stankey 60 Chief Executive Officer and President 7/2020
F. Thaddeus Arroyo 59 Chief Strategy and Development Officer 5/2022
Pascal Desroches 58 Senior Executive Vice President and Chief Financial Officer 4/2021
Edward W. Gillespie 61 Senior Executive Vice President - External and Legislative Affairs, AT&T 4/2020
Services, Inc.
David S. Huntley 64 Senior Executive Vice President and Chief Compliance Officer 12/2014
Kellyn S. Kenny 45 Chief Marketing and Growth Officer 5/2022
Lori M. Lee 57 Global Marketing Officer and Senior Executive Vice President - International 12/2022
Jeremy Legg 53 Chief Technology Officer, AT&T Services, Inc. 5/2022
David R. McAtee II 54 Senior Executive Vice President and General Counsel 10/2015
Jeffery S. McElfresh 52 Chief Operating Officer 5/2022
Angela R. Santone 51 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, Ms. Kenny, Mr. Legg, and Ms. Santone. Executive
officers are not appointed to a fixed term of office.
Mr. Desroches was previously Executive Vice President - 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 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.
Ms. Kenny was previously Chief Marketing and Growth Officer, AT&T
Communications, LLC from November 2020 to May 2022. Prior to that she was
Global Chief Marketing Officer of Hilton Worldwide Holdings from January 2018
to June 2020 and Vice President of Marketing for Uber Technologies from April
2016 to January 2018.
Mr. Legg was previously Chief Technology Officer - AT&T Technology
Services of AT&T from June 2020 to April 2022, Chief Technology Officer of
WarnerMedia from December 2018 to June 2020, and Chief Technology Officer of
Turner from June 2015 to December 2018.
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, 2022 and
2021 was 784,110 and 817,330. The number of stockholders of record as of
February 8, 2023, was 781,511. We declared dividends on common stock, on a
quarterly basis, totaling $1.11 per share in 2022 and $2.08 per share in 2021.
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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
144 million outstanding at December 31, 2022. 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.
Our 2023 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 2022
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, 2022 -
October 31, 2022 400,261 $ 15.23 - 143,731,972
November 1, 2022 -
November 30, 2022 344,935 $ 18.41 - 143,731,972
December 1, 2022 -
December 31, 2022 146,267 $ 19.16 - 143,731,972
Total 891,463 $ 17.10 -
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, 891,463 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.
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. AT&T products and services are provided or offered by
subsidiaries and affiliates of AT&T Inc. under the AT&T brand and not
by AT&T Inc., 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 and technology industries. You should read this discussion
in conjunction with the consolidated financial statements and accompanying
notes (Notes). Unless otherwise noted, this discussion refers only to our
continuing operations and does not include discussion of balances or activity
of WarnerMedia, Vrio, Xandr and Playdemic Ltd. (Playdemic), which are part of
discontinued operations.
Our Management's Discussion and Analysis of Financial Condition and Results of
Operations included in this document generally discusses 2022 and 2021 items
and year-to-year comparisons between 2022 and 2021. Discussions of 2020 items
and year-to-year comparisons between 2021 and 2020 that are not included in
this document can be found in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in Part II, Item 7 of our
Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
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On April 8, 2022, we closed our transaction to combine substantially all of
our WarnerMedia segment (WarnerMedia) with a subsidiary of Discovery, Inc
(Discovery). Upon the separation and distribution of WarnerMedia, the
WarnerMedia business met the criteria for discontinued operations. For
discontinued operations, we also evaluated transactions that were components
of AT&T's single plan of a strategic shift, including dispositions that
did not individually meet the criteria due to materiality, and have determined
discontinued operations to be comprised of WarnerMedia, Vrio, Xandr and
Playdemic. These businesses are reflected in the accompanying financial
statements as discontinued operations, including for periods prior to the
consummation of the WarnerMedia/Discovery transaction. (See Notes 6 and 23)
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. (See Note 6)
We have two reportable segments: Communications and Latin America. Our segment
results presented in Note 4 and discussed below follow our internal management
reporting. Each segment's percentage calculation of total segment operating
revenue is derived from our segment results table in Note 4. Segment operating
income is attributable to our Communications segment due to operating losses
in Latin America. Percentage increases and decreases that are not considered
meaningful are denoted with a dash.
Percent Change
2022 2021 2020 2022 vs. 2021 2021 vs. 2020
Operating Revenues
Communications $ 117,067 $ 114,730 $ 109,965 2.0 % 4.3 %
Latin America 3,144 2,747 2,562 14.5 7.2
Corporate and Other:
Corporate 530 731 766 (27.5) (4.6)
Video - 15,513 28,610 - (45.8)
Held-for-sale and other reclassifications - 453 1,414 - (68.0)
Eliminations and consolidations - (136) (267) - 49.1
AT&T Operating Revenues $ 120,741 $ 134,038 $ 143,050 (9.9) % (6.3) %
Operating Income
Communications $ 29,107 $ 28,393 $ 29,062 2.5 % (2.3) %
Latin America (326) (510) (587) 36.1 13.1
Segment Operating Income 28,781 27,883 28,475 3.2 (2.1)
Corporate (2,570) (1,644) (1,398) (56.3) (17.6)
Video - 2,491 2,174 - 14.6
Held-for-sale and other reclassifications - 143 681 - (79.0)
Reclassification of prior service credits (2,691) (2,680) (2,442) (0.4) (9.7)
Certain significant items (28,107) (296) (19,118) - 98.5
AT&T Operating Income (Loss) $ (4,587) $ 25,897 $ 8,372 - % - %
The Communications segment accounted for approximately 97% of our 2022 total
segment operating revenues compared to 98% in 2021 and accounted for all
segment operating income in 2022 and 2021. 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 ethernet-based fiber services, IP Voice
and managed professional services, as well as traditional voice and data
services and related equipment to business customers.
•Consumer Wireline provides broadband services, including fiber connections
that provide our multi-gig services to residential customers in select
locations. Consumer Wireline also provides legacy telephony voice
communication services.
The Latin America segment accounted for approximately 3% of our 2022 total
segment operating revenues compared to 2% in 2021. This segment provides
wireless services and equipment in Mexico.
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RESULTS OF OPERATIONS
Consolidated Results Our financial results from continuing operations are
summarized in the following table. We then discuss factors affecting our
overall results from continuing operations. Additional analysis is discussed
in our "Segment Results" section. We also discuss our expected revenue and
expense trends for 2023 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
2022 2021 2020 2022 vs. 2021 vs.
2021 2020
Operating revenues
Service $ 97,831 $ 111,565 $ 124,057 (12.3) % (10.1) %
Equipment 22,910 22,473 18,993 1.9 18.3
Total Operating Revenues 120,741 134,038 143,050 (9.9) (6.3)
Operating expenses
Operations and support 79,809 90,076 96,468 (11.4) (6.6)
Asset impairments and abandonments 27,498 213 15,687 - (98.6)
and restructuring
Depreciation and amortization 18,021 17,852 22,523 0.9 (20.7)
Total Operating Expenses 125,328 108,141 134,678 15.9 (19.7)
Operating Income (Loss) (4,587) 25,897 8,372 - -
Interest expense 6,108 6,716 7,727 (9.1) (13.1)
Equity in net income of affiliates 1,791 603 89 - -
Other income (expense) - net 5,810 9,387 (1,088) (38.1) -
Income (Loss) from Continuing Operations Before Income Taxes (3,094) 29,171 (354) - -
Income (Loss) from Continuing Operations $ (6,874) $ 23,776 $ (1,522) - % - %
OVERVIEW
Operating revenues decreased in 2022 and 2021. The 2022 decline reflects the
July 31, 2021 separation of the U.S. video business, other business
divestitures that were not included in discontinued operations and lower
Business Wireline revenues driven by lower demand for legacy services and
product simplification. Partially offsetting declines were higher Mobility
service and equipment revenues and, to a lesser extent, gains in broadband
service in our Communications segment and growth in Mexico wireless
operations.
The 2021 decline reflects the 2021 separation of the U.S. video business 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, and
growth in Mexico wireless operations including favorable foreign exchange
impacts.
Operations and support expenses decreased in 2022 and 2021. The 2022 decline
reflects the separation of U.S. video and lower personnel costs associated
with ongoing transformation initiatives, partially offset by higher bad debt
expense, the elimination of Connect America Fund Phase II (CAF II) government
credits and increased wholesale network access charges. Wireless equipment
costs were up slightly, with higher sales volumes and the sale of
higher-priced smartphones largely offset by lower 3G shutdown costs in 2022.
In the first quarter of 2022, we updated the expected economic lives of
customer relationships, which extended the amortization period of deferred
acquisition and fulfillment costs and reduced expenses approximately $395,
with $150 recorded to Mobility, $115 to Business Wireline and $130 to Consumer
Wireline.
The 2021 decline reflects our 2021 business divestitures, lower bad debt
expense and lower personnel costs associated with our transformation
initiatives. Declines were mostly offset by increased domestic wireless
equipment expense from higher volumes.
Asset impairments and abandonments and restructuring increased in 2022 and
decreased in 2021. The increase in 2022 was primarily due to $24,812 of
noncash goodwill impairments associated with our Business Wireline, Consumer
Wireline and Mexico reporting units and were driven by higher interest rates
consistent with the macroeconomic environment, with secular
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declines also impacting Business Wireline growth rates (see Note 9). The
increase in 2022 also included $1,413 of wireline conduit asset abandonments
(see Note 7) and $1,273 of restructuring and other impairment charges due to
updated network build plans stemming from spectrum acquired in recent
auctions, severance charges associated with transformation initiatives and
impairment of personal protective equipment inventory.
Impairment charges in 2021 were lower than 2020, reflecting a fourth-quarter
2020 impairment charge of $15,508 resulting from our assessment of the
recoverability of the long-lived assets and goodwill associated with our U.S.
video business.
Depreciation and amortization expense increased in 2022 and decreased in 2021.
Depreciation expense increased $218, or 1.2%, in 2022. The increase was
primarily due to ongoing capital investment for strategic initiatives such as
fiber and network upgrades and expansion, partially offset by higher estimated
lives of our fiber assets (see Note 7). Depreciation expense decreased $1,394,
or 7.3%, in 2021, primarily due to ceasing depreciation on U.S. video
held-for-sale assets.
Amortization expense decreased $49, or 22.5%, in 2022 and $3,277, or 93.8%, in
2021. Lower amortization reflects our accelerated method of amortization of
intangible assets from previous acquisitions and ceasing amortization on U.S.
video held-for-sale assets in 2021.
Operating income decreased in 2022 and increased in 2021. Our operating margin
was (3.8)% in 2022, compared to 19.3% in 2021 and 5.9% in 2020.
Interest expense decreased in 2022 primarily due to lower debt balances and
higher capitalized interest associated with spectrum acquisitions, partially
offset by higher interest rates. Interest expense decreased in 2021 primarily
due to lower interest rates and higher capitalized interest associated with
spectrum acquisitions, partially offset by higher debt balances.
Equity in net income of affiliates increased in 2022 and 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, 10 and 19).
Other income (expense) - net decreased in 2022 and increased in 2021. The
decrease in 2022 was primarily due to lower actuarial gains ($1,999 in 2022
compared to $4,140 in 2021), lower pension and postretirement benefit credits
and lower returns on other benefit-related investments. Pension and
postretirement benefit credits decreased as a result of higher assumed
discount rates and lower returns on benefit plan assets. Our 2022 benefit
expense also includes approximately $280 favorable impact from a retirement
benefit plan change, with $230 resulting from prior service credits
(approximately $100 for Business Wireline, $80 for Consumer Wireline and $40
for Mobility) (see Note 14).
The increase in 2021 was primarily due to the recognition of $4,140 in
actuarial gains, compared to losses of $4,169 in 2020, and the recognition of
$1,405 of debt redemption costs in 2020. Also contributing to increased income
in 2021 were higher net pension and postretirement benefit credits from higher
prior service credit amortization (see Note 14).
Income tax expense decreased in 2022 and increased in 2021. The 2022 decrease
was primarily driven by lower income before income tax offset by impairments
of goodwill (see Note 9), which are not deductible for tax purposes.
The increase in 2021 was primarily due to 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 of divestitures in 2021.
Our effective tax rate was (122.2)% in 2022, 18.5% in 2021, and (329.9)% in
2020. The effective tax rate was impacted by our goodwill impairments
associated with our Business Wireline, Consumer Wireline and Mexico reporting
units in 2022, and Video goodwill impairment in 2020, which are 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. We also evaluate segment performance
based on EBITDA and/or EBITDA margin, which is defined as operating income
excluding depreciation and amortization. EBITDA is used as part of our
management reporting and we believe EBITDA to be a relevant and useful
measurement to our investors as it measures the cash generation potential of
our business units. EBITDA does not give effect to depreciation and
amortization expenses incurred in operating income 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.
In the first quarter of 2022, we reclassified into "Corporate" certain
administrative costs borne by AT&T where the business units do not
influence decision making to conform with the current period presentation.
This recast increased Corporate operations and support expenses by
approximately $270 and $1,310 for full-year 2021 and 2020, respectively.
Correspondingly, this recast lowered administrative expenses for the
Communications segment, with no change on a consolidated basis.
COMMUNICATIONS SEGMENT Percent Change
2022 2021 2020 2022 vs. 2021 vs.
2021 2020
Segment Operating Revenues
Mobility $ 81,780 $ 78,254 $ 72,564 4.5 % 7.8 %
Business Wireline 22,538 23,937 25,083 (5.8) (4.6)
Consumer Wireline 12,749 12,539 12,318 1.7 1.8
Total Segment Operating Revenues $ 117,067 $ 114,730 $ 109,965 2.0 % 4.3 %
Segment Operating Income
Mobility $ 24,528 $ 23,370 $ 22,801 5.0 % 2.5 %
Business Wireline 3,252 4,027 4,799 (19.2) (16.1)
Consumer Wireline 1,327 996 1,462 33.2 (31.9)
Total Segment Operating Income $ 29,107 $ 28,393 $ 29,062 2.5 % (2.3) %
Selected Subscribers and Connections
December 31,
(000s) 2022 2021 2020
Mobility subscribers 217,397 201,791 182,558
Total domestic broadband connections 15,386 15,504 15,384
Network access lines in service 5,213 6,177 7,263
U-verse VoIP connections 2,930 3,333 3,816
Operating revenues increased in 2022, 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
wireless service and equipment revenue growth and gains in broadband service.
Business Wireline continues to reflect lower demand for legacy services and
product simplification.
Operating income increased in 2022 and decreased in 2021. The 2022 operating
income reflects an increase in operating income from our Mobility and Consumer
Wireline business units, partially offset by declines in our Business Wireline
business unit. Our Communications segment operating income margin was 24.9% in
2022, 24.7% in 2021 and 26.4% in 2020.
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AT&T Inc.
Dollars in millions except per share amounts
Communications Business Unit Discussion
Mobility Results
Percent Change
2022 2021 2020 2022 vs. 2021 vs.
2021 2020
Operating revenues
Service $ 60,499 $ 57,590 $ 55,542 5.1 % 3.7 %
Equipment 21,281 20,664 17,022 3.0 21.4
Total Operating Revenues 81,780 78,254 72,564 4.5 7.8
Operating expenses
Operations and support 49,054 46,762 41,677 4.9 12.2
Depreciation and amortization 8,198 8,122 8,086 0.9 0.4
Total Operating Expenses 57,252 54,884 49,763 4.3 10.3
Operating Income $ 24,528 $ 23,370 $ 22,801 5.0 % 2.5 %
The following tables highlight other key measures of performance for Mobility:
Subscribers
Percent Change
(in 000s) 2022 2021 2020 2022 vs. 2021 vs.
2021 2020
Postpaid 84,700 81,534 77,154 3.9 % 5.7 %
Postpaid phone 69,596 67,260 64,216 3.5 4.7
Prepaid 19,176 19,028 18,102 0.8 5.1
Reseller 6,043 6,113 6,535 (1.1) (6.5)
Connected devices1 107,478 95,116 80,767 13.0 17.8
Total Mobility Subscribers2 217,397 201,791 182,558 7.7 % 10.5 %
1Includes data-centric devices such as session-based tablets, monitoring
devices and primarily wholesale automobile systems.
2Wireless subscribers at December 31, 2022 excludes the impact of 10,176
subscriber and connected device disconnections resulting from our 3G network
shutdown in February 2022. Postpaid disconnections were 897, including 437
phone, 234 prepaid, 749 reseller subscribers, and 8,296 connected devices.
Mobility Net Additions
Percent Change
(in 000s) 2022 2021 2020 2022 vs. 2021 vs.
2021 2020
Postpaid Phone Net Additions 2,868 3,196 1,457 (10.3) % - %
Total Phone Net Additions 3,272 3,850 1,640 (15.0) -
Postpaid2 4,091 4,482 2,183 (8.7) -
Prepaid 479 956 379 (49.9) -
Reseller 462 (534) (449) - (18.9)
Connected devices3 20,594 14,328 14,785 43.7 (3.1)
Mobility Net Subscriber Additions1 25,626 19,232 16,898 33.2 % 13.8 %
Postpaid Churn4 0.97 % 0.94 % 0.98 % 3 BP (4) BP
Postpaid Phone-Only Churn4 0.81 % 0.76 % 0.79 % 5 BP (3) BP
1Excludes migrations and acquisition-related additions during the period.
2In addition to postpaid phones, includes tablets and wearables and other.
Tablet net adds (losses) were 203, 28 and (512) for the years ended December
31, 2022, 2021 and 2020, respectively. Wearables and other net adds were
1,020, 1,258 and 1,238 for the years ended December 31, 2022, 2021 and 2020,
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
approximately 9,980, 7,875 and 9,890 for the years ended December 31, 2022,
2021 and 2020, respectively.
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, excluding the impact
of disconnections resulting from our 3G network shutdown in February 2022.
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Dollars in millions except per share amounts
Service revenue increased during 2022, largely due to growth from subscriber
gains and postpaid average revenue per subscriber (ARPU) growth.
ARPU
ARPU increased in 2022 and reflects pricing actions, improved international
roaming and customers shifting to higher priced unlimited plans, partially
offset by 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 higher in 2022 due to a return to
pre-pandemic customer behavior, as well as pricing actions and the resulting
increase in both voluntary and involuntary disconnects.
Equipment revenue increased in 2022, primarily driven by a higher volume of
devices sold and a mix of higher-priced postpaid smartphones.
Operations and support expenses increased in 2022, largely driven by growth in
equipment sales and associated expenses, bad debt expense, higher network
costs, the elimination of CAF II government credits, and higher HBO Max
licensing fees and FirstNet costs. In the first quarter of 2022, we updated
our analysis of economic lives of customer relationships and extended the
amortization period of Mobility deferred customer contract costs, which
decreased expense approximately $150.
Depreciation expense increased in 2022, primarily due to ongoing capital
spending for network upgrades and expansion, partially offset by ceasing use
of 3G network assets.
Operating income increased in 2022 and 2021. Our Mobility operating income
margin was 30.0% in 2022, 29.9% in 2021 and 31.4% in 2020. Our Mobility EBITDA
margin was 40.0% in 2022, 40.2% in 2021 and 42.6% in 2020.
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. 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.
Business Wireline Results
Percent Change
2022 2021 2020 2022 vs. 2021 vs.
2021 2020
Operating revenues
Service $ 21,891 $ 23,224 $ 24,313 (5.7) % (4.5) %
Equipment 647 713 770 (9.3) (7.4)
Total Operating Revenues 22,538 23,937 25,083 (5.8) (4.6)
Operating expenses
Operations and support 13,972 14,718 15,068 (5.1) (2.3)
Depreciation and amortization 5,314 5,192 5,216 2.3 (0.5)
Total Operating Expenses 19,286 19,910 20,284 (3.1) (1.8)
Operating Income $ 3,252 $ 4,027 $ 4,799 (19.2) % (16.1) %
Service revenues decreased in 2022, driven by lower demand for legacy voice
and data services and product simplification. Also contributing to the decline
was lower revenues from the government sector. We expect these trends to
continue. Partially offsetting revenue declines was growth in connectivity
services and revenues of approximately $200 from intellectual property sales
in 2022.
Equipment revenues decreased in 2022, driven by declines in legacy and
non-core services which we expect to continue.
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Dollars in millions except per share amounts
Operations and support expenses decreased in 2022, primarily due to our
continued efforts to drive efficiencies in our network operations through
automation, reductions in customer support expenses through digitization and
proactive rationalization of low profit margin products, and lower personnel
costs associated with ongoing transformation initiatives. Expense declines
were also driven by credits from a third-quarter 2022 retirement benefit plan
change and lower amortization of deferred fulfillment costs, including our
first-quarter 2022 updates to the estimated economic lives of subscribers,
which decreased expense approximately $115 in 2022. The declines were
partially offset by higher wholesale access network costs. As part of our
transformation activities, we expect continued operations and support expense
improvements into 2023 as we further size our operations in alignment with the
strategic direction of the business.
Depreciation expense increased in 2022, primarily due to ongoing capital
investment for strategic initiatives such as fiber and network upgrades and
expansion, partially offset by updates to extend the estimated lives of our
fiber assets (see Note 7).
Operating income decreased in 2022 and 2021. Our Business Wireline operating
income margin was 14.4% in 2022, 16.8% in 2021 and 19.1% in 2020. Our Business
Wireline EBITDA margin was 38.0% in 2022, 38.5% in 2021 and 39.9% in 2020.
Consumer Wireline Results
Percent Change
2022 2021 2020 2022 vs. 2021 vs.
2021 2020
Operating revenues
Broadband $ 9,669 $ 9,085 $ 8,534 6.4 % 6.5 %
Legacy voice and data services 1,746 1,977 2,213 (11.7) (10.7)
Other service and equipment 1,334 1,477 1,571 (9.7) (6.0)
Total Operating Revenues 12,749 12,539 12,318 1.7 1.8
Operating expenses
Operations and support 8,253 8,448 7,942 (2.3) 6.4
Depreciation and amortization 3,169 3,095 2,914 2.4 6.2
Total Operating Expenses 11,422 11,543 10,856 (1.0) 6.3
Operating Income $ 1,327 $ 996 $ 1,462 33.2 % (31.9) %
The following tables highlight other key measures of performance for Consumer
Wireline:
Connections
Percent Change
(in 000s) 2022 2021 2020 2022 vs. 2021 vs.
2021 2020
Broadband Connections
Total Broadband and DSL Connections 13,991 14,160 14,100 (1.2) % 0.4 %
Broadband 13,753 13,845 13,693 (0.7) 1.1
Fiber Broadband Connections 7,215 5,992 4,951 20.4 21.0
Voice Connections
Retail Consumer Switched Access Lines 2,028 2,423 2,862 (16.3) (15.3)
U-verse Consumer VoIP Connections 2,311 2,736 3,231 (15.5) (15.3)
Total Retail Consumer Voice Connections 4,339 5,159 6,093 (15.9) % (15.3) %
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Dollars in millions except per share amounts
Broadband Net Additions
Percent Change
(in 000s) 2022 2021 2020 2022 vs. 2021 vs.
2021 2020
Total Broadband and DSL Net Additions (169) 60 (19) - % - %
Broadband Net Additions (92) 152 95 - 60.0
Fiber Broadband Net Additions 1,223 1,041 1,064 17.5 % (2.2) %
Broadband revenues increased in 2022, driven by an increase in fiber
customers, which we expect to continue for the foreseeable future as we invest
further in building our fiber footprint, partially offset by declines in
copper-based broadband services.
Legacy voice and data service revenues decreased in 2022, reflecting the
continued decline in the number of customers, which we expect to continue.
Other service and equipment revenues decreased in 2022, reflecting the
continued decline in the number of VoIP customers, which we expect to
continue.
Operations and support expenses decreased in 2022, primarily driven by lower
network and customer support costs, credits from a third-quarter 2022
retirement benefit plan change and lower HBO Max licensing fees. Also
contributing to the decline was lower amortization of deferred fulfillment
costs, including our first-quarter 2022 updates to the estimated economic
lives of broadband/fiber subscribers, which decreased expenses approximately
$130 in 2022. These declines were partially offset by the elimination of CAF
II government credits, higher bad debt expense and advertising costs.
Depreciation expense increased in 2022, primarily due to ongoing capital
investment for strategic initiatives such as fiber and network upgrades and
expansion, partially offset by updates to the estimated lives of our fiber
assets (see Note 7).
Operating income increased in 2022 and decreased in 2021. Our Consumer
Wireline operating income margin was 10.4% in 2022, 7.9% in 2021 and 11.9% in
2020. Our Consumer Wireline EBITDA margin was 35.3% in 2022, 32.6% in 2021 and
35.5% in 2020.
LATIN AMERICA SEGMENT Percent Change
2022 2021 2020 2022 vs. 2021 vs.
2021 2020
Operating revenues
Service $ 2,162 $ 1,834 $ 1,656 17.9 % 10.7 %
Equipment 982 913 906 7.6 0.8
Total Operating Revenues 3,144 2,747 2,562 14.5 7.2
Operating expenses
Operations and support 2,812 2,652 2,636 6.0 0.6
Depreciation and amortization 658 605 513 8.8 17.9
Total Operating Expenses 3,470 3,257 3,149 6.5 3.4
Operating Income (Loss) $ (326) $ (510) $ (587) 36.1 % 13.1 %
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Dollars in millions except per share amounts
The following tables highlight other key measures of performance for Mexico:
Subscribers
Percent Change
(in 000s) 2022 2021 2020 2022 vs. 2021 vs.
2021 2020
Postpaid 4,925 4,807 4,696 2.5 % 2.4 %
Prepaid 16,204 15,057 13,758 7.6 9.4
Reseller 474 498 489 (4.8) 1.8
Mexico Wireless Subscribers 21,603 20,362 18,943 6.1 % 7.5 %
Mexico Wireless Net Additions
Percent Change
(in 000s) 2022 2021 2020 2022 vs. 2021 vs.
2021 2020
Postpaid 118 111 (407) 6.3 % - %
Prepaid 1,147 1,299 174 (11.7) -
Reseller (24) 9 118 - (92.4)
Mexico Wireless Net Additions 1,241 1,419 (115) (12.5) % - %
Service revenues increased in 2022, reflecting growth in wholesale services,
subscribers and ARPU.
Equipment revenues increased in 2022, due to higher equipment sales.
Operations and support expenses increased in 2022, due to higher acquisition
costs, bad debt and network expenses. Approximately 5% of Mexico expenses are
U.S. dollar-based, with the remainder in the local currency.
Depreciation expense increased in 2022, reflecting higher in-service assets.
Operating income improved in 2022 and 2021. Our Mexico operating income margin
was (10.4)% in 2022, (18.6)% in 2021 and (22.9)% in 2020. Our Mexico EBITDA
margin was 10.6% in 2022, 3.5% in 2021 and (2.9)% in 2020.
OPERATING ENVIRONMENT AND TRENDS OF THE BUSINESS
2023 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 believe 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
multi-gig offerings will drive greater demand for broadband services on our
fast-growing fiber network.
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 businesses.
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 rationalize our product portfolio with a longer-term shift of the
business to fiber and mobile connectivity, and growth in value-added services.
2023 Expense Trends We expect the spending required to support growth
initiatives, primarily our continued deployment of fiber and 5G to pressure
expense trends in 2023. To the extent customers further upgrade their handsets
in 2023, the expenses associated with those device sales are expected to
contribute to higher costs. During 2023, we will also continue to prioritize
efficiency, led by our cost transformation initiative. 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.
We continue to transform our operations to be more efficient and effective. 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.
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Dollars in millions except per share amounts
Market Conditions The U.S. stock market experienced volatility and contraction
in 2022. Several factors, including the continued impact from 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 2023 as we respond to the geopolitical and
macroeconomic environment and our 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 2023. 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 2023 (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.
Internet The FCC currently classifies fixed and mobile consumer broadband
services as information services, subject to light-touch regulation. However,
some states have adopted legislation or issued executive orders that would
reimpose net neutrality rules repealed by the FCC. Suits were filed concerning
such laws in California and Vermont. The California suit was dismissed without
prejudice on May 4, 2022, and the California statute is now in effect. The
litigation challenging the Vermont statute has been stayed pending the Second
Circuit's disposition of an appeal by the State of New York of an order
enjoining enforcement of a New York statute regulating broadband rates on the
ground that such statute is preempted by federal law. We expect additional
states may seek to impose net neutrality requirements in the future.
On November 15, 2021, the Infrastructure Investment and Jobs Act (IIJA) was
signed 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 established initial requirements for
this program in May 2022 and is expected to announce state grant allocations
in 2023. 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 have resulted 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.
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Dollars in millions except per share amounts
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. The FCC has 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. During 2020-2021, we have
also deployed 5G nationwide on "low band" spectrum on macro towers. Executing
on the recent spectrum purchase, we announced ongoing construction and
continuing deployment of 5G on C-band spectrum in 2022 and beyond.
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 2023, our key initiatives
include:
•Continuing our wireless subscriber momentum and 5G deployment, with
expansion of 5G service, including to underpenetrated markets.
•Improving fiber penetration, accelerating subscriber growth and increasing
broadband revenues.
•Continuing to drive 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, 2022, we
served 239 million wireless subscribers in North America, with more than 217
million in the United States.
Our LTE technology covers over 441 million people in North America, and in the
United States, we cover all major metropolitan areas and over 337 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,
2022, our network covers more than 285 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. At December 31, 2022, we provided LTE coverage
to over 104 million people in Mexico.
Integration of Data and Broadband 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 2022. 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) services 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 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
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Dollars in millions except per share amounts
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 there were 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 were filed concerning
such laws in California and Vermont. The California suit was dismissed without
prejudice on May 4, 2022, and the California statute is now in effect. The
litigation challenging the Vermont statute has been stayed pending the Second
Circuit's disposition of an appeal by the State of New York of an order
enjoining enforcement of a New York statute regulating broadband rates on the
ground that such statute is preempted by federal law. We expect additional
states may seek to impose net neutrality requirements in the future.
On November 15, 2021, President Biden signed the IIJA into law. The
legislation appropriates funds to support broadband deployment and adoption.
The NTIA is responsible for distributing the majority of these funds primarily
through state grants for broadband deployment projects in unserved and
underserved areas, and to a lesser extent for middle mile broadband
infrastructure, and digital equity programs. On May 13, 2022, NTIA issued
three Notices of Funding Opportunity for these initiatives - the Broadband
Equity, Access, and Deployment Program, the Enabling Middle Mile Broadband
Infrastructure Program, and the State Digital Equity Program. NTIA will
continue to administer and implement these programs. The IIJA also
appropriated funds for establishment of the ACP, an FCC-administered monthly,
low-income broadband benefit program, replacing the Emergency Broadband
Benefit program. Qualifying customers can receive reimbursements 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 have resulted 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 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 2022, we have also deployed 5G nationwide on "low band" spectrum on
macro towers. Executing on the recent spectrum purchase, we continued
deploying 5G nationwide on "low band" spectrum.
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 available for deployment in December 2021, with the
remainder available for deployment no later than 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 launched in 2022 and 220
MHz away from spectrum AT&T plans to launch in 2023. 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. These measures have
been subsequently modified from time to time. We continue to work with the FAA
to reduce the temporary measures with C-band deployments as aircraft equipment
is upgraded.
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 previously
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 3.45 GHz spectrum
nationwide at a cost of $9,079.
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AT&T Inc.
Dollars in millions except per share amounts
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.
Pension and Postretirement Benefits Our actuarial estimates of retiree benefit
expense and the associated significant weighted-average assumptions are
discussed in Note 14. Our assumed weighted-average discount rates for both
pension and postretirement benefits of 5.20%, at December 31, 2022, 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 generally not callable,
convertible or index linked. For the year ended December 31, 2022, when
compared to the year ended December 31, 2021, we increased our pension
discount rate by 2.20%, resulting in a decrease in our pension plan benefit
obligation of $11,738, and increased our postretirement discount rate by
2.40%, resulting in a decrease in our postretirement benefit obligation of
$2,102.
Our expected long-term rate of return was 6.75% on pension plan assets and
4.50% on postretirement plan assets for 2022. We have increased our expected
return on plan assets to 7.50% on pension plan assets and 6.50% on
postretirement plan assets for 2023, reflecting higher long-term capital
market expectations for equities and higher yields for bonds. 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 2023 combined
pension and postretirement cost to increase $201, which under our accounting
policy would be adjusted to actual returns in the current year upon
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 14 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 $2,653 in our 2022 depreciation expense and that a
one-year decrease would have resulted in an increase of approximately $3,778
in our 2022 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, revenue per user, capital investment and acquisition costs
per subscriber, 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.
As of October 1, 2022, the calculated fair value of the Mobility reporting
unit exceeded its book value and no additional testing was necessary. If
either the projected rate of long-term growth of Mobility cash flows or
revenues declined by 0.5%, or if the weighted average cost of capital
increased by 0.5%, the fair value would still be higher than the book value of
the goodwill. In
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AT&T Inc.
Dollars in millions except per share amounts
the event of a 10% drop in the fair value of the Mobility reporting unit, the
fair value still would have exceeded the book value of the reporting unit.
Our 2022 annual goodwill impairment analysis resulted in noncash impairment
charges related to our Business Wireline, Consumer Wireline and Mexico
reporting units. The decline in fair values was primarily due to changes in
the macroeconomic environment, namely increased weighted-average cost of
capital. Also, inflation pressure and lower projected cash flows driven by
secular declines, predominantly at Business Wireline, impacted the fair
values. Future sustained declines in macroeconomic or business conditions, or
higher discount rates or declines in the value of AT&T stock could result
in goodwill impairment charges in future periods. A summary of business unit
goodwill impairment by segment and sensitivity analysis is as follows:
Communications Latin America
Business Consumer
Wireline Wireline Mexico
Goodwill as of October 1, 2022: $ 17,903 $ 30,155 $ 826
Impairment charge (13,478) (10,508) (826)
Remaining Goodwill at December 31, 2022 $ 4,425 $ 19,647 $ -
Sensitivity analysis, approximate hypothetical impairment charge:
Weighted-average cost of capital increase of 25 BP $ 1,200 $ 2,200 $ -
Projected terminal growth rate decline of 25 BP 700 1,400 -
Projected long-term EBITDA margin decline of 100 BP 1,500 1,300 -
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 corroborative 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 9.50%, 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).
Income Taxes Our estimates of income taxes and the significant items giving
rise to the deferred assets and liabilities are shown in Note 13 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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AT&T Inc.
Dollars in millions except per share amounts
OTHER BUSINESS MATTERS
Spectrum Auctions 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 paid the remaining
$8,956 in the first quarter of 2022, for a total of $9,079. We received the
licenses in May 2022, and classified the auction deposits and related
capitalized interest as "Licenses - Net" on our December 31, 2022 consolidated
balance sheet.
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 $1,100 of compensable relocation costs
over the next several years as the spectrum is being cleared by satellite
operators, of which we paid $650 in the fourth quarter of 2021 and $98 in the
third quarter of 2022.
WarnerMedia On April 8, 2022, we completed the separation and distribution of
our WarnerMedia business, and merger of Magallanes, Inc. (Spinco), an AT&T
subsidiary formed to hold the WarnerMedia business, with a subsidiary of
Discovery, Inc., which was renamed Warner Bros. Discovery, Inc. (WBD). Each
AT&T shareholder was entitled to receive 0.241917 shares of WBD common
stock for each share of AT&T common stock held as of the record date,
which represented approximately 71% of WBD. In connection with and in
accordance with the terms of the Separation and Distribution Agreement (SDA),
prior to the distribution and merger, AT&T received approximately $40,400,
which includes $38,800 of Spinco cash and $1,600 of debt retained by
WarnerMedia. During the second quarter of 2022, assets of approximately
$121,100 and liabilities of $70,600 were removed from our balance sheet as
well as $45,041 of retained earnings and $5,632 of additional paid-in capital
associated with the transaction. Additionally, in August 2022, we and WBD
finalized the post-closing adjustment, pursuant to Section 1.3 of the SDA,
which resulted in a $1,200 payment to WBD in the third quarter of 2022 and was
reflected in the December 31, 2022 balance sheet as an adjustment to
additional paid-in capital. The payment is accounted for as cash used in
financing activities in our statement of cash flows in third quarter of 2022.
(See Note 6)
AT&T, Spinco and Discovery entered into a Tax Matters Agreement, which
governs the parties' rights, responsibilities and obligations with respect to
tax liabilities and benefits, the preservation of the expected tax-free status
of the transactions contemplated by the SDA, and other matters regarding
taxes.
Additionally, we entered into an adjusted HBO Max agreement with WBD that
provides us with expanded distribution rights and additional flexibility to
market and sell the service in a cost-efficient manner. Under the terms of the
agreement, beginning June 1, 2022, we are permitted to include HBO Max in our
customer offerings in exchange for a licensing fee. Furthermore, AT&T has
the right, but not the obligation, to market and distribute HBO Max to its
customers in plans, bundles, and promotional offers.
Xandr On June 6, 2022, we completed the sale of the marketplace component of
Xandr to Microsoft Corporation. Xandr was reflected in our historical
financial statements as discontinued operations. (See Note 6)
Gigapower, LLC On December 22, 2022, we agreed to form Gigapower, LLC
(Gigapower), a joint venture with BlackRock Alternatives, to provide a fiber
network to Internet service providers and other businesses across the U.S.
that serve customers outside of our traditional 21-state wireline footprint.
The transaction is subject to customary closing conditions, including
regulatory approvals. Upon closing the joint venture, we expect to
deconsolidate Gigapower's operations.
Labor Contracts As of January 31, 2023, we employed approximately 160,700
persons. Approximately 42% 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 7,000 Mobility employees in nine states,
for which we reached tentative agreement in February 2023.
•A contract covering approximately 400 employees supporting internet-based
products is set to expire in July 2023.
•A contract covering approximately 200 Mobility employees in Illinois is set
to expire in May 2023.
Inflation Reduction Act The Inflation Reduction Act of 2022 (Inflation
Reduction Act) was enacted on August 16, 2022. The Inflation Reduction Act
imposes a new 15% corporate alternative minimum tax (CAMT) on "applicable
corporations" for taxable years beginning after December 31, 2022. The CAMT is
imposed to the extent the alternative minimum tax exceeds a company's regular
tax liability. A corporation that pays alternative minimum tax is eligible for
a credit against income tax in future years. Subject to future regulatory
guidance, we currently do not believe the CAMT will have a material impact on
our 2023 tax liability.
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AT&T Inc.
Dollars in millions except per share amounts
OECD On October 8, 2021, the Organization for Economic Co-operation and
Development (OECD) announced the OECD/G20 Inclusive Framework on Base Erosion
and Profit Shifting which agreed to a two-pillar solution to address tax
challenges arising from digitalization of the economy. On December 20, 2021,
the OECD released Pillar Two Model Rules defining the global minimum tax,
which calls for the taxation of large corporations at a minimum rate of 15%.
The OECD continues to release additional guidance on the two-pillar framework
with widespread implementation anticipated by 2024. There can be no assurance
that these new rules will not increase our taxes in these countries and have
an adverse impact on our provision for income taxes, when enacted or enforced
by participating countries in which we do business.
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
Continuing operations for the years ended December 31, 2022 2021 2020
Cash provided by operating activities $ 35,812 $ 37,170 $ 37,484
Cash used in investing activities (26,899) (32,489) (13,447)
Cash (used in) provided by financing activities (59,564) 1,894 (31,031)
At December 31, 2022 2021
Cash and cash equivalents $ 3,701 $ 19,223
Total debt 135,890 175,631
We had $3,701 in cash and cash equivalents available at December 31, 2022,
decreasing $15,522 since December 31, 2021 and returning to historical levels
with the close of the WarnerMedia/Discovery transaction. Cash and cash
equivalents included cash of $866 and money market funds and other cash
equivalents of $2,835. Approximately $1,045 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.
In 2022, cash inflows were primarily provided by cash receipts from
operations, including cash from our sale and transfer of our receivables to
third parties, cash received in connection with the separation and
distribution of the WarnerMedia business, issuance of commercial paper and
long-term debt and distributions from DIRECTV. These inflows were exceeded 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, repayment of short-term borrowings
and long-term debt, and dividend payments to stockholders. We maintain
availability under our credit facilities and our commercial paper program to
meet our short-term liquidity requirements.
Refer to "Contractual Obligations" discussion below for additional information
regarding our cash requirements.
Cash Provided by Operating Activities from Continuing Operations
During 2022, cash provided by operating activities was $35,812 compared to
$37,170 in 2021, reflecting the separation of DIRECTV and working capital
impacts, including higher payments for wireless devices tied to accelerated
subscriber growth.
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 the stated payment terms by 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
$851 in 2022 and $25 in 2021. All supplier financing payments are due within
one year.
Cash Used in or Provided by Investing Activities from Continuing Operations
During 2022, cash used in investing activities totaled $26,899, consisting
primarily of $19,626 (including interest during construction) for capital
expenditures, and $10,200 for acquisitions of licenses won in Auction 110 and
associated capitalized
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AT&T Inc.
Dollars in millions except per share amounts
interest. In 2022, we received a return of investment of $2,649 from DIRECTV
representing distributions in excess of cumulative equity in earnings from
DIRECTV (see Note 10).
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 $4,697 in 2022, compared to $4,596
in 2021. Capital expenditures in 2022 were $19,626, and when including $4,697
cash paid for vendor financing, capital investment was $24,323 ($4,182 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 2022, we placed
$5,817 of equipment in service under vendor financing arrangements (compared
to $5,282 in 2021) and approximately $320 of assets related to the FirstNet
build (compared to $750 in 2021). Total reimbursements from the government for
FirstNet were approximately $260 for 2022 and $865 for 2021.
The amount of our capital expenditures is influenced by demand for services
and products, capacity needs and network enhancements. Our capital
expenditures and vendor financing payments were elevated in 2022, reflecting
strategic investments. In 2023, we expect that our capital investment, which
includes capital expenditures and cash paid for vendor financing, will be
consistent with 2022 levels.
Cash Used in or Provided by Financing Activities from Continuing Operations
In 2022, cash used in financing activities totaled $59,564 and was comprised
of debt issuances and repayments, payments of dividends, and vendor financing
payments. We also paid approximately $1,211 in cash on the note payable to
DIRECTV, with $130 due as of December 31, 2022 (see Note 19).
A tabular summary of our debt activity during 2022 is as follows:
First Second Third Fourth Full Year 2022
Quarter
Quarter
Quarter
Quarter
Net commercial paper borrowings $ 1,471 $ (5,219) $ (724) $ (1,337) $ (5,809)
Issuance of Notes and Debentures:
Private Financing $ - $ - $ 750 $ - $ 750
2025 Term Loan - - - 2,500 2,500
Other 479 - - - 479
Debt Issuances $ 479 $ - $ 750 $ 2,500 $ 3,729
Repayments:
2021 Syndicated Term Loan $ - $ (7,350) $ - $ - $ (7,350)
BAML Bilateral Term Loan - Tranche A - (1,000) - - (1,000)
Private financing - (750) - (750) (1,500)
Repayments of other short-term borrowings $ - $ (9,100) $ - $ (750) $ (9,850)
USD notes1, 2, 3 $ (123) $ (18,957) $ - $ (287) $ (19,367)
Euro notes - (3,343) - - (3,343)
BAML Bilateral Term Loan - Tranche B - (1,000) - - (1,000)
Other (667) (123) (199) (419) (1,408)
Repayments of long-term debt $ (790) $ (23,423) $ (199) $ (706) $ (25,118)
1On April 11, 2022, we issued notices for the redemption in full of all of the
outstanding approximately $9,042 aggregate principal amount of various global
notes due 2022 to 2026 with coupon rates ranging from 2.625% to 4.450%
(Make-Whole Notes). The Make-Whole Notes were redeemed on the redemption dates
set forth in the notices of redemption, at "make whole" redemption prices
calculated as set forth in the respective redemption notices in the second
quarter.
2Includes $7,954 of cash paid toward the $8,822 aggregate principal amount of
various notes that were tendered for cash in May 2022. The notes had interest
rates ranging between 3.100% and 8.750% and original maturities ranging from
2026 to 2061.
3Includes $287 of principal repayment on a $592 zero coupon note that matured
in November 2022. The other $305 was applied to operating cash flows related
to interest expense that accreted to the note over its life.
The weighted average interest rate of our long-term debt portfolio, including
credit agreement borrowings and the impact of derivatives, was approximately
4.1% as of December 31, 2022 and 3.8% as of December 31, 2021. We had
$133,207 of total notes and debentures outstanding at December 31, 2022,
which included Euro, British pound sterling, Canadian dollar, Mexican peso,
Australian dollar, and Swiss franc denominated debt that totaled approximately
$35,525.
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AT&T Inc.
Dollars in millions except per share amounts
At December 31, 2022, we had $7,467 of debt maturing within one year,
consisting of $866 of commercial paper borrowings and $6,601 of long-term debt
issuances.
During 2022, we paid $4,697 of cash under our vendor financing program,
compared to $4,596 in 2021. Total vendor financing payables included in our
December 31, 2022 consolidated balance sheet were $6,147, with $4,592 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, 2022, we had approximately 144 million shares remaining from
our share repurchase authorizations approved by the Board of Directors in
2014. During 2022, we repurchased approximately 34 million shares under the
March 2014 authorization.
We paid dividends on common shares and preferred shares of $9,859 in 2022,
compared with $15,068 in 2021. Dividends on common stock declared by our Board
of Directors, on a quarterly basis, totaled $1.11 per share in 2022 and $2.08
per share in 2021. 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
common share, or approximately $8,000 per year, following the close of the
WarnerMedia/Discovery transaction.
In the fourth quarter of 2022, all outstanding AT&T Mobility II LLC
(Mobility preferred interests) were put to us (approximately $8,000), with
approximately one-third redeemed in the fourth quarter; approximately 107
million interests are expected to be redeemed primarily in October 2023 and
107 million redeemed in October 2024, per the terms of the agreement, unless
the interests are called or the puts are accepted by AT&T prior to those
dates. With the certainty of redemption, the remaining Mobility preferred
interests were reclassified from equity to a liability at fair value, with
approximately $2,670 recorded in current as "Accounts payable and accrued
liabilities" and $2,670 recorded in "Other noncurrent liabilities." In the
fourth quarter of 2022, we paid approximately $2,600 cash to redeem the
Mobility preferred interests put to us on October 24, 2022. (See Note 16)
Our 2023 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.
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 2022, we terminated one of our revolving credit agreements and
amended and restated the other. We currently have one $12,000 revolving credit
agreement that terminates on November 18, 2027 (Revolving Credit Agreement).
No amounts were outstanding as of December 31, 2022.
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 were terminated. In the first quarter
of 2022, the maturity date of the 2021 Syndicated Term Loan was extended to
December 31, 2022. On April 13, 2022, the 2021 Syndicated Term Loan was paid
off and terminated.
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. On April 13, 2022, the BAML Bilateral Term Loan was paid off and
terminated.
In November 2022, we entered into and drew on a $2,500 term loan agreement due
February 16, 2025 (2025 Term Loan), with Mizuho Bank, Ltd., as agent. As of
December 31, 2022, $2,500 was outstanding under this agreement.
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. Our
Revolving Credit Agreement and 2025 Term Loan include a net debt-to-EBITDA
financial ratio covenant requiring AT&T to maintain, as of the last day of
each fiscal quarter, a ratio of not more than 3.75-to-1. Other loan agreements
include a net debt-to-EBITDA financial ratio covenant requiring AT&T to
maintain, as of the last day of each fiscal quarter
36
AT&T Inc.
Dollars in millions except per share amounts
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,
2022, 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 the majority of our
approximately $38,800 derivative portfolio, counterparties are still required
to post collateral. During 2022, we posted approximately $760 of cash
collateral, on a net basis. Cash postings under these arrangements vary with
changes in credit ratings and netting agreements. (See Note 12)
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, 2022, our debt
ratio was 56.1%, compared to 48.9% at December 31, 2021 and 46.4% at
December 31, 2020. The debt ratio is affected by the same factors that affect
total capital, and reflects our recent debt issuances, repayments and
reclassifications related to redemption of noncontrolling interests.
A significant amount of our cash outflows for continuing operations 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 2022 and
2021, were $16,630 and $17,119. 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 $10,200 in
2022, $25,400 in 2021 and $2,800 in 2020.
•Total health and welfare benefits provided to certain active and retired
employees and their dependents totaled approximately $3,200 in 2022 and $3,390
in 2021, with $788 paid from plan assets in 2022 compared to $1,163 in 2021.
Of those benefits, approximately $2,840 related to medical and prescription
drug benefits in 2022 compared to $2,990 in 2021. In addition, in 2022, we
prefunded $500 for future benefit payments versus $685 in 2021. We paid $5,854
of pension benefits out of plan assets in 2022 compared to $5,942 in 2021.
Contractual Obligations
Our contractual obligations as of December 31, 2022, 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 $ 147,673 $ 6,929 $ 14,898 $ 14,897 $ 110,949
Interest payments on long-term debt2 101,559 6,062 10,910 9,818 74,769
Purchase obligations3 27,015 12,313 11,424 2,457 821
Operating lease obligations4 26,468 4,657 7,746 5,132 8,933
FirstNet sustainability payments5 17,205 195 390 3,255 13,365
Unrecognized tax benefits6 8,323 486 - - 7,837
Other finance obligations7 13,788 5,391 2,830 1,787 3,780
Mobility preferred interests8 5,340 2,670 2,670 - -
Total Contractual Obligations $ 347,371 $ 38,703 $ 50,868 $ 37,346 $ 220,454
1Represents principal or payoff amounts of notes, debentures and credit
agreement borrowings at maturity (see Note 11). 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 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 21)
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 20)
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 13).
7Represents future minimum payments under the Crown Castle and other
arrangements (see Note 18), payables subject to extended payment terms (see
Note 22), finance lease payments (see Note 8) and note payable to DIRECTV (see
Note 19).
8See Note 16.
37
AT&T Inc.
Dollars in millions except per share amounts
Certain items were excluded from this table because the year of payment is
unknown and could not be reliably estimated, we believe the obligations are
immaterial, or the settlement of the obligation will not require the use of
cash. These items include: deferred income tax liability of $57,032 (see Note
13); net postemployment benefit obligations of $8,433 (including current
portion); and other noncurrent liabilities of $11,035.
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.
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 11 and 12. 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,
2022.
Foreign Exchange Risk
We principally use foreign exchange contracts to hedge costs and debt
denominated in foreign currencies. We are also exposed to foreign currency
exchange risk through our foreign affiliates and equity investments in foreign
companies.
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 $38,213 and a fair value of $(5,982) outstanding at
December 31, 2022.
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 $617 and a fair value of $(23)
outstanding at December 31, 2022.
38
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, 2022. 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, 2022, 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
39
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, 2022 and 2021, 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, 2022, 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, 2022 and 2021, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2022, 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, 2022, 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 13, 2023 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, 2022, the Company's defined benefit pension obligation was
$42,828 million and exceeded the fair value of pension plan assets of $40,874
million, resulting in an unfunded benefit obligation of $1,954 million.
Additionally, at December 31, 2022, the Company's postretirement benefit
obligation was $7,280 million and exceeded the fair value of postretirement
plan assets of $2,160 million, resulting in an unfunded benefit obligation of
$5,120 million. As explained in Note 14 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.
40
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 comprised 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, 2022, the Company's goodwill balance was $67,895 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 and market multiple approaches. As described in Note 9 to
the consolidated financial statements, impairment charges of $13,478 million
in the Business Wireline reporting unit, $10,508 million in the Consumer
Wireline reporting unit and $826 million in the Mexico reporting unit were
recorded during the year.
Auditing management's annual goodwill impairment test for the Consumer
Wireline and Business Wireline reporting units was complex because the
estimation of fair values involves subjective management assumptions, such as
projected terminal growth rates, projected long-term EBITDA margins, and
weighted average cost of capital, and complex valuation methodologies, such as
the discounted cash flow and market multiple approaches. Assumptions used in
these valuation models are forward-looking, and 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 certain controls over the Company's impairment evaluation
Audit processes. Our procedures included testing controls over management's review
of the valuation models and its determination of 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 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 evaluating the methodologies and auditing the
assumptions used to calculate the estimated fair values of the Company's
reporting units.
/s/ Ernst & Young LLP
We have served as the Company's auditor since 1999.
Dallas, Texas
February 13, 2023
41
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, 2022, 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, 2022, 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 2022 consolidated
financial statements of the Company and our report dated February 13, 2023
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 13, 2023
42
AT&T Inc.
Dollars in millions except per share amounts
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Statements of Income
2022 2021 2020
Operating Revenues
Service $ 97,831 $ 111,565 $ 124,057
Equipment 22,910 22,473 18,993
Total operating revenues 120,741 134,038 143,050
Operating Expenses
Cost of revenues
Equipment 24,009 23,685 19,585
Broadcast, programming and operations - 8,106 16,077
Other cost of revenues (exclusive of depreciation 26,839 28,616 29,989
and amortization shown separately below)
Selling, general and administrative 28,961 29,669 30,817
Asset impairments and abandonments and restructuring 27,498 213 15,687
Depreciation and amortization 18,021 17,852 22,523
Total operating expenses 125,328 108,141 134,678
Operating Income (Loss) (4,587) 25,897 8,372
Other Income (Expense)
Interest expense (6,108) (6,716) (7,727)
Equity in net income of affiliates 1,791 603 89
Other income (expense) - net 5,810 9,387 (1,088)
Total other income (expense) 1,493 3,274 (8,726)
Income (Loss) from Continuing Operations Before Income Taxes (3,094) 29,171 (354)
Income tax expense on continuing operations 3,780 5,395 1,168
Income (Loss) from Continuing Operations (6,874) 23,776 (1,522)
Loss from discontinued operations, net of tax (181) (2,297) (2,299)
Net Income (Loss) (7,055) 21,479 (3,821)
Less: Net Income Attributable to Noncontrolling Interest (1,469) (1,398) (1,355)
Net Income (Loss) Attributable to AT&T $ (8,524) $ 20,081 $ (5,176)
Less: Preferred Stock Dividends (203) (207) (193)
Net Income (Loss) Attributable to Common Stock $ (8,727) $ 19,874 $ (5,369)
Basic Earnings (Loss) Per Share from continuing operations $ (1.10) $ 3.07 $ (0.45)
Basic Loss Per Share from discontinued operations $ (0.03) $ (0.30) $ (0.30)
Basic Earnings (Loss) Per Share Attributable to Common Stock $ (1.13) $ 2.77 $ (0.75)
Diluted Earnings (Loss) Per Share from continuing operations $ (1.10) $ 3.02 $ (0.45)
Diluted Loss Per Share from discontinued operations $ (0.03) $ (0.29) $ (0.30)
Diluted Earnings (Loss) Per Share Attributable to Common Stock $ (1.13) $ 2.73 $ (0.75)
The accompanying notes are an integral part of the consolidated financial
statements.
43
AT&T Inc.
Dollars in millions except per share amounts
Consolidated Statements of Comprehensive Income
2022 2021 2020
Net income (loss) $ (7,055) $ 21,479 $ (3,821)
Other comprehensive income (loss), net of tax:
Foreign Currency:
Translation adjustment (includes $0, $(2) and $(59) attributable to 346 (127) (929)
noncontrolling
interest), net of taxes of $90, $(44) and $(42)
Reclassification adjustment included in net income (loss), net of taxes of - 2,087 -
$0, $204 and $0
Distributions of WarnerMedia, net of taxes of $(38), $0 and $0 (182) - -
Securities:
Net unrealized gains (losses), net of taxes of $(49), $(21) and $27 (143) (63) 78
Reclassification adjustment included in net income (loss), net of taxes of $3, 8 (3) (15)
$(1)
and $(5)
Derivative Instruments:
Net unrealized gains (losses), net of taxes of $(183), $(192) and $(212) (648) (715) (811)
Reclassification adjustment included in net income (loss), net of taxes of 96 72 69
$25, $19
and $18
Distributions of WarnerMedia, net of taxes of $(12), $0 and $0 (24) - -
Defined benefit postretirement plans:
Net prior service (cost) credit arising during period, net of taxes of $583, 1,787 (34) 2,250
$(8)
and $735
Amortization of net prior service credit included in net income (loss), net of (2,028) (2,020) (1,841)
taxes of
$(663), $(660) and $(601)
Distributions of WarnerMedia, net of taxes of $5, $0 and $0 25 - -
Other comprehensive income (loss) (763) (803) (1,199)
Total comprehensive income (loss) (7,818) 20,676 (5,020)
Less: Total comprehensive income attributable to noncontrolling interest (1,469) (1,396) (1,296)
Total Comprehensive Income (Loss) Attributable to AT&T $ (9,287) $ 19,280 $ (6,316)
The accompanying notes are an integral part of the consolidated financial
statements.
44
AT&T Inc.
Dollars in millions except per share amounts
Consolidated Balance Sheets
December 31,
2022 2021
Assets
Current Assets
Cash and cash equivalents $ 3,701 $ 19,223
Accounts receivable - net of related allowance for credit loss of $588 and 11,466 12,313
$658
Inventories 3,123 3,325
Prepaid and other current assets 14,818 16,131
Assets from discontinued operations - 119,776
Total current assets 33,108 170,768
Property, Plant and Equipment - Net 127,445 121,649
Goodwill - Net 67,895 92,740
Licenses - Net 124,092 113,830
Other Intangible Assets - Net 5,354 5,391
Investments in and Advances to Equity Affiliates 3,533 6,168
Operating Lease Right-Of-Use Assets 21,814 21,824
Other Assets 19,612 19,252
Total Assets $ 402,853 $ 551,622
Liabilities and Stockholders' Equity
Current Liabilities
Debt maturing within one year $ 7,467 $ 24,620
Note payable to DIRECTV 130 1,245
Accounts payable and accrued liabilities 42,644 39,095
Advanced billings and customer deposits 3,918 3,966
Dividends payable 2,014 3,749
Liabilities from discontinued operations - 33,555
Total current liabilities 56,173 106,230
Long-Term Debt 128,423 151,011
Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes 57,032 53,767
Postemployment benefit obligation 7,260 12,560
Operating lease liabilities 18,659 18,956
Other noncurrent liabilities 28,849 25,243
Total deferred credits and other noncurrent liabilities 111,800 110,526
Stockholders' Equity
Preferred stock ($1 par value, 10,000,000 authorized at December 31, 2022
and December 31, 2021):
Series A (48,000 issued and outstanding at December 31, 2022 and - -
December 31, 2021)
Series B (20,000 issued and outstanding at December 31, 2022 and - -
December 31, 2021)
Series C (70,000 issued and outstanding at December 31, 2022 and - -
December 31, 2021)
Common stock ($1 par value, 14,000,000,000 authorized at December 31, 2022 7,621 7,621
and
December 31, 2021: issued 7,620,748,598 at December 31, 2022 and
December 31, 2021)
Additional paid-in capital 123,610 130,112
Retained (deficit) earnings (19,415) 42,350
Treasury stock (493,156,816 at December 31, 2022 and 479,684,705 at (17,082) (17,280)
December 31, 2021, at cost)
Accumulated other comprehensive income 2,766 3,529
Noncontrolling interest 8,957 17,523
Total stockholders' equity 106,457 183,855
Total Liabilities and Stockholders' Equity $ 402,853 $ 551,622
The accompanying notes are an integral part of the consolidated financial
statements.
45
AT&T Inc.
Dollars in millions except per share amounts
Consolidated Statements of Cash Flows
2022 2021 2020
Operating Activities
Income (loss) from continuing operations $ (6,874) $ 23,776 $ (1,522)
Adjustments to reconcile income (loss) from continuing operations to net cash
provided by operating activities from continuing operations:
Depreciation and amortization 18,021 17,852 22,523
Provision for uncollectible accounts 1,865 1,241 1,798
Deferred income tax expense 2,975 7,412 2,145
Net (gain) loss on investments, net of impairments 381 (369) (970)
Pension and postretirement benefit expense (credit) (3,237) (3,857) (2,992)
Actuarial (gain) loss on pension and postretirement benefits (1,999) (4,143) 4,169
Asset impairments and abandonments and restructuring 27,498 213 15,687
Changes in operating assets and liabilities:
Receivables 727 (1,125) 1,079
Other current assets (674) (1,288) (2,138)
Accounts payable and other accrued liabilities (1,109) (1,570) (1,895)
Equipment installment receivables and related sales 154 (271) (1,428)
Deferred customer contract acquisition and fulfillment costs (947) 18 382
Postretirement claims and contributions (823) (822) (985)
Other - net (146) 103 1,631
Total adjustments 42,686 13,394 39,006
Net Cash Provided by Operating Activities from Continuing Operations 35,812 37,170 37,484
Investing Activities
Capital expenditures (19,626) (15,545) (14,690)
Acquisitions, net of cash acquired (10,200) (25,453) (1,625)
Dispositions 199 7,136 2,472
Distributions from DIRECTV in excess of cumulative equity in earnings 2,649 1,323 -
Other - net 79 50 396
Net Cash Used in Investing Activities from Continuing Operations (26,899) (32,489) (13,447)
Financing Activities
Net change in short-term borrowings with original maturities of three months (519) 1,316 (17)
or less
Issuance of other short-term borrowings 3,955 21,856 9,440
Repayment of other short-term borrowings (18,345) (7,510) (9,467)
Issuance of long-term debt 2,979 9,931 31,988
Repayment of long-term debt (25,118) (3,039) (39,062)
Note payable to DIRECTV, net of payments (1,211) 1,341 -
Payment of vendor financing (4,697) (4,596) (2,966)
Issuance of preferred stock - - 3,869
Purchase of treasury stock (890) (202) (5,498)
Issuance of treasury stock 28 96 105
Issuance of preferred interests in subsidiaries - - 1,979
Redemption of preferred interest in subsidiary (2,665) - (1,950)
Dividends paid (9,859) (15,068) (14,956)
Other - net (3,222) (2,231) (4,496)
Net Cash (Used in) Provided by Financing Activities from Continuing Operations (59,564) 1,894 (31,031)
Net (decrease) increase in cash and cash equivalents and restricted cash from (50,651) 6,575 (6,994)
continuing operations
Cash flows from Discontinued Operations:
Cash (used in) provided by operating activities (3,789) 4,788 5,645
Cash provided by (used in) investing activities 1,094 399 (102)
Cash provided by (used in) financing activities 35,823 (316) (974)
Net increase (decrease) in cash and cash equivalents and restricted cash from 33,128 4,871 4,569
discontinued operations
Net (decrease) increase in cash and cash equivalents and restricted cash (17,523) 11,446 (2,425)
Cash and cash equivalents and restricted cash beginning of year 21,316 9,870 12,295
Cash and Cash Equivalents and Restricted Cash End of Year $ 3,793 $ 21,316 $ 9,870
The accompanying notes are an integral part of the consolidated financial
statements.
46
AT&T Inc.
Dollars and shares in millions except per share amounts
Consolidated Statements of Changes in Stockholders' Equity
2022 2021 2020
Shares Amount Shares Amount Shares Amount
Preferred Stock - Series A
Balance at beginning of year - $ - - $ - - $ -
Balance at end of year - $ - - $ - - $ -
Preferred Stock - Series B
Balance at beginning of year - $ - - $ - - $ -
Balance at end of year - $ - - $ - - $ -
Preferred Stock - Series C
Balance at beginning of year - $ - - $ - - $ -
Balance at end of year - $ - - $ - - $ -
Common Stock
Balance at beginning of year 7,621 $ 7,621 7,621 $ 7,621 7,621 $ 7,621
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 $ 130,112 $ 130,175 $ 126,279
Distribution of WarnerMedia (6,832) - -
Repurchase and acquisition of - - 67
common stock
Issuance of preferred stock - - 3,869
Issuance of treasury stock (171) (76) (62)
Share-based payments (162) 13 18
Acquisition or reclassification of interests held by noncontrolling owners 663 - 4
Balance at end of year $ 123,610 $ 130,112 $ 130,175
Retained (Deficit) Earnings
Balance at beginning of year $ 42,350 $ 37,457 $ 57,936
Cumulative effect of accounting - - (293)
changes and other adjustments
Adjusted beginning balance 42,350 37,457 57,643
Net income (loss) attributable to AT&T (8,524) 20,081 (5,176)
Distribution of WarnerMedia (45,041) - -
Preferred stock dividends (207) (224) (139)
Common stock dividends ($1.11, $2.08 (7,993) (14,964) (14,871)
and $2.08 per share)
Balance at end of year $ (19,415) $ 42,350 $ 37,457
The accompanying notes are an integral part of the consolidated financial
statements.
47
AT&T Inc.
Dollars and shares in millions except per share amounts
Consolidated Statements of Changes in Stockholders' Equity - continued
2022 2021 2020
Shares Amount Shares Amount Shares Amount
Treasury Stock
Balance at beginning of year (480) $ (17,280) (495) $ (17,910) (366) $ (13,085)
Repurchase and acquisition of (44) (890) (8) (237) (150) (5,631)
common stock
Issuance of treasury stock 31 1,088 23 867 21 806
Balance at end of year (493) $ (17,082) (480) $ (17,280) (495) $ (17,910)
Accumulated Other Comprehensive Income
Attributable to AT&T, net of tax
Balance at beginning of year $ 3,529 $ 4,330 $ 5,470
Other comprehensive income (loss) (763) (801) (1,140)
attributable to AT&T
Balance at end of year $ 2,766 $ 3,529 $ 4,330
Noncontrolling Interest
Balance at beginning of year $ 17,523 $ 17,567 $ 17,713
Cumulative effect of accounting - - (7)
changes and other adjustments
Adjusted beginning balance 17,523 17,567 17,706
Net income attributable to 1,469 1,398 1,355
noncontrolling interest
Issuance and acquisition (disposition) of (21) 7 1,979
noncontrolling owners
Redemption of noncontrolling interest (2,665) - (1,950)
Reclassification of noncontrolling (5,997) - -
interest
Distributions (1,352) (1,447) (1,464)
Translation adjustments attributable to - (2) (59)
noncontrolling interest, net of taxes
Balance at end of year $ 8,957 $ 17,523 $ 17,567
Total Stockholders' Equity at $ 183,855 $ 179,240 $ 201,934
beginning of year
Total Stockholders' Equity at $ 106,457 $ 183,855 $ 179,240
end of year
The accompanying notes are an integral part of the consolidated financial
statements.
48
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 and technology industries.
On April 8, 2022, we completed the separation of our WarnerMedia business,
which represented substantially all of our WarnerMedia segment, in a Reverse
Morris Trust transaction, under which Magallanes, Inc. (Spinco), a formerly
wholly-owned subsidiary of AT&T that held the WarnerMedia business, was
distributed to AT&T stockholders via a pro rata dividend, followed by the
combination of Spinco with a subsidiary of Discovery, Inc. (Discovery), which
was renamed Warner Bros. Discovery, Inc. (WBD). (See Note 6)
Upon the separation and distribution, the WarnerMedia business met the
criteria for discontinued operations. For discontinued operations, we also
evaluated transactions that were components of AT&T's single plan of a
strategic shift, including dispositions that previously did not individually
meet the criteria due to materiality, and have determined discontinued
operations to be comprised of WarnerMedia, Vrio, Xandr and Playdemic Ltd.
(Playdemic). These businesses are reflected in the accompanying financial
statements as discontinued operations, including for periods prior to the
consummation of the WarnerMedia/Discovery transaction. (See Notes 6 and 23)
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, 10 and 19).
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 fair value, probable losses and
expenses, that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Moreover, unfavorable changes in market conditions, including interest rates,
could adversely impact those estimates and result in asset impairments.
Certain prior-period amounts have been conformed to the current period's
presentation. Unless otherwise noted, the information in Notes 1 through 22
and 24 refer only to our continuing operations and do not include discussion
of balances or activity of WarnerMedia, Vrio, Xandr and Playdemic, which are
part of discontinued operations.
Adopted and New Accounting Standards
Convertible Instruments Beginning with 2022 interim reporting, we adopted,
through retrospective application, the Financial Accounting Standards Board's
(FASB) Accounting Standards Update (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 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 Series A Cumulative Perpetual
Membership Interests in AT&T Mobility II LLC (Mobility preferred
interests) in cash, settlement of this instrument in AT&T shares would
result in additional dilutive impact, the magnitude of which is influenced by
the fair value of the Mobility preferred interests and the average AT&T
common stock price during the reporting period, which could vary from
period-to-period (see Note 16).
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AT&T Inc.
Dollars in millions except per share amounts
The following table presents the impact of the adoption of ASU 2020-06 on our
diluted earnings per share from continuing operations:
Historical Accounting Method Effect of Adoption of ASU 2020-061 Under ASU 2020-06
Diluted earnings per share from continuing operations:
Year ended December 31, 2022 $ (1.10) $ - $ (1.10)
Year ended December 31, 2021 $ 3.07 $ (0.05) $ 3.02
Year ended December 31, 2020 $ (0.45) $ - $ (0.45)
1See Note 2 for a discussion of the numerator and denominator adjustments.
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, 2024. 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.
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 (e.g.,
terms and conditions, accounting treatment, impacted financial statement
lines), 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. We adopted ASU 2021-10
effective for the annual reporting period ended December 31, 2022, as
required, under prospective application, with no required updates to our
disclosures.
Credit Losses As of January 1, 2020, we adopted, through modified
retrospective application, 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.
Supplier Finance Obligations In September 2022, the FASB issued ASU No.
2022-04, "Liabilities - Supplier Finance Programs (Subtopic 405-50):
Disclosure of Supplier Finance Program Obligations" (ASU 2022-04), which
establishes interim and annual reporting disclosure requirements about a
company's supplier finance programs for its purchase of goods and services.
Interim and annual requirements include disclosure of outstanding amounts
under the obligations as of the end of the reporting period, and annual
requirements include a rollforward of those obligations for the annual
reporting period, as well as a description of payment and other key terms of
the programs. ASU 2022-04 will be effective for interim and annual periods
beginning after December 15, 2022, with retrospective application, except for
the annual rollforward requirement, which becomes effective for annual periods
beginning after December 15, 2023, with prospective application. The standard
allows early adoption of all requirements. In the year of adoption, the
disclosure of payment and other key terms under the programs and outstanding
balances under the obligations will also apply to interim reporting dates. We
are in the process of evaluating the impact of our adoption of ASU 2022-04.
Accounting Policies
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
50
AT&T Inc.
Dollars in millions except per share amounts
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, state and foreign 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 simplified 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, 2022, we held $866 in cash and
$2,835 in money market funds and other cash equivalents. Of our total cash and
cash equivalents, $1,045 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.
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.
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; 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
51
AT&T Inc.
Dollars in millions except per share amounts
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 (see Note
9). 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. 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 economic lives (see Note 9). 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 are amortized using
the straight-line method over the estimated useful life of the assets. 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.
Advertising Costs We expense advertising costs for products and services or
for promoting our corporate image as incurred (see Note 22).
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).
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 12).
Pension and Other Postretirement Benefits See Note 14 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.
52
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, 2022 2021 2020
Numerators
Numerator for basic earnings per share:
Income (loss) from continuing operations, net of tax $ (6,874) $ 23,776 $ (1,522)
Net income from continuing operations attributable to (1,469) (1,485) (1,470)
noncontrolling interests
Preferred Stock Dividends (203) (207) (193)
Income (loss) from continuing operations attributable to (8,546) 22,084 (3,185)
common stock
Adjustment to carrying value of noncontrolling interest 663 - -
Numerator for basic earnings per share from continuing operations1 (7,883) 22,084 (3,185)
Loss from discontinued operations, net of tax (181) (2,297) (2,299)
Loss from discontinued operations attributable - 87 115
to noncontrolling interests
Loss from discontinued operations (181) (2,210) (2,184)
attributable to common stock
Numerator for basic earnings per share1 $ (8,064) $ 19,874 $ (5,369)
Dilutive potential common shares:
Mobility preferred interests2 526 560 560
Share-based payment2 17 22 23
Numerator for diluted earnings per share $ (7,521) $ 20,456 $ (4,786)
Denominators (000,000)
Denominator for basic earnings per share:
Weighted average number of common shares outstanding 7,166 7,168 7,157
Dilutive potential common shares:
Mobility preferred interests (in shares) 378 304 283
Share-based payment (in shares) 43 31 26
Denominator for diluted earnings per share2 7,587 7,503 7,466
1For 2022, in the calculation of basic earnings per share, income (loss)
attributable to common stock for continuing operations and total company has
been increased by $663 from adjustment to carrying value of noncontrolling
interest. (See Note 16)
2For 2022 and 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.
Upon the adoption of ASU 2020-06 in the first quarter of 2022, the ability to
settle our Mobility preferred interests in stock is reflected in our diluted
earnings per share calculation, unless the effect is antidilutive. While our
intent is to settle the Mobility preferred interests in cash, the ability to
settle 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
preferred interests and the average AT&T common stock price during the
reporting period, which could vary from period-to-period. The numerator
includes an adjustment to add back to income from continuing operations the
earned distributions on the Mobility preferred interests, included in net
income attributable to noncontrolling interest, and the denominator includes
the potential issuance of AT&T common stock to settle the Mobility
preferred interests outstanding. (See Notes 1 and 16)
53
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, 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
Other comprehensive income 346 (143) (648) 1,787 1,342
(loss) before reclassifications
Amounts reclassified from - 1 8 1 96 2 (2,028) 3 (1,924)
accumulated OCI
Distribution of WarnerMedia (182) - (24) 25 (181)
Net other comprehensive 164 (135) (576) (216) (763)
income (loss)
Balance as of December 31, 2022 $ (1,800) $ (90) $ (1,998) $ 6,654 $ 2,766
1(Gains) losses are included in "Other income (expense) - net" in the
consolidated statements of income.
2(Gains) losses are primarily included in "Interest expense" in the
consolidated statements of income (see Note 12).
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 14).
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 or other operations
that offer products and services to different customer segments over various
technology platforms and/or in different geographies that are managed
accordingly. We have two reportable segments: Communications and Latin
America.
We also evaluate segment and business unit performance based on EBITDA and/or
EBITDA margin, which is defined as operating income excluding depreciation and
amortization. EBITDA is used as part of our management reporting and we
believe EBITDA to be a relevant and useful measurement to our investors as it
measures the cash generation potential of our business units. EBITDA does not
give effect to depreciation and amortization expenses incurred in operating
income 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 revenue.
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AT&T Inc.
Dollars in millions except per share amounts
In the first quarter of 2022, we reclassified into "Corporate" certain
administrative costs borne by AT&T where the business units do not
influence decision making to conform with the current period presentation.
This recast increased Corporate operations and support expenses by
approximately $270 and $1,310 for full-year 2021 and 2020, respectively.
Correspondingly, this recast lowered administrative expenses for the
Communications segment and Video (our former U.S. video operations contributed
to DIRECTV in July 2021), with no change on a consolidated basis.
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 assets. This segment contains the following
business units:
•Mobility provides nationwide wireless service and equipment.
•Business Wireline provides advanced ethernet-based fiber services, IP Voice
and managed professional services, as well as traditional voice and data
services and related equipment to business customers.
•Consumer Wireline provides broadband services, including fiber connections
that provide our multi-gig services to residential customers in select
locations. Consumer Wireline also provides legacy telephony voice
communication services.
The Latin America segment provides wireless services and equipment in Mexico.
Corporate and Other reconciles our segment results to consolidated operating
income and income before income taxes.
Corporate includes:
•DTV-related retained costs, which are costs previously allocated to the
Video business that were retained after the transaction, net of reimbursements
from DIRECTV under transition service agreements.
•Parent administration support, which includes costs borne by AT&T where
the business units do not influence decision making.
•Securitization fees associated with our sales of receivables (see Note 17).
•Value portfolio, which are businesses no longer integral to our operations
or which we no longer actively market.
Other items consist of:
•Video, which includes our former U.S. video operations that were
contributed to DIRECTV on July 31, 2021, and our share of DIRECTV's earnings
as equity in net income of affiliates (see Note 19).
•Held-for-sale and other reclassifications, which includes our former
Crunchyroll, Government Solutions and wireless and wireline operations in
Puerto Rico and the U.S. Virgin Islands.
•Reclassification of prior service credits, which includes the
reclassification of prior service credit amortization, where we present the
impact of benefit plan amendments in our business unit results. Prior service
credit amortization is presented in "Other income (expense) - net" in the
consolidated statements of income and therefore has no impact on consolidated
operating income or EBITDA.
•Certain significant items, which includes items associated with the merger
and integration of acquired or divested businesses, including amortization of
intangible assets, employee separation charges associated with voluntary
and/or strategic offers, asset impairments and abandonments and restructuring,
and other items for which the segments are not being evaluated.
•Eliminations and consolidations, removed transactions involving dealings
between Mobility and our Video business, prior to the July 31, 2021 separation
of Video.
"Interest expense" and "Other income (expense) - net" are managed only on a
total company basis and are, accordingly, reflected only in consolidated
results.
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AT&T Inc.
Dollars in millions except per share amounts
For the year ended December 31, 2022
Revenues Operations EBITDA Depreciation Operating
and Support
Income
Expenses and
(Loss)
Amortization
Communications
Mobility $ 81,780 $ 49,054 $ 32,726 $ 8,198 $ 24,528
Business Wireline 22,538 13,972 8,566 5,314 3,252
Consumer Wireline 12,749 8,253 4,496 3,169 1,327
Total Communications 117,067 71,279 45,788 16,681 29,107
Latin America - Mexico 3,144 2,812 332 658 (326)
Segment Total 120,211 74,091 46,120 17,339 28,781
Corporate and Other
Corporate:
DTV-related retained costs 8 737 (729) 549 (1,278)
Parent administration support (32) 1,199 (1,231) 16 (1,247)
Securitization fees 65 419 (354) - (354)
Value portfolio 489 139 350 41 309
Total Corporate 530 2,494 (1,964) 606 (2,570)
Reclassification of prior service credits - 2,691 (2,691) - (2,691)
Certain significant items - 28,031 (28,031) 76 (28,107)
Total Corporate and Other 530 33,216 (32,686) 682 (33,368)
AT&T Inc. $ 120,741 $ 107,307 $ 13,434 $ 18,021 $ (4,587)
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AT&T Inc.
Dollars in millions except per share amounts
For the year ended December 31, 2021
Revenues Operations EBITDA Depreciation Operating
and Support
and
Income
Expenses
Amortization
(Loss)
Communications
Mobility $ 78,254 $ 46,762 $ 31,492 $ 8,122 $ 23,370
Business Wireline 23,937 14,718 9,219 5,192 4,027
Consumer Wireline 12,539 8,448 4,091 3,095 996
Total Communications 114,730 69,928 44,802 16,409 28,393
Latin America - Mexico 2,747 2,652 95 605 (510)
Segment Total 117,477 72,580 44,897 17,014 27,883
Corporate and Other
Corporate:
DTV-related retained costs 49 243 (194) 236 (430)
Parent administration support (18) 1,523 (1,541) 36 (1,577)
Securitization fees 61 89 (28) - (28)
Value portfolio 639 208 431 40 391
Total Corporate 731 2,063 (1,332) 312 (1,644)
Video 15,513 12,666 2,847 356 2,491
Held-for-sale and other reclassifications 453 310 143 - 143
Reclassification of prior service credits - 2,680 (2,680) - (2,680)
Certain significant items - 126 (126) 170 (296)
Eliminations and consolidations (136) (136) - - -
Total Corporate and Other 16,561 17,709 (1,148) 838 (1,986)
AT&T Inc. $ 134,038 $ 90,289 $ 43,749 $ 17,852 $ 25,897
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AT&T Inc.
Dollars in millions except per share amounts
For the year ended December 31, 2020
Revenues Operations EBITDA Depreciation Operating
and Support
and
Income
Expenses
Amortization
(Loss)
Communications
Mobility $ 72,564 $ 41,677 $ 30,887 $ 8,086 $ 22,801
Business Wireline 25,083 15,068 10,015 5,216 4,799
Consumer Wireline 12,318 7,942 4,376 2,914 1,462
Total Communications 109,965 64,687 45,278 16,216 29,062
Latin America - Mexico 2,562 2,636 (74) 513 (587)
Segment Total 112,527 67,323 45,204 16,729 28,475
Corporate and Other
Corporate:
Parent administration support (62) 1,681 (1,743) 12 (1,755)
Securitization fees 53 72 (19) - (19)
Value portfolio 775 335 440 64 376
Total Corporate 766 2,088 (1,322) 76 (1,398)
Video 28,610 24,174 4,436 2,262 2,174
Held-for-sale and other reclassifications 1,414 718 696 15 681
Reclassification of prior service credits - 2,442 (2,442) - (2,442)
Certain significant items - 15,677 (15,677) 3,441 (19,118)
Eliminations and consolidations (267) (267) - - -
Total Corporate and Other 30,523 44,832 (14,309) 5,794 (20,103)
AT&T Inc. $ 143,050 $ 112,155 $ 30,895 $ 22,523 $ 8,372
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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) from Continuing Operations Before Income Taxes" reported in our
consolidated statements of income:
2022 2021 2020
Communications $ 29,107 $ 28,393 $ 29,062
Latin America (326) (510) (587)
Segment Operating Income 28,781 27,883 28,475
Reconciling Items:
Corporate (2,570) (1,644) (1,398)
Video - 2,491 2,174
Held-for-sale and other reclassifications - 143 681
Transaction and other costs (425) (41) (1,064)
Amortization of intangibles acquired (76) (170) (3,427)
Asset impairments and abandonments and restructuring (27,498) (213) (15,687)
Gain on spectrum transaction1 - - 900
Benefit-related gains (losses) (108) 128 160
Reclassification of prior service credits (2,691) (2,680) (2,442)
AT&T Operating Income (Loss) (4,587) 25,897 8,372
Interest Expense 6,108 6,716 7,727
Equity in net income of affiliates 1,791 603 89
Other income (expense) - net 5,810 9,387 (1,088)
Income (Loss) from Continuing Operations Before Income Taxes $ (3,094) $ 29,171 $ (354)
1Included as a reduction of "Selling, general and administrative" expense 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:
2022 2021 2020
Revenues Net Property, Revenues Net Property, Revenues Net Property,
Plant &
Plant & Plant &
Equipment
Equipment Equipment
United States $ 116,006 $ 123,305 $ 129,157 $ 117,690 $ 138,188 $ 116,926
Mexico 3,210 3,718 2,824 3,460 2,651 3,528
Asia/Pacific Rim 592 124 747 136 816 170
Europe 584 201 907 249 1,022 347
Latin America 217 74 251 82 212 94
Other 132 23 152 32 161 39
Total $ 120,741 $ 127,445 $ 134,038 $ 121,649 $ 143,050 $ 121,104
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AT&T Inc.
Dollars in millions except per share amounts
The following table presents assets, investments in equity affiliates and
capital expenditures by segment:
At or for the years ended December 31, 2022 2021
Assets Investments in Capital Assets Investments in Capital
Equity Method
Expenditures
Equity Method
Expenditures
Investees
Investees
Communications $ 471,444 $ - $ 18,962 $ 448,757 $ - $ 14,691
Latin America 8,408 - 360 8,874 - 319
Corporate and eliminations1 (76,999) 3,533 304 93,991 6,168 535
Total $ 402,853 $ 3,533 $ 19,626 $ 551,622 $ 6,168 $ 15,545
1Includes $119,776 of assets from discontinued operations at December 31,
2021.
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 2022, 2021 or 2020.
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 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.
Revenue recognized from fixed term contracts that bundle services and/or
equipment is allocated based on the standalone 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. Standalone
selling prices are determined by assessing prices paid for service-only
contracts (e.g., arrangements where customers bring their own devices) and
standalone 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 standalone selling price
allocation. The
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AT&T Inc.
Dollars in millions except per share amounts
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.
Revenue Categories
The following tables set forth reported revenue by category and by business
unit:
For the year ended December 31, 2022
Communications
Mobility Business Wireline Consumer Wireline Latin America Corporate & Other Elim. Total
Wireless service $ 60,499 $ - $ - $ 2,162 $ 13 $ - $ 62,674
Business service - 21,891 - - - - 21,891
Broadband - - 9,669 - - - 9,669
Legacy voice and data - - 1,746 - 323 - 2,069
Other - - 1,334 - 194 - 1,528
Total Service 60,499 21,891 12,749 2,162 530 - 97,831
Equipment 21,281 647 - 982 - - 22,910
Total $ 81,780 $ 22,538 $ 12,749 $ 3,144 $ 530 $ - $ 120,741
For the year ended December 31, 2021
Communications
Mobility Business Wireline Consumer Wireline Latin America Corporate & Other Elim. Total
Wireless service $ 57,590 $ - $ - $ 1,834 $ 74 $ - $ 59,498
Video service - - - - 15,423 - 15,423
Business service - 23,224 - - 70 - 23,294
Broadband - - 9,085 - - - 9,085
Legacy voice and data - - 1,977 - 429 - 2,406
Other - - 1,384 - 611 (136) 1,859
Total Service 57,590 23,224 12,446 1,834 16,607 (136) 111,565
Equipment 20,664 713 93 913 90 - 22,473
Total $ 78,254 $ 23,937 $ 12,539 $ 2,747 $ 16,697 $ (136) $ 134,038
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AT&T Inc.
Dollars in millions except per share amounts
For the year ended December 31, 2020
Communications
Mobility Business Wireline Consumer Wireline Latin America Corporate & Other Elim. Total
Wireless service $ 55,542 $ - $ - $ 1,656 $ 528 $ - $ 57,726
Video service - - - - 28,465 - 28,465
Business service - 24,313 - - 314 - 24,627
Broadband - - 8,534 - - - 8,534
Legacy voice and data - - 2,213 - 554 - 2,767
Other - - 1,564 - 641 (267) 1,938
Total Service 55,542 24,313 12,311 1,656 30,502 (267) 124,057
Equipment 17,022 770 7 906 288 - 18,993
Total $ 72,564 $ 25,083 $ 12,318 $ 2,562 $ 30,790 $ (267) $ 143,050
Deferred Customer Contract Acquisition and Fulfillment Costs
Costs to acquire and fulfill customer contracts, including commissions on
service activations, for our Mobility, 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.
During the first quarter of 2022, we updated our analysis of expected economic
lives of customer relationships. As of January 1, 2022, we extended the
amortization period for deferred acquisition and fulfillment contract costs
within Mobility, Consumer Wireline and Business Wireline to better reflect the
estimated economic lives of the relationships. These changes in accounting
estimate decreased other cost of revenues approximately $395, or $0.04 per
diluted share from continuing operations for the year ended December 31, 2022.
The following table presents the deferred customer contract acquisition and
fulfillment costs included on our consolidated balance sheets at December 31:
Consolidated Balance Sheets 2022 2021
Deferred Acquisition Costs
Prepaid and other current assets $ 2,893 $ 2,551
Other Assets 3,913 3,247
Total deferred customer contract acquisition costs $ 6,806 $ 5,798
Deferred Fulfillment Costs
Prepaid and other current assets $ 2,481 $ 2,600
Other Assets 4,206 4,148
Total deferred customer contract fulfillment costs $ 6,687 $ 6,748
The following table presents deferred customer contract acquisition and
fulfillment cost amortization included in "Other cost of revenue" for the
years ended December 31:
Consolidated Statements of Income 2022 20211
Deferred acquisition cost amortization $ 2,935 $ 2,965
Deferred fulfillment cost amortization 2,688 4,014
1Includes deferred acquisition amortization of $409 and deferred fulfillment
cost amortization of $1,162 from our separated Video business for the year
ended December 31, 2021.
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.
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AT&T Inc.
Dollars in millions except per share amounts
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 2022 2021
Contract asset $ 5,512 $ 4,389
Current portion in "Prepaid and other current assets" 2,941 2,582
Contract liability 4,170 4,133
Current portion in "Advanced billings and customer deposits" 3,816 3,776
Our contract asset balance in 2022 reflects increased promotional equipment
sales in our wireless business. We expect the amortization of these
promotional costs to flatten in 2023.
Our beginning of period contract liabilities recorded as customer contract
revenue during 2022 was $3,795.
Remaining Performance Obligations
Remaining performance obligations 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 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, 2022, the aggregate amount of the
transaction price allocated to remaining performance obligations was $35,800,
of which we expect to recognize approximately 76% by the end of 2024, with
the balance recognized thereafter.
NOTE 6. ACQUISITIONS, DISPOSITIONS AND OTHER ADJUSTMENTS
Acquisitions
Spectrum Auctions On January 14, 2022, the Federal Communications Commission
(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 paid the remaining $8,956 in the first quarter of 2022,
for a total of $9,079. We funded the purchase price using cash and short-term
investments. We received the licenses in May 2022 and classified the auction
deposits and related capitalized interest as "Licenses - Net" on our December
31, 2022 consolidated balance sheet.
In February 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 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 $1,100 of compensable relocation costs over the next several
years as the spectrum is being cleared by satellite operators, of which we
paid $650 in the fourth quarter of 2021 and $98 in the third quarter of 2022.
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.
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AT&T Inc.
Dollars in millions except per share amounts
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.
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.
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 of 2021, 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 (see Note 19). The remainder of the
net proceeds is reported as cash from investing activities. This transaction
did not result in a material gain or loss.
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
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.
Operations in Puerto Rico On October 31, 2020, we completed the sale of our
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. 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.
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AT&T Inc.
Dollars in millions except per share amounts
Dispositions Reflected as Discontinued Operations
WarnerMedia On April 8, 2022, we completed the separation and distribution of
our WarnerMedia business, and merger of Spinco, an AT&T subsidiary formed
to hold the WarnerMedia business, with a subsidiary of Discovery, Inc., which
was renamed Warner Bros. Discovery, Inc (WBD). Each AT&T shareholder was
entitled to receive 0.241917 shares of WBD common stock for each share of
AT&T common stock held as of the record date, which represented
approximately 71% of WBD. In connection with and in accordance with the terms
of the Separation and Distribution Agreement (SDA), prior to the distribution
and merger, AT&T received approximately $40,400, which includes $38,800 of
Spinco cash and $1,600 of debt retained by WarnerMedia. During the second
quarter of 2022, assets of approximately $121,100 and liabilities of $70,600
were removed from our balance sheet as well as $45,041 of retained earnings
and $5,632 of additional paid-in capital associated with the transaction.
Additionally, in August 2022, we and WBD finalized the post-closing
adjustment, pursuant to Section 1.3 of the SDA, which resulted in a $1,200
payment to WBD in the third quarter of 2022 and was reflected in the balance
sheet as an adjustment to additional paid-in capital. (See Note 23)
AT&T, Spinco and Discovery entered into a Tax Matters Agreement, which
governs the parties' rights, responsibilities and obligations with respect to
tax liabilities and benefits, the preservation of the expected tax-free status
of the transactions contemplated by the SDA, and other matters regarding
taxes.
Xandr On June 6, 2022, we completed the sale of the marketplace component of
Xandr to Microsoft Corporation. Xandr was reflected in our historical
financial statements as discontinued operations.
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.
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 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.
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AT&T Inc.
Dollars in millions except per share amounts
NOTE 7. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is summarized as follows at December 31:
Lives (years) 2022 2021
Land - $ 1,381 $ 1,401
Buildings and improvements 2-44 38,751 38,204
Central office equipment1 3-10 98,468 97,070
Cable, wiring and conduit 15-50 84,447 79,961
Satellites 14-17 103 103
Other equipment 3-20 81,658 85,929
Software 3-7 17,640 16,520
Under construction - 7,182 5,425
329,630 324,613
Accumulated depreciation and amortization 202,185 202,964
Property, plant and equipment - net $ 127,445 $ 121,649
1 Includes certain network software.
Our depreciation expense was $17,852 in 2022, $17,634 in 2021, and $19,028 in
2020. Depreciation expense included amortization of software totaling $2,972
in 2022, $2,909 in 2021 and $3,343 in 2020.
In December 2022, we recorded a noncash pre-tax charge of $1,413 to abandon
conduits that will not be utilized to support future network activity. The
abandonment was considered outside the ordinary course of business.
During the first quarter of 2022, we updated our analysis of economic lives of
AT&T owned fiber network assets. As of January 1, 2022, we extended the
estimated economic life and depreciation period of such costs to better
reflect the physical life of the assets that we had been experiencing and
absence of technological changes that would replace fiber as the best
broadband technology in the industry. The change in accounting estimate
decreased depreciation expense $280, or $0.03 per diluted share from
continuing operations for the year ended December 31, 2022.
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
related to property, plant and equipment, including satellites. The reduced
carrying amounts of the impaired assets became their new cost basis.
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.
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AT&T Inc.
Dollars in millions except per share amounts
The components of lease expense were as follows:
2022 2021 2020
Operating lease cost $ 5,437 $ 5,363 $ 5,331
Finance lease cost:
Amortization of right-of-use assets $ 204 $ 179 $ 185
Interest on lease obligation 159 145 133
Total finance lease cost $ 363 $ 324 $ 318
The following table provides supplemental cash flows information related to
leases:
2022 2021 2020
Cash Flows from Operating Activities
Cash paid for amounts included in lease obligations:
Operating cash flows from operating leases $ 4,679 $ 4,580 $ 4,496
Supplemental Lease Cash Flow Disclosures
Operating lease right-of-use assets obtained in exchange for 3,751 3,396 4,057
new operating lease obligations
The following tables set forth supplemental balance sheet information related
to leases at December 31:
2022 2021
Operating Leases
Operating lease right-of-use assets $ 21,814 $ 21,824
Accounts payable and accrued liabilities $ 3,547 $ 3,393
Operating lease obligation 18,659 18,956
Total operating lease obligation $ 22,206 $ 22,349
Finance Leases
Property, plant and equipment, at cost $ 2,770 $ 2,494
Accumulated depreciation and amortization (1,224) (1,053)
Property, plant and equipment - net $ 1,546 $ 1,441
Current portion of long-term debt $ 170 $ 127
Long-term debt 1,647 1,442
Total finance lease obligation $ 1,817 $ 1,569
2022 2021
Weighted-Average Remaining Lease Term (years)
Operating leases 8.1 8.2
Finance leases 7.9 8.9
Weighted-Average Discount Rate
Operating leases 3.7 % 3.7 %
Finance leases 8.0 % 8.2 %
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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, 2022 Operating Leases Finance
Leases
2023 $ 4,657 $ 315
2024 4,203 306
2025 3,543 315
2026 2,830 291
2027 2,302 290
Thereafter 8,933 1,032
Total lease payments 26,468 2,549
Less: imputed interest (4,262) (732)
Total $ 22,206 $ 1,817
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, 2022, the calculated fair value of the
Mobility reporting unit exceeded its book value; we recorded noncash
impairment charges of $13,478 in our Business Wireline reporting unit, $10,508
in our Consumer Wireline reporting unit and $826 in our Mexico reporting unit.
The decline in fair values was primarily due to changes in the macroeconomic
environment, namely increased weighted-average cost of capital. Also,
inflation pressure and lower projected cash flows driven by secular declines,
predominantly at Business Wireline, impacted the fair values. A combination of
discounted cash flow and market multiple approaches was used to determine the
fair values. In the Communications segment, if all other assumptions were to
remain unchanged, we expect the impairment charge would increase by
approximately $3,400 if the weighted average cost of capital increased by 25
basis points, or $2,100 if the projected terminal growth rate declined by 25
basis points, or $2,800 if the projected long-term EBITDA margin declined 100
basis points.
Changes to our goodwill in 2022 primarily resulted from noncash impairments.
Changes to our goodwill in 2021 primarily resulted from the sale of our
Government Solutions business.
At December 31, 2022, our Communications segment has three reporting units:
Mobility, Business Wireline and Consumer Wireline. The reporting unit is
deemed to be the operating segment for Latin America.
The following table sets forth the changes in the carrying amounts of goodwill
by operating segment:
2022 2021
Balance at Impairments Dispositions, Balance at Balance at Dispositions, Balance at
Jan. 1
currency
Dec. 31
Jan. 1
currency
Dec. 31
exchange
exchange
and other
and other
Communications
Goodwill $ 91,924 $ - $ (43) $ 91,881 $ 91,976 $ (52) $ 91,924
Impairments - (23,986) - (23,986) - - -
Net goodwill 91,924 (23,986) (43) 67,895 91,976 (52) 91,924
Latin America 816 (826) 10 - 836 (20) 816
Total $ 92,740 $ (24,812) $ (33) $ 67,895 $ 92,812 $ (72) $ 92,740
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.
Indefinite-lived wireless licenses increased in 2022 primarily due to recent
auction activity and $1,120 of capitalized interest (see Note 6).
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. Indefinite-lived wireless licenses increased
in 2021 primarily due to auction activity, compensable relocation and
incentive payments, and capitalized interest (see Notes 6 and 22).
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Dollars in millions except per share amounts
Our other intangible assets at December 31 are summarized as follows:
2022 2021
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 $ 3,045 $ 425 $ (297) $ 3,083 $ 307 $ (440)
Trademarks and trade names 15.0 years 26 11 (6) 27 11 (7)
Customer lists and relationships 12.6 years 413 304 (75) 577 429 (98)
Other 8.5 years 304 234 - 349 258 -
Total 21.1 years $ 3,788 $ 974 $ (378) $ 4,036 $ 1,005 $ (545)
Indefinite-lived intangible assets not subject to amortization:
Wireless licenses $ 121,769 $ 111,494
Trade names 5,241 5,241
Total $ 127,010 $ 116,735
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 was $169 for the year ended December 31, 2022, $218 for the
year ended December 31, 2021 (reflecting the separation of our U.S. video
business) and $3,495 for the year ended December 31, 2020. Estimated
amortization expense for the next five years is: $161 for 2023, $154 for 2024,
$142 for 2025, $142 for 2026 and $142 for 2027.
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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.
Our investments in equity affiliates at December 31, 2022 primarily included
our interests in DIRECTV and SKY Mexico.
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 in 2021.
•Junior preferred units with distribution rights of $4,250 held by AT&T,
of which $702 of distribution rights remain as of December 31, 2022.
•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 2022
and 2021, we recognized $1,808 and $619 of equity in net income of affiliates
and received total distributions of $4,457 and $1,942, respectively, from
DIRECTV. The book value of our investment in DIRECTV was $2,911 and $5,539 at
December 31, 2022 and 2021.
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 following table presents summarized financial information for DIRECTV and
our other equity method investments, consisting primarily of SKY Mexico and
certain sports-related programming investments, at December 31, or for the
year then ended:
2022 2021 2020
Income Statements1
Operating revenues $ 25,794 $ 12,220 $ 1,282
Operating income 3,175 1,179 157
Net income 2,581 938 91
Balance Sheets
Current assets 4,240 5,295
Noncurrent assets 14,211 17,022
Current liabilities 6,681 7,191
Noncurrent liabilities 7,951 8,614
1Does not include DIRECTV for periods prior to August 1, 2021.
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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:
2022 2021
Beginning of year $ 6,168 $ 742
Additional investments 3 -
Receipt of equity interest in DIRECTV - 6,852
Distributions from DIRECTV in excess of cumulative equity in earnings (2,649) (1,323)
Other capital distributions - (6)
Dividends and distributions of cumulative earnings received (1,815) (701)
Equity in net income of affiliates 1,791 603
Currency translation adjustments 25 (14)
Other adjustments 10 15
End of year $ 3,533 $ 6,168
NOTE 11. DEBT
Long-term debt of AT&T and its subsidiaries, including interest rates and
maturities, is summarized as follows at December 31:
2022 2021
Notes and debentures
Interest Rates1 Maturities
0.00% - 2.99% 2022 - 2039 $ 24,603 $ 31,612
3.00% - 4.99% 2022 - 2061 91,201 107,635
5.00% - 6.99% 2022 - 2095 20,083 23,023
7.00% - 12.00% 2022 - 2097 4,884 5,056
Credit agreement borrowings 2,500 10,400
Fair value of interest rate swaps recorded in debt 13 16
143,284 177,742
Unamortized (discount) premium - net (9,650) (9,758)
Unamortized issuance costs (427) (508)
Total notes and debentures 133,207 167,476
Finance lease obligations 1,817 1,569
Total long-term debt, including current maturities 135,024 169,045
Current maturities of long-term debt (6,601) (7,934)
Current maturities of credit agreement borrowings - (10,100)
Total long-term debt $ 128,423 $ 151,011
1Foreign debt includes the impact from hedges, when applicable.
We had outstanding Euro, British pound sterling, Canadian dollar, Mexican
peso, Australian dollar, and Swiss franc denominated debt of approximately
$35,525 and $41,063 at December 31, 2022 and 2021, respectively.
The weighted-average interest rate of our long-term debt portfolio, including
credit agreement borrowings and the impact of derivatives, was approximately
4.1% as of December 31, 2022 and 3.8% as of December 31, 2021.
Debt maturing within one year consisted of the following at December 31:
2022 2021
Current maturities of long-term debt $ 6,601 $ 7,934
Commercial paper 866 6,586
Credit agreement borrowings - 10,100
Total $ 7,467 $ 24,620
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AT&T Inc.
Dollars in millions except per share amounts
Financing Activities
During 2022, we received net proceeds of $479 on the issuance of $479 in
long-term debt and proceeds of $3,250 on the issuance of credit agreement
borrowings in various markets, with an average weighted maturity of
approximately 2.0 years and a weighted average interest rate of 5.2%. We
repaid $34,835 of long-term debt and credit agreement borrowings with a
weighted average interest rate of 3.1%. Our debt activity during 2022
primarily consisted of the following:
First Second Third Fourth Full Year 2022
Quarter
Quarter
Quarter
Quarter
Net commercial paper borrowings $ 1,471 $ (5,219) $ (724) $ (1,337) $ (5,809)
Issuance of Notes and Debentures:
Private Financing $ - $ - $ 750 $ - $ 750
2025 Term Loan - - - 2,500 2,500
Other 479 - - - 479
Debt Issuances $ 479 $ - $ 750 $ 2,500 $ 3,729
Repayments:
2021 Syndicated Term Loan $ - $ (7,350) $ - $ - $ (7,350)
BAML Bilateral Term Loan - Tranche A - (1,000) - - (1,000)
Private financing - (750) - (750) (1,500)
Repayment of other short-term borrowings $ - $ (9,100) $ - $ (750) $ (9,850)
USD notes1,2,3 $ (123) $ (18,957) $ - $ (287) $ (19,367)
Euro notes - (3,343) - - (3,343)
BAML Bilateral Term Loan - Tranche B - (1,000) - - (1,000)
Other (667) (123) (199) (419) (1,408)
Repayments of long-term debt $ (790) $ (23,423) $ (199) $ (706) $ (25,118)
1On April 11, 2022, we issued notices for the redemption in full of all of the
outstanding approximately $9,042 aggregate principal amount of various global
notes due 2022 to 2026 with coupon rates ranging from 2.625% to 4.450%
(Make-Whole Notes). The Make-Whole Notes were redeemed on the redemption dates
set forth in the notices of redemption, at "make whole" redemption prices
calculated as set forth in the respective redemption notices in the second
quarter.
2Includes $7,954 of cash paid toward the $8,822 aggregate principal amount of
various notes that were tendered for cash in May 2022. The notes had interest
rates ranging between 3.100% and 8.750% and original maturities ranging from
2026 to 2061.
3Includes $287 of principal repayment on a $592 zero coupon note that matured
in November 2022. The other $305 was applied to operating cash flows related
to interest expense that accreted to the note over its life.
As of December 31, 2022 and 2021, 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, 2022, and the corresponding
weighted-average interest rate scheduled for repayment are as follows:
2023 2024 2025 2026 2027 Thereafter
Debt repayments1 $ 6,929 $ 8,950 $ 5,948 $ 8,619 $ 6,278 $ 110,949
Weighted-average interest rate 2 3.7 % 4.1 % 5.5 % 3.1 % 3.7 % 4.2 %
1Debt repayments represent maturity value. Foreign debt includes the impact
from hedges, when applicable. Includes credit agreement borrowings.
2Includes credit agreement borrowings.
Credit Facilities
General
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. In the first quarter
of 2022, the maturity date of the 2021 Syndicated Term Loan was extended to
December 31, 2022. On April 13, 2022, the 2021 Syndicated Term Loan was paid
off and terminated.
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AT&T Inc.
Dollars in millions except per share amounts
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. On April 13, 2022, the BAML Bilateral Term Loan was paid off and
terminated.
In November 2022, we entered into and drew on a $2,500 term loan agreement due
February 16, 2025 (2025 Term Loan), with Mizuho Bank, Ltd., as agent. As of
December 31, 2022, $2,500 was outstanding under this agreement.
Revolving Credit Agreements
In November 2022, we terminated one of our revolving credit agreements and
amended and restated the other. We currently have one $12,000 revolving credit
agreement that terminates on November 18, 2027 (Revolving Credit Agreement).
No amounts were outstanding as of December 31, 2022.
Each of our credit and loan agreements contains covenants that are customary
for an issuer with an investment grade senior debt credit rating. Our
Revolving Credit Agreement and 2025 Term Loan include a net debt-to-EBITDA
financial ratio covenant requiring AT&T to maintain, as of the last day of
each fiscal quarter, a ratio of not more than 3.75-to-1. Other loan agreements
include 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.
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 the Revolving Credit Agreement to provide
advances will terminate on November 18, 2027, 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 Revolving Credit Agreement.
The Revolving Credit Agreement provides that we and lenders representing more
than 50% of the facility amount may agree to extend their commitments under
the 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 the credit agreement in excess of any outstanding
advances; however, any such terminated commitments may not be reinstated.
Advances under the Revolving Credit Agreement 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 forward-looking term rate based on the secured
overnight financing rate ("Term SOFR") for a period of one month plus a credit
spread adjustment of 0.10% plus 1.00%, plus (2) an applicable margin, as set
forth in the credit agreement (the "Applicable Margin for Base Advances"); or
•at a rate equal to: (i) Term SOFR for a period of one, three or six months,
as applicable, plus (ii) a credit spread adjustment of 0.10% plus (iii) an
applicable margin, as set forth in the Revolving Credit Agreement (the
"Applicable Margin for Benchmark Rate Advances").
We pay a facility fee of 0.060%, 0.070%, 0.080% or 0.100% per annum of the
amount of the lender commitments, depending on AT&T's credit rating.
NOTE 12. 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
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AT&T Inc.
Dollars in millions except per share amounts
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, 2021.
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, 2022 December 31, 2021
Carrying Fair Carrying Fair
Amount
Value
Amount
Value
Notes and debentures1 $ 133,207 $ 122,524 $ 167,476 $ 193,068
Commercial paper 866 866 6,586 6,586
Investment securities2 2,692 2,692 3,214 3,214
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.
Following is the fair value leveling for investment securities that are
measured at fair value and derivatives as of December 31, 2022 and
December 31, 2021. 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, 2022
Level 1 Level 2 Level 3 Total
Equity Securities
Domestic equities $ 995 $ - $ - $ 995
International equities 198 - - 198
Fixed income equities 189 - - 189
Available-for-Sale Debt Securities - 1,132 - 1,132
Asset Derivatives
Cross-currency swaps - 28 - 28
Liability Derivatives
Cross-currency swaps - (6,010) - (6,010)
Foreign exchange contracts - (23) - (23)
December 31, 2021
Level 1 Level 2 Level 3 Total
Equity Securities
Domestic equities $ 1,213 $ - $ - $ 1,213
International equities 221 - - 221
Fixed income equities 219 - - 219
Available-for-Sale Debt Securities - 1,380 - 1,380
Asset Derivatives
Cross-currency swaps - 211 - 211
Liability Derivatives
Cross-currency swaps - (3,170) - (3,170)
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
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AT&T Inc.
Dollars in millions except per share amounts
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, 2022 2021 2020
Total gains (losses) recognized on equity securities $ (309) $ 293 $ 171
Gains (Losses) recognized on equity securities sold (80) (5) (25)
Unrealized gains (losses) recognized on equity securities held at end of $ (229) $ 298 $ 196
period
At December 31, 2022, available-for-sale debt securities totaling $1,132 have
maturities as follows - less than one year: $38; one to three years: $158;
three to five years: $170; five or more years: $766.
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 most of our cross-currency swaps and foreign exchange
contracts 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 cross-currency hedges, we have elected to exclude the
change in fair value of the swap related to both time value and cross-currency
basis spread from the assessment of hedge effectiveness. For foreign exchange
contracts, we have elected to exclude the change in fair value of forward
points 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 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 market 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, 2022 and 2021, no ineffectiveness was measured
on fair value hedges.
Cash Flow Hedging We designated some of our cross-currency swaps as cash flow
hedges 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.
On September 30, 2022, we de-designated most of our cross-currency swaps from
cash flow hedges and re-designated these swaps as fair value hedges. The
amount remaining in accumulated other comprehensive loss related to cash flow
hedges on the de-designation date was $1,857. The amount will be reclassified
to earnings when the hedged item is recognized in earnings or
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AT&T Inc.
Dollars in millions except per share amounts
when it becomes probable that the forecasted transactions will not occur. The
election of fair value hedge designation for cross-currency swaps does not
have an impact on our financial results.
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 $59 from accumulated OCI to "Interest expense" due to the
amortization of net losses on historical interest rate locks.
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, 2022, we
had posted collateral of $886 (a deposit asset) and held collateral of $0 (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 $42. 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 $5,728. At December 31, 2021, we had posted
collateral of $135 (a deposit asset) and held collateral of $7 (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:
2022 2021
Cross-currency swaps $ 38,213 $ 40,737
Foreign exchange contracts 617 -
Total $ 38,830 $ 40,737
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, 2022 2021 2020
Interest rate swaps (Interest expense):
Gain (Loss) on interest rate swaps $ (3) $ (4) $ (6)
Gain (Loss) on long-term debt 3 4 6
Cross-currency swaps:
Gain (Loss) on cross-currency swaps 2,195 (91) -
Gain (Loss) on long-term debt (2,195) 91 -
Gain (Loss) recognized in accumulated OCI 297 (17) -
Foreign exchange contracts:
Gain (Loss) on foreign exchange contracts (12) - -
Gain (Loss) on long-term debt 12 - -
Gain (Loss) recognized in accumulated OCI (12) - -
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AT&T Inc.
Dollars in millions except per share amounts
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, 2022 2021 2020
Cross-currency swaps:
Gain (Loss) recognized in accumulated OCI $ (1,119) $ (873) $ (378)
Foreign exchange contracts:
Gain (Loss) recognized in accumulated OCI 3 (17) 3
Other income (expense) - net reclassified from 1 1 (3)
accumulated OCI into income
Interest rate locks:
Gain (Loss) recognized in accumulated OCI - - (648)
Interest income (expense) reclassified from (65) (92) (84)
accumulated OCI into income
Other income (expense) reclassified from (45) - -
accumulated OCI into income
Distribution of WarnerMedia (12) - -
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 and long-lived
assets to nonrecurring fair value measurements. The implied fair values of the
Business Wireline, Consumer Wireline and Mexico reporting units and the former
U.S. video business were estimated using both the discounted cash flow as well
as market multiple approaches (see Note 9). The inputs to these models are
considered Level 3.
NOTE 13. INCOME TAXES
Significant components of our deferred tax liabilities (assets) are as follows
at December 31:
2022 2021
Depreciation and amortization $ 36,570 $ 35,894
Licenses and nonamortizable intangibles 19,339 15,573
Employee benefits (2,251) (3,178)
Deferred fulfillment costs 1,989 1,797
Equity in partnership 3,284 3,285
Net operating loss and other carryforwards (5,817) (6,109)
Other - net (343) 2,153
Subtotal 52,771 49,415
Deferred tax assets valuation allowance 4,175 4,343
Net deferred tax liabilities $ 56,946 $ 53,758
Noncurrent deferred tax liabilities $ 57,032 $ 53,767
Less: Noncurrent deferred tax assets (86) (9)
Net deferred tax liabilities $ 56,946 $ 53,758
At December 31, 2022, we had combined net operating and capital loss
carryforwards (tax effected) for federal income tax purposes of $892, state of
$747 and foreign of $2,441, expiring through 2042. Additionally, we had
federal credit carryforwards of $293 and state credit carryforwards of $1,444,
expiring primarily through 2042.
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, 2022
and 2021 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
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AT&T Inc.
Dollars in millions except per share amounts
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.
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 2022 and 2021 is as follows:
Federal, State and Foreign Tax 2022 2021
Balance at beginning of year $ 8,954 $ 9,415
Increases for tax positions related to the current year 1,389 677
Increases for tax positions related to prior years 577 332
Decreases for tax positions related to prior years (1,079) (1,169)
Lapse of statute of limitations (2) (6)
Settlements (182) (295)
Balance at end of year 9,657 8,954
Accrued interest and penalties 1,930 2,054
Gross unrecognized income tax benefits 11,587 11,008
Less: Deferred federal and state income tax benefits (723) (728)
Less: Tax attributable to timing items included above (4,640) (3,428)
Total UTB that, if recognized, would impact the $ 6,224 $ 6,852
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 $1,767 at December 31, 2022 and
$377 at December 31, 2021.
Accrued interest and penalties included in UTBs were $1,930 as of
December 31, 2022 and $2,054 as of December 31, 2021. 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 $(86) for 2022, $(129) for 2021 and $127 for 2020.
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 2015. 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.
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AT&T Inc.
Dollars in millions except per share amounts
The components of income tax (benefit) expense are as follows:
2022 2021 2020
Federal:
Current $ 579 $ (2,400) $ (346)
Deferred 2,206 6,872 858
2,785 4,472 512
State and local:
Current 21 289 338
Deferred 912 648 272
933 937 610
Foreign:
Current 106 (66) 14
Deferred (44) 52 32
62 (14) 46
Total $ 3,780 $ 5,395 $ 1,168
"Income (Loss) from Continuing Operations Before Income Taxes" in the
Consolidated Statements of Income included the following components for the
years ended December 31:
2022 2021 2020
U.S. income (loss) before income taxes $ (1,480) $ 29,678 $ 510
Foreign income (loss) before income taxes (1,614) (507) (864)
Total $ (3,094) $ 29,171 $ (354)
A reconciliation of income tax expense (benefit) on continuing operations 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:
2022 2021 2020
Taxes computed at federal statutory rate $ (650) $ 6,126 $ (74)
Increases (decreases) in income taxes resulting from:
State and local income taxes - net of federal income tax benefit 795 936 170
CARES Act federal NOL carryback - (471) -
Tax on foreign investments 43 47 (124)
Noncontrolling interest (308) (291) (286)
Permanent items and R&D credit (121) (153) (195)
Audit resolutions (642) (220) (112)
Divestitures (481) (558) 107
Goodwill impairment1 5,210 16 1,702
Other - net (66) (37) (20)
Total $ 3,780 $ 5,395 $ 1,168
Effective Tax Rate (122.2) % 18.5 % (329.9) %
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.
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AT&T Inc.
Dollars in millions except per share amounts
NOTE 14. 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.
During the third quarter of 2022, we committed to, and reflected in our
results, plan changes impacting postretirement health and welfare benefits.
This plan change aligns our benefit plans to 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
2022 2021 2022 2021
Benefit obligation at beginning of year $ 57,212 $ 62,158 $ 12,552 $ 13,928
Service cost - benefits earned during the period 617 957 32 45
Interest cost on projected benefit obligation 1,747 1,276 277 210
Amendments - - (2,370) -
Actuarial (gain) loss (10,894) (1,237) (1,919) (275)
Benefits paid, including settlements (5,854) (5,942) (1,292) (1,356)
Benefit obligation at end of year $ 42,828 $ 57,212 $ 7,280 $ 12,552
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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
2022 2021 2022 2021
Fair value of plan assets at beginning of year $ 54,401 $ 54,606 $ 3,198 $ 3,843
Actual return on plan assets (7,673) 5,737 (370) 210
Benefits paid, including settlements 1 (5,854) (5,942) (788) (1,163)
Contributions - - 120 308
Fair value of plan assets at end of year 40,874 54,401 2,160 3,198
Unfunded status at end of year 2 $ (1,954) $ (2,811) $ (5,120) $ (9,354)
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
2022 2021 2022 2021
Current portion of employee benefit obligation 1 $ - $ - $ (1,058) $ (1,106)
Employee benefit obligation 2 (1,954) (2,811) (4,062) (8,248)
Net amount recognized $ (1,954) $ (2,811) $ (5,120) $ (9,354)
1Included in "Accounts payable and accrued liabilities."
2Included in "Postemployment benefit obligation," combined with international
pension obligations and other postemployment obligations of $161 and $1,083 at
December 31, 2022, and $364 and $1,226 at December 31, 2021, 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 $42,137 at December 31, 2022, and $56,159 at December 31, 2021.
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 $(4,789), $(7,652) and $711 for the
years ended December 31, 2022, 2021 and 2020.
The following table presents the components of net periodic benefit cost
(credit):
Pension Benefits Postretirement Benefits
2022 2021 2020 2022 2021 2020
Service cost - benefits earned $ 617 $ 957 $ 1,029 $ 32 $ 45 $ 53
during the period
Interest cost on projected benefit 1,747 1,276 1,687 277 210 416
obligation
Expected return on assets (3,107) (3,513) (3,557) (112) (151) (178)
Amortization of prior service credit (133) (144) (113) (2,558) (2,537) (2,329)
Net periodic benefit cost (credit) before (876) (1,424) (954) (2,361) (2,433) (2,038)
remeasurement
Actuarial (gain) loss (115) (3,461) 2,404 (1,437) (334) 1,299
Net pension and postretirement $ (991) $ (4,885) $ 1,450 $ (3,798) $ (2,767) $ (739)
cost (credit)
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AT&T Inc.
Dollars in millions except per share amounts
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
2022 2021 2020 2022 2021 2020
Balance at beginning of year $ 416 $ 525 $ 361 $ 6,496 $ 8,408 $ 8,163
Prior service (cost) credit - - 250 1,786 - 2,001
Amortization of prior service credit (100) (109) (86) (1,928) (1,912) (1,756)
Total recognized in other (100) (109) 164 (142) (1,912) 245
comprehensive (income) loss
Balance at end of year $ 316 $ 416 $ 525 $ 6,354 $ 6,496 $ 8,408
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
2022 2021 2020 2022 2021 2020
Weighted-average discount rate for determining benefit obligation at December 5.20 % 3.00 % 2.70 % 5.20 % 2.80 % 2.40 %
31
Discount rate in effect for determining 4.40 % 3.30 % 3.60 % 4.00 % 2.90 % 3.50 %
service cost1
Discount rate in effect for determining interest cost1 3.90 % 2.30 % 2.90 % 3.20 % 1.60 % 2.70 %
Weighted-average interest credit rate for cash balance pension programs2 4.10 % 3.20 % 3.10 % - % - % - %
Long-term rate of return on plan assets 6.75 % 6.75 % 7.00 % 4.50 % 4.50 % 4.75 %
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
(credit)
1Weighted-average discount rates shown for years with interim remeasurements:
2022 and 2021 for pension benefits and 2022 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 $135.
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 rates for both pension and
postretirement benefits of 5.20%, at December 31, 2022, reflect 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 generally not callable,
convertible or index linked. For the year ended December 31, 2022, when
compared to the year ended December 31, 2021, we increased our pension
discount rate by 2.20%, resulting in a decrease in our pension plan benefit
obligation of $11,738 and increased our postretirement discount rate by 2.40%,
resulting in a decrease in our postretirement benefit obligation of $2,102.
For the year ended December 31, 2021, we increased our pension discount rate
by 0.30%, resulting in a decrease in our pension plan benefit
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AT&T Inc.
Dollars in millions except per share amounts
obligation of $1,645 and increased our postretirement discount rate by 0.40%,
resulting in a decrease in our postretirement benefit obligation of $341.
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.
Expected Long-Term Rate of Return In 2023, our expected long-term rate of
return is 7.50% on pension plan assets and 6.50% on postretirement plan
assets, an increase of 0.75% for pension plan assets and 2.00% for
postretirement plan assets. This update to our asset return assumptions was
due to economic forecasts and changes in the asset mix. 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 2023 combined pension and postretirement cost to
increase $201. 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 2022 and 2021 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 2023 assumed annual healthcare prescription drug cost
trend and medical cost trend for eligible participants will increase from an
annual and ultimate trend rate of 4.25% to an annual and ultimate trend rate
of 4.50%. This change in assumption increased our obligation by $19. For 2022,
our assumed annual healthcare prescription drug cost trend and medical cost
trend for eligible participants increased 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.
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 2023.
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 $120
in December 2022 and $308 in December 2021 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 2022 2021 Target 2022 2021
Equity securities:
Domestic 5 % - 25 % 7 % 16 % 16 % - 26 % 21 % 19 %
International 1 % - 21 % 4 13 16 % - 26 % 21 19
Fixed income securities 40 % - 50 % 45 38 42 % - 52 % 47 39
Real assets - % - 20 % 16 10 - % - 6 % 1 1
Private equity - % - 16 % 14 12 - % - 6 % 1 1
Preferred interests 8 % - 18 % 13 10 - % - - % - -
Other - % - 5 % 1 1 5 % - 15 % 9 21
Total 100 % 100 % 100 % 100 %
The pension trust holds preferred equity interests valued at $5,427 in
AT&T Mobility II LLC (Mobility II), the primary holding company for our
wireless business. The preferred equity interests were valued at $5,562 as of
December 31, 2021. On December 27, 2022, the pension trust provided written
notice of its right to require AT&T to purchase Mobility preferred
interests outstanding. (See Note 16)
At December 31, 2022, AT&T securities represented 14% 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 12 for a discussion of the fair value hierarchy that prioritizes the
inputs to valuation techniques used to measure fair value.
84
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, 2022:
Pension Assets and Liabilities at Fair Value as of December 31, 2022
Level 1 Level 2 Level 3 Total
Non-interest bearing cash $ 158 $ - $ - $ 158
Interest bearing cash 5 - - 5
Foreign currency contracts - 4 - 4
Equity securities:
Domestic equities 2,312 - 2 2,314
International equities 1,251 - - 1,251
Preferred interests - - 5,427 5,427
Fixed income securities:
Corporate bonds and other investments - 9,366 1 9,367
Government and municipal bonds - 5,450 - 5,450
Mortgage-backed securities - 220 - 220
Real estate and real assets - - 4,343 4,343
Securities lending collateral 1,137 1,407 - 2,544
Receivable for variation margin 5 - - 5
Assets at fair value 4,868 16,447 9,773 31,088
Investments sold short and other liabilities at fair value (261) (5) - (266)
Total plan net assets at fair value $ 4,607 $ 16,442 $ 9,773 $ 30,822
Assets held at net asset value practical expedient
Private equity funds 5,866
Real estate funds 1,907
Commingled funds 5,045
Total assets held at net asset value practical expedient 12,818
Other assets (liabilities) 1 (2,766)
Total Plan Net Assets $ 40,874
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, 2022
Level 1 Level 2 Level 3 Total
Interest bearing cash $ 191 $ 4 $ - $ 195
Equity securities:
Domestic equities 258 - - 258
International equities 233 - 1 234
Securities lending collateral - 12 - 12
Assets at fair value 682 16 1 699
Securities lending payable and other liabilities - (12) - (12)
Total plan net assets at fair value $ 682 $ 4 $ 1 $ 687
Assets held at net asset value practical expedient
Private equity funds 13
Real estate funds 13
Commingled funds 1,445
Total assets held at net asset value practical expedient 1,471
Other assets (liabilities)1 2
Total Plan Net Assets $ 2,160
1Other assets (liabilities) include amounts receivable and accounts payable.
85
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 funds 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
For the years ended December 31, 2022 and 2021, our postretirement assets did
not include significant investments in Level 3 assets, nor were there
significant changes in fair value of those assets during the period. The
tables below set forth a summary of changes in the fair value of the Level 3
pension assets for the years ended:
Equities Fixed Income Funds Real Estate and Real Assets Total
Balance as of December 31, 2021 $ 5,569 $ 2 $ 3,318 $ 8,889
Realized gains (losses) 1 - 22 23
Unrealized gains (losses) (139) - 802 663
Transfers in 1 1 20 22
Transfers out - (2) (29) (31)
Purchases - - 716 716
Sales (3) - (506) (509)
Balance as of December 31, 2022 $ 5,429 $ 1 $ 4,343 $ 9,773
Equities Fixed Income Funds Real Estate and Real Assets Total
Balance as of December 31, 2020 $ 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 as of December 31, 2021 $ 5,569 $ 2 $ 3,318 $ 8,889
Estimated Future Benefit Payments
Expected benefit payments are estimated using the same assumptions used in
determining our benefit obligation at December 31, 2022. 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
2023 $ 5,612 $ 1,211
2024 3,734 801
2025 3,747 640
2026 3,632 598
2027 3,561 568
Years 2028 - 2032 16,688 2,322
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 $1,544 and the net
supplemental retirement pension credit was $234 at and for the year ended
December 31, 2022. 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.
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 5.10% at December 31,
2022 and 2.70% at December 31, 2021 were calculated using the same
methodologies used in calculating the discount rates for our qualified pension
and postretirement benefit plans.
87
AT&T Inc.
Dollars in millions except per share amounts
Deferred compensation expense was $94 in 2022, $171 in 2021 and $183 in 2020.
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 $611, $614 and
$646 for the years ended December 31, 2022, 2021 and 2020.
NOTE 15. SHARE-BASED PAYMENTS
Under our various plans, senior and other management employees and nonemployee
directors have received nonvested stock and stock units. The shares will vest
over a period of one to four years in accordance with the terms of those
plans.
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. Effective with the 2021 plan year, for the
majority of employees, performance shares were replaced with restricted stock
units that do not have any performance conditions. These new restricted stock
units vest ratably over a three-year period. 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, 2022, we were authorized to issue
up to approximately 128 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:
2022 2021 2020
Performance stock units $ 168 $ 248 $ 348
Restricted stock and stock units 350 199 74
Other nonvested stock units - - -
Stock options - - -
Total $ 518 $ 447 $ 422
Income tax benefit $ 127 $ 110 $ 104
88
AT&T Inc.
Dollars in millions except per share amounts
A summary of the status of our nonvested stock units as of December 31, 2022,
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, 2022 35 $ 32.33
Granted 21 23.64
Vested (28) 27.64
Forfeited (5) 23.76
Spin-off Adjustment 1 13 NA
Nonvested at December 31, 2022 36 $ 22.07
1 In connection with the WarnerMedia transaction, AT&T made certain
adjustments to the number of stock awards to maintain the
intrinsic value prior to the spin-off.
As of December 31, 2022, there was $547 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 1.69 years. The
total fair value of shares vested during the year was $783 for 2022, compared
to $608 for 2021 and $471 for 2020.
It is our intent to satisfy share option exercises using our treasury stock.
Cash received from stock option exercises was $2 for 2022, $11 for 2021 and
$21 for 2020.
NOTE 16. 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, 2022 and
December 31, 2021, with a $25,000 per share liquidation preference and a
dividend rate of 5.000%.
•Series B: 20 thousand shares outstanding at December 31, 2022 and
December 31, 2021, 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, 2022 and
December 31, 2021, 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 144 million
outstanding at December 31, 2022.
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 2021, there were no shares repurchased under
the March 2014 authorization. During 2022, we repurchased approximately
34 million shares totaling $662 under the March 2014 authorization.
Dividend Declarations In December 2022 and December 2021, AT&T declared a
quarterly preferred dividend of $36. In December 2022 and December 2021,
AT&T declared a common dividend of $0.2775 and $0.52 per share of common
stock, respectively.
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.
89
AT&T Inc.
Dollars in millions except per share amounts
Mobility II
In 2018, we issued 320 million Series A Cumulative Perpetual Preferred
Membership Interests in Mobility II (Mobility preferred interests), which pay
cash distributions of 7% 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 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.
On October 24, 2022, approximately 105 million Mobility preferred interests
were put to AT&T by a third-party investor, for which we paid
approximately $2,600 cash to redeem. On December 27, 2022, the AT&T
pension trust provided written notice of its right to require us to purchase
the remaining 213 million, or approximately $5,340, of Mobility preferred
interests outstanding. The terms of the instruments limit the amount we are
required to redeem in any 12-month period to approximately 107 million
shares, or $2,670. We expect to redeem approximately $2,670 of the Mobility
preferred interests primarily in October 2023 and $2,670 in October 2024,
unless the interests are called or the puts are accepted by AT&T prior to
those dates. With the certainty of redemption, the remaining Mobility
preferred interests were reclassified from equity to a liability at fair
value, with approximately $2,670 recorded in current liabilities as "Accounts
payable and accrued liabilities" and $2,670 recorded in "Other noncurrent
liabilities." The liabilities associated with the Mobility preferred interests
are considered Level 3 under the Fair Value Measurement and Disclosure
framework (see Notes 12 and 14). The difference between the carrying value of
the Mobility preferred interest, which represented fair value at contribution,
and the fair value of the instrument upon settlement and/or balance sheet
reclassification was recorded as an adjustment to additional paid-in capital.
As of December 31, 2022, we have approximately 213 million Mobility preferred
interests outstanding, which have a redemption value of approximately $5,340
and pay cash distributions of $373 per annum, subject to declaration.
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.
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
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AT&T Inc.
Dollars in millions except per share amounts
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 17. 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 consists of receivables arising from equipment installment
plans, which are sold for cash and a deferred purchase price. Under this
program, we transfer receivables to purchasers in exchange for cash and
additional consideration upon settlement of the receivables. Under the terms
of our agreement for this program, we continue to service the transferred
receivables on behalf of the financial institutions.
The following table sets forth a summary of cash proceeds received, net of
remittances paid, from sales of receivables for the years ended December 31:
2022 2021 2020
Net cash received (paid) from equipment installment receivables1 $ 1,875 $ 1,000 $ (1,565)
Net cash received (paid) from other programs 620 (295) 295
Total net cash impact to cash flows from operating activities $ 2,495 $ 705 $ (1,270)
1Net cash from initial sales of $11,129, $9,740 and $6,089 for the years ended
December 31, 2022, 2021 and 2020, respectively.
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, when applicable.
The following table sets forth a summary of the equipment installment
receivables and accounts being serviced at December 31:
2022 2021
Gross receivables: $ 4,165 $ 4,361
Balance sheet classification
Accounts receivable
Notes receivable 1,789 1,846
Trade receivables 522 606
Other Assets
Noncurrent notes and trade receivables 1,854 1,909
Outstanding portfolio of receivables derecognized from $ 11,030 $ 9,767
our consolidated balance sheets
Cash proceeds received, net of remittances1 8,519 6,644
1Represents amounts to which financial institutions remain entitled, excluding
the deferred purchase price.
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AT&T Inc.
Dollars in millions except per share amounts
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:
2022 2021 2020
Gross receivables sold $ 11,510 $ 10,793 $ 7,270
Net receivables sold1 11,061 10,502 7,026
Cash proceeds received 11,129 9,740 6,089
Deferred purchase price recorded 245 1,080 1,021
Guarantee obligation recorded 703 434 157
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 12).
The following table presents the previously transferred equipment installment
receivables, which we repurchased in exchange for the associated deferred
purchase price:
2022 2021 2020
Fair value of repurchased receivables $ 3,314 $ 1,424 $ 1,271
Carrying value of deferred purchase price 3,335 1,334 1,235
Gain (loss) on repurchases1 $ (21) $ 90 $ 36
1These gains (losses) are included in "Selling, general and administrative"
expense in the consolidated statements of income.
At December 31, 2022 and December 31, 2021, our deferred purchase price
receivable was $2,318 and $3,177, respectively, of which $1,278 and $2,123 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, 2022 and December 31, 2021 was $419 and $371, respectively, of
which $73 and $101 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.
NOTE 18. 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.
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
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AT&T Inc.
Dollars in millions except per share amounts
accordingly. At December 31, 2022 and 2021, the tower assets had a balance of
$686 and $725, respectively. Our depreciation expense for these assets was $39
for each of 2022, 2021 and 2020.
Payments made to Crown Castle under this arrangement were $258 for 2022. At
December 31, 2022, the future minimum payments under the sublease arrangement
are $264 for 2023, $269 for 2024, $274 for 2025, $280 for 2026, $285 for 2027
and $421 thereafter.
NOTE 19. TRANSACTIONS WITH DIRECTV
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 year ended December 31, 2022, our share of DIRECTV's earnings
included in equity in net income of affiliates was $1,808. Cash distributions
from DIRECTV totaled $4,457, with $1,808 classified as operating activities
and $2,649 classified as investing activities in our consolidated statement of
cash flows. Our investment in DIRECTV at December 31, 2022 was $2,911.
In addition to the assets and liabilities contributed to DIRECTV, we recorded
total obligations of $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.
For the year ended December 31, 2022, cash payments to DIRECTV on the note
totaled $1,211 and were classified as financing activities in our consolidated
statement of cash flows. Amounts due under the DIRECTV note were $130 at
December 31, 2022.
We also provide DIRECTV with network transport for U-verse products and sales
services under commercial arrangements for up to five years. 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 year ended December 31, 2022, we billed DIRECTV
approximately $1,260 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 $737.
At December 31, 2022, we had accounts receivable from DIRECTV of $360 and
accounts payable to DIRECTV of $120.
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.
NOTE 20. 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 2022, we submitted $195 in sustainability payments, with future
payments under the agreement of $195 for 2023, 2024 and 2025; $1,590 for 2026,
$1,665 for 2027; and $13,365 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, 2022, we have collected approximately
$6,120 for the completion of certain tasks and anticipate collecting nearly
all of the remainder of the $6,500 as we fulfill contractual deliveries set
out by FirstNet in 2023.
93
AT&T Inc.
Dollars in millions except per share amounts
NOTE 21. 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 $12,313 in 2023, $11,424 in total for 2024 and 2025, $2,457 in
total for 2026 and 2027 and $821 in total for years thereafter.
See Note 12 for a discussion of collateral and credit-risk contingencies.
NOTE 22. ADDITIONAL FINANCIAL INFORMATION
December 31,
Consolidated Balance Sheets 2022 2021
Accounts payable and accrued liabilities:
Accounts payable $ 31,101 $ 29,511
Accrued payroll and commissions 1,605 2,082
Current portion of employee benefit obligation 1,173 1,234
Current portion of Mobility preferred interests1 2,670 -
Accrued interest 2,160 2,438
Accrued taxes 798 1,148
Other 3,137 2,682
Total accounts payable and accrued liabilities $ 42,644 $ 39,095
1Reported as noncontrolling interest in 2021. (See Note 16)
Consolidated Statements of Income 2022 2021 2020
Advertising expense $ 2,462 $ 2,732 $ 2,705
Interest expense incurred $ 7,402 $ 7,670 $ 7,850
Capitalized interest - capital expenditures (174) (173) (123)
Capitalized interest - spectrum1 (1,120) (781) -
Total interest expense $ 6,108 $ 6,716 $ 7,727
1Included in "Acquisitions, net of cash acquired" on our consolidated
statements 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 contained on our consolidated balance sheets:
December 31,
Cash and Cash Equivalents and Restricted Cash 2022 2021 2020 2019
Cash and cash equivalents from continuing operations $ 3,701 $ 19,223 $ 7,924 $ 9,702
Cash and cash equivalents from discontinued operations - 1,946 1,816 2,428
Restricted cash in Prepaid and other current assets 1 3 9 69
Restricted cash in Other Assets 91 144 121 96
Cash and cash equivalents and restricted cash $ 3,793 $ 21,316 $ 9,870 $ 12,295
94
AT&T Inc.
Dollars in millions except per share amounts
The following tables summarize certain cash flow activities from continuing
operations:
Consolidated Statements of Cash Flows 2022 2021 2020
Cash paid (received) during the year for:
Interest $ 7,772 $ 7,485 $ 8,010
Income taxes, net of refunds1 592 252 577
1Total cash income taxes paid, net of refunds, by AT&T was $696, $700 and
$993 for 2022, 2021 and 2020, respectively.
Purchase of property and equipment $ 19,452 $ 15,372 $ 14,567
Interest during construction - capital expenditures1 174 173 123
Total Capital expenditures $ 19,626 $ 15,545 $ 14,690
Business acquisitions $ - $ - $ 12
Spectrum acquisitions 9,080 24,672 1,613
Interest during construction - spectrum1 1,120 781 -
Total Acquisitions, net of cash acquired $ 10,200 $ 25,453 $ 1,625
1Total capitalized interest was $1,294, $954 and $123 for 2022, 2021 and 2020,
respectively.
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
$5,817 of vendor financing commitments related to capital investments in 2022,
$5,282 in 2021 and $4,664 in 2020.
Total vendor financing payables included in our December 31, 2022 consolidated
balance sheet were approximately $6,147, with $4,592 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, 2023, we employed approximately 160,700
persons. Approximately 42% 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 in place
agreements with these groups, 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 7,000 Mobility employees in nine states,
for which we reached tentative agreement in February 2023.
•A contract covering approximately 400 employees supporting internet-based
products is set to expire in July 2023.
•A contract covering approximately 200 Mobility employees in Illinois is set
to expire in May 2023.
95
AT&T Inc.
Dollars in millions except per share amounts
NOTE 23. DISCONTINUED OPERATIONS
Upon the separation and distribution, the WarnerMedia business met the
criteria for discontinued operations. For discontinued operations, we also
evaluated transactions that were components of AT&T's single plan of a
strategic shift, including dispositions that previously did not individually
meet the criteria due to materiality, and have determined discontinued
operations to be comprised of WarnerMedia, Vrio, Xandr and Playdemic.
The following is a summary of operating results included in income (loss) from
discontinued operations for the years ended:
2022 2021 2020
Revenues $ 9,454 $ 34,826 $ 28,710
Operating Expenses
Cost of revenues 5,481 19,400 14,269
Selling, general and administrative 2,791 8,275 7,222
Asset abandonments and impairments1 - 4,691 3,193
Depreciation and amortization 1,172 5,010 5,993
Total operating expenses 9,444 37,376 30,677
Interest expense 131 168 198
Equity in net income (loss) of affiliates (27) 28 6
Other income (expense) - net2 (87) 466 (343)
Total other income (expense) (245) 326 (535)
Net loss before income taxes (235) (2,224) (2,502)
Income tax expense (benefit) (54) 73 (203)
Net loss from discontinued operations $ (181) $ (2,297) $ (2,299)
12021 includes $4,555 impairment resulting from our assessment of the
recoverability of Vrio's net assets. 2020 includes approximately $2,200 of
goodwill impairment at Vrio and $1,000 from production, content and other
impairment at WarnerMedia. The implied fair value of the Vrio business was
estimated using both the discounted cash flow as well as market multiple
approaches. 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.
2"Other income (expense) - net" includes the gain of $706 from Playdemic for
the year ended 2021.
The following is a summary of assets and liabilities attributable to
discontinued operations, which were included in our historical Consolidated
Balance Sheet at December 31:
2021
Assets:
Current assets $ 9,005
Noncurrent Inventories and Theatrical Film and Television Production Costs 18,983
Property, Plant and Equipment - Net 4,255
Goodwill 40,484
Other Intangibles - Net 40,273
Other Assets 6,776
Total Assets, discontinued operations $ 119,776
Liabilities:
Current liabilities $ 12,912
Other liabilities 20,643
Total Liabilities, discontinued operations $ 33,555
In preparation for close of the separation and distribution, on April 7, 2022,
Spinco drew $10,000 on its $10,000 term loan credit agreement (Spinco Term
Loan), which conveyed to WBD. Total debt conveyed was approximately $41,600,
which included $1,600 of existing WarnerMedia debt, $30,000 of Spinco senior
notes issued in March 2022 and the $10,000 Spinco Term Loan. WarnerMedia cash
transfer to Discovery was approximately $2,660.
96
AT&T Inc.
Dollars in millions except per share amounts
NOTE 24. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following tables represent our quarterly financial results:
2022 Calendar Quarter
First1 Second1 Third1 Fourth1,2 Annual
Total Operating Revenues $ 29,712 $ 29,643 $ 30,043 $ 31,343 $ 120,741
Operating Income (Loss) 5,537 4,956 6,012 (21,092) (4,587)
Net Income (Loss) from 5,149 4,751 6,346 (23,120) (6,874)
Continuing Operations
Net Income (Loss) from Continuing 4,747 4,319 5,924 (23,536) (8,546)
Operations Attributable to Common Stock
Basic Earnings (Loss) Per Share
Attributable to Common Stock from $ 0.66 $ 0.60 $ 0.82 $ (3.20) $ (1.10)
Continuing Operations3
Diluted Earnings (Loss) Per Share
Attributable to Common Stock from $ 0.65 $ 0.59 $ 0.79 $ (3.20) $ (1.10)
Continuing Operations3
1Includes actuarial gains and losses on pension and postretirement benefit
plans (Note 14).
2Includes goodwill impairments (Note 9) and an asset abandonment charge (Note
7).
3Quarterly earnings per share impacts may not add to full-year earnings per
share impacts due to the difference in weighted-average common shares for the
quarters versus the weighted-average common shares for the year.
2021 Calendar Quarter
First1 Second1 Third1 Fourth1 Annual
Total Operating Revenues $ 35,877 $ 35,740 $ 31,326 $ 31,095 $ 134,038
Operating Income 7,194 7,572 6,237 4,894 25,897
Net Income from Continuing Operations 7,586 5,969 5,019 5,202 23,776
Net Income from Continuing 7,143 5,526 4,613 4,802 22,084
Operations Attributable to Common Stock
Basic Earnings Per Share
Attributable to Common Stock $ 0.99 $ 0.77 $ 0.64 $ 0.67 $ 3.07
from Continuing Operations2
Diluted Earnings Per Share
Attributable to Common Stock from $ 0.97 $ 0.76 $ 0.63 $ 0.66 $ 3.02
Continuing Operations2
1Includes actuarial gains and losses on pension and postretirement benefit
plans (Note 14).
2Quarterly earnings per share impacts may not add to full-year earnings per
share impacts due to the difference in weighted-average common shares for the
quarters versus the weighted-average common shares for the year.
97
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, 2022.
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, 2022.
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, 2022. 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, 2022, 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 2022 but was not reported.
98
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 2023
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. Luczo, McCallister and
Ubiñas, 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.
99
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, 2022, 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 76,927,549 (1) $ - 102,240,827 (2)
Equity compensation plans not approved by security holders - - -
Total 76,927,549 (3) $ - 102,240,827 (2)
(1)Includes the issuance of stock in connection with the following stockholder
approved plans: (a) 0 stock options under the Stock Purchase and Deferral Plan
(SPDP), (b) 945,111 phantom stock units under the Stock Savings Plan (SSP),
18,492,845 phantom stock units under the SPDP, 0 restricted stock units under
the 2011 Incentive Plan, 0 restricted stock units under the 2016 Incentive
Plan and 35,383,614 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 19,478,272 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 2,648,162 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 19,493,387 shares that may be issued under the SPDP, 80,375,750
shares that may be issued under the 2018 Incentive Plan, and up to 2,371,691
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, 2022, there were 2,861,614 shares of AT&T common stock
subject to the converted options, having a weighted-average exercise price of
$20.18. Also, does not include 346,157 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 135,365 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.
100
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) 40 (#BKMK_143)
Financial Statements covered by Report of Independent Registered Public 42 (#BKMK_26)
Accounting Firm:
Consolidated Statements of Income 43 (#BKMK_153)
Consolidated Statements of Comprehensive Income 44 (#BKMK_155)
Consolidated Balance Sheets 45 (#BKMK_158)
Consolidated Statements of Cash Flows 46 (#BKMK_161)
Consolidated Statements of Changes in Stockholders' Equity 47 (#BKMK_164)
Notes to Consolidated Financial Statements 49 (#BKMK_169)
(2) Financial Statement Schedules:
II - Valuation and Qualifying Accounts 105 (#BKMK_344)
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.
101
AT&T Inc.
Dollars in millions except per share amounts
102
AT&T Inc.
Dollars in millions except per share amounts
103
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Dollars in millions except per share amounts
104
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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 2022 $ 1,163 $ 1,865 $ - $ - $ 2,017 $ 1,011
Year 2021 $ 1,457 $ 1,241 $ - $ - $ 1,535 $ 1,163
Year 2020 $ 1,150 $ 1,798 $ 405 $ - $ 1,896 $ 1,457
(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
of Period
Year 2022 $ 4,343 (168) - - - $ 4,175
Year 2021 $ 4,557 (214) - - - $ 4,343
Year 2020 $ 4,715 (158) - - - $ 4,557
105
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 14th day of
February, 2023.
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 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
Principal Accounting Officer:
Debra L. Dial
Senior Vice President, Chief
Accounting Officer and Controller
/s/ Debra L. Dial
February 13, 2023
Directors:
William E. Kennard* Beth E. Mooney*
Scott T. Ford* Matthew K. Rose*
Glenn H. Hutchins* John T. Stankey*
Stephen J. Luczo* Cynthia B. Taylor*
Michael B. McCallister* Luis A. Ubiñas*
* by power of attorney
106
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