TIDM58KN
RNS Number : 4022R
AT & T Inc.
05 March 2021
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, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to
Commission File Number: 001-8610
AT&T INC.
Incorporated under the laws of the State of Delaware
I.R.S. Employer Identification Number 43-1301883
208 S. Akard St., Dallas, Texas, 75202
Telephone Number 210-821-4105
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class Trading Symbol(s) on which registered
Common Shares (Par Value $1.00 Per Share) T New York Stock Exchange
Depositary Shares, each representing a 1/1000th
interest in a share of
5.000% Perpetual Preferred Stock, Series
A T PRA New York Stock Exchange
Depositary Shares, each representing a 1/1000th
interest in a share of
4.750% Perpetual Preferred Stock, Series
C T PRC New York Stock Exchange
AT&T Inc. 1.875% Global Notes due December
4, 2020 T 20 New York Stock Exchange
AT&T Inc. 2.650% Global Notes due December
17, 2021 T 21B New York Stock Exchange
AT&T Inc. 1.450% Global Notes due June 1,
2022 T 22B New York Stock Exchange
AT&T Inc. 2.500% Global Notes due March 15,
2023 T 23 New York Stock Exchange
AT&T Inc. 2.750% Global Notes due May 19,
2023 T 23C New York Stock Exchange
AT&T Inc. Floating Rate Global Notes due
September 5, 2023 T 23D New York Stock Exchange
AT&T Inc. 1.050% Global Notes due September
5, 2023 T 23E New York Stock Exchange
AT&T Inc. 1.300% Global Notes due September
5, 2023 T 23A New York Stock Exchange
AT&T Inc. 1.950% Global Notes due September
15, 2023 T 23F New York Stock Exchange
AT&T Inc. 2.400% Global Notes due March 15,
2024 T 24A New York Stock Exchange
AT&T Inc. 3.500% Global Notes due December
17, 2025 T 25 New York Stock Exchange
AT&T Inc. 0.250% Global Notes due March 4,
2026 T 26E New York Stock Exchange
Name of each exchange
Title of each class Trading Symbol(s) on which registered
AT&T Inc. 1.800% Global Notes due September
5, 2026 T 26D New York Stock Exchange
AT&T Inc. 2.900% Global Notes due December
4, 2026 T 26A New York Stock Exchange
AT&T Inc. 1.600% Global Notes due May 19,
2028 T 28C New York Stock Exchange
AT&T Inc. 2.350% Global Notes due September
5, 2029 T 29D New York Stock Exchange
AT&T Inc. 4.375% Global Notes due September
14, 2029 T 29B New York Stock Exchange
AT&T Inc. 2.600% Global Notes due December
17, 2029 T 29A New York Stock Exchange
AT&T Inc. 0.800% Global Notes due March 4,
2030 T 30B New York Stock Exchange
AT&T Inc. 2.050% Global Notes due May 19,
2032 T 32A New York Stock Exchange
AT&T Inc. 3.550% Global Notes due December
17, 2032 T 32 New York Stock Exchange
AT&T Inc. 5.200% Global Notes due November
18, 2033 T 33 New York Stock Exchange
AT&T Inc. 3.375% Global Notes due March 15,
2034 T 34 New York Stock Exchange
AT&T Inc. 2.450% Global Notes due March 15,
2035 T 35 New York Stock Exchange
AT&T Inc. 3.150% Global Notes due September
4, 2036 T 36A New York Stock Exchange
AT&T Inc. 2.600% Global Notes due May 19,
2038 T 38C New York Stock Exchange
AT&T Inc. 1.800% Global Notes due September
14, 2039 T 39B New York Stock Exchange
AT&T Inc. 7.000% Global Notes due April 30,
2040 T 40 New York Stock Exchange
AT&T Inc. 4.250% Global Notes due June 1,
2043 T 43 New York Stock Exchange
AT&T Inc. 4.875% Global Notes due June 1,
2044 T 44 New York Stock Exchange
AT&T Inc. 4.000% Global Notes due June 1,
2049 T 49A New York Stock Exchange
AT&T Inc. 4.250% Global Notes due March 1,
2050 T 50 New York Stock Exchange
AT&T Inc. 3.750% Global Notes due September
1, 2050 T50A New York Stock Exchange
AT&T Inc. 5.350% Global Notes due November
1, 2066 TBB New York Stock Exchange
AT&T Inc. 5.625% Global Notes due August
1, 2067 TBC New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None.
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes No
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the Act. Yes
No
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted
electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T during the preceding 12
months (or for such shorter period that the registrant was required
to submit such files). Yes No
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, a
smaller reporting company, or an emerging growth company. See
definition of "large accelerated filer," "accelerated filer,"
"smaller reporting company," and "emerging growth company" in Rule
12b-2 of the Exchange Act.
Large Accelerated Filer Accelerated Filer
Non-accelerated filer Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange
Act.
Indicate by check mark whether the registrant has filed a report
on and attestation to its management's assessment of the
effectiveness of its internal control over financial reporting
under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b))
by the registered public accounting firm that prepared or issued
its audit report.
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act).
Yes No
Based on the closing price of $30.23 per share on June 30, 2020,
the aggregate market value of our voting and non-voting common
stock held by non-affiliates was $215 billion.
At February 12, 2021, common shares outstanding were
7,131,763,496.
DOCUMENTS INCORPORATED BY REFERENCE
(1)Portions of AT&T Inc.'s Notice of 2021 Annual Meeting and
Proxy Statement dated on or about March 11, 2021 to be filed within
the period permitted under General Instruction G(3) (Parts III and
IV).
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------------------
TABLE OF CONTENTS
Item Page
PART I
1. Business 1
1A. Risk Factors 14
2. Properties 23
3. Legal Proceedings 23
4. Mine Safety Disclosures 23
Information about our Executive Officers 24
PART II
Market for Registrant's Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity
5. Securities 25
6. Selected Financial Data 27
Management's Discussion and Analysis of Financial Condition and
7. Results of Operations 28
7A. Quantitative and Qualitative Disclosures about Market Risk 60
8. Financial Statements and Supplementary Data 66
Changes in and Disagreements with Accountants on Accounting and
9. Financial Disclosure 127
9A. Controls and Procedures 127
9B. Other Information 127
PART III
10. Directors, Executive Officers and Corporate Governance 128
11. Executive Compensation 128
Security Ownership of Certain Beneficial Owners and Management
12. and Related Stockholder Matters 129
13. Certain Relationships and Related Transactions, and Director Independence 130
14. Principal Accountant Fees and Services 130
PART IV
15. Exhibits and Financial Statement Schedules 130
16. Form 10-K Summary 133
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------------------
PART I
ITEM 1. BUSINESS
GENERAL
AT&T Inc. ("AT&T," "we" or the "Company") is a holding
company incorporated under the laws of the State of Delaware in
1983 and has its principal executive offices at 208 S. Akard St.,
Dallas, Texas, 75202 (telephone number 210-821-4105). We maintain
an internet website at www.att.com. (This website address is for
information only and is not intended to be an active link or to
incorporate any website information into this document.) We file
electronically with the Securities and Exchange Commission (SEC)
required reports on Form 8-K, Form 10-Q and Form 10-K; proxy
materials; registration statements on Forms S-3 and S-8, as
necessary; and other forms or reports as required. The SEC
maintains a website (www.sec.gov) that contains reports, proxy and
information statements, and other information regarding issuers
that file electronically with the SEC. We make available, free of
charge, on our website our annual report on Form 10-K, our
quarterly reports on Form 10-Q, current reports on Form 8-K and all
amendments to those reports as soon as reasonably practicable after
such reports are electronically filed with, or furnished to, the
SEC. We also make available on that website, and in print, if any
stockholder or other person so requests, our "Code of Ethics"
applicable to all employees and Directors, our "Corporate
Governance Guidelines," and the charters for all committees of our
Board of Directors, including Audit, Human Resources and Corporate
Governance and Nominating. Any changes to our Code of Ethics or
waiver of our Code of Ethics for senior financial officers,
executive officers or Directors will be posted on that website.
A reference to a "Note" refers to the Notes to Consolidated
Financial Statements in Item 8.
History
AT&T, formerly known as SBC Communications Inc. (SBC), was
formed as one of several regional holding companies created to hold
AT&T Corp.'s (ATTC) local telephone companies. On January 1,
1984, we were spun-off from ATTC pursuant to an anti-trust consent
decree, becoming an independent publicly-traded telecommunications
services provider. At formation, we primarily operated in five
southwestern states.
Following our formation, we have expanded our footprint and
operations by acquiring various businesses, most significantly:
--Our subsidiaries merged with Pacific Telesis Group in 1997,
Southern New England Telecommunications Corporation in 1998 and
Ameritech Corporation in 1999, thereby expanding our wireline
operations as the incumbent local exchange carrier (ILEC) into a
total of 13 states.
--In 2005, we merged one of our subsidiaries with ATTC, creating
one of the world's leading telecommunications providers. In
connection with the merger, we changed the name of our company from
"SBC Communications Inc." to "AT&T Inc."
--In 2006, we merged one of our subsidiaries with BellSouth
Corporation (BellSouth) making us the ILEC in an additional nine
states. With the BellSouth acquisition, we also acquired
BellSouth's 40 percent economic interest in AT&T Mobility LLC
(AT&T Mobility), formerly Cingular Wireless LLC, resulting in
100 percent ownership of AT&T Mobility.
--In 2014, we completed the acquisition of wireless provider
Leap Wireless International, Inc. and sold our ILEC operations in
Connecticut, which we had previously acquired in 1998.
--In 2015, we acquired wireless properties in Mexico, and
acquired DIRECTV, a leading provider of digital television
entertainment services in both the United States and Latin
America.
--In June 2018, we acquired Time Warner Inc. (Time Warner), a
leader in media and entertainment that operates the Turner, Home
Box Office (HBO) and Warner Bros. business units. We also acquired
Otter Media Holdings and advertising platform AppNexus in August
2018.
--In October 2020, we sold our wireless and wireline operations
in Puerto Rico and the U.S. Virgin Islands.
1
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------------------
General
We are a leading provider of telecommunications, media and
technology services globally. The services and products that we
offer vary by market and utilize various technology platforms in a
range of geographies. Our reportable segments are organized as
follows:
The Communications segment provides services to businesses and
consumers located in the U.S. and businesses globally. Our business
strategies reflect bundled product offerings that cut across
product lines and utilize shared assets. This segment contains the
following business units:
--Mobility provides nationwide wireless service and
equipment.
--Video provides video, including over-the-top (OTT) services
and also sells multiplatform advertising services recognized as
video revenues.
--Broadband provides internet, including broadband fiber, and
legacy telephony voice communications services to residential
customers.
--Business Wireline provides advanced IP-based services, as well
as traditional voice and data services to business customers.
The WarnerMedia segment develops, produces and distributes
feature films, television, gaming and other content over various
physical and digital formats, including our HBO Max streaming
platform. This segment contains the following:
--Turner primarily operates multichannel basic television
networks and digital properties. Turner also sells advertising on
its networks and digital properties.
--Home Box Office consists of premium pay television and our HBO
Max streaming platform domestically and premium pay, basic tier
television and OTT and streaming services internationally, as well
as content licensing and home entertainment.
--Warner Bros. consists of the production, distribution and
licensing of television programming and feature films, the
distribution of home entertainment products and the production and
distribution of games.
--Eliminations & Other includes the Xandr advertising
business and Otter Media Holdings operations, excluding Crunchyroll
for which we reached an agreement to sell in December 2020 and
applied held-for-sale accounting treatment, moving those results to
Corporate and Other. Eliminations & Other also removes
transactions between the Turner, Home Box Office and Warner Bros.
business units, including internal sales of content to the HBO Max
platform that began in the fourth quarter of 2019.
The Latin America segment provides entertainment and wireless
services outside of the U.S. This segment contains the following
business units:
--Vrio provides video services primarily to residential
customers using satellite and streaming technology in Latin America
and the Caribbean.
--Mexico provides wireless service and equipment to customers in
Mexico.
Corporate and Other reconciles our segment results to
consolidated operating income and income before income taxes, and
includes:
--Corporate , which consists of: (1) businesses no longer
integral to our operations or which we no longer actively market,
(2) corporate support functions, (3) impacts of corporate-wide
decisions for which the individual operating segments are not being
evaluated, and (4) the reclassification of the amortization of
prior service credits, which we continue to report with segment
operating expenses, to consolidated "Other income (expense) -
net."
--Acquisition-related items , which consists of items associated
with the merger and integration of acquired businesses, including
amortization of intangible assets.
--Certain significant items , which includes (1) employee
separation charges associated with voluntary and/or strategic
offers, (2) losses resulting from asset impairments and
abandonments, and (3) other items for which the individual segments
are not being evaluated.
--Eliminations and consolidations , which (1) removes
transactions involving dealings between our segments, including
channel distribution between WarnerMedia and Communications, and
(2) includes adjustments for our reporting of the advertising
business.
2
AT&T Inc.
Dollars in millions except per share amounts
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Areas of Focus
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. Our First Responder Network Authority (FirstNet) contract
and our strong spectrum position allow us to execute a progressive
5G deployment strategy. With our subscription video on demand
streaming platform, HBO Max, we intend to capitalize on our premier
network, technology and distribution capabilities to provide our
premier content in this highly attractive offering. Our fiber
expansion allows us to respond to continuing advances in technology
and changing demands from our customers. We expect our transition
to software-based products with low acquisition costs will provide
better economics and improve our product portfolio, including
expansion of streaming services. Our acquisitions over the past few
years and our continued investment in a premier network experience
make our customers' lives more convenient and productive and foster
competition and further innovation in the communications and
entertainment industry.
Communications
Our integrated telecommunications network utilizes different
technological platforms, including wireless, satellite and
wireline, to provide instant connectivity at the higher speeds made
possible by our fiber network expansion and wireless network
enhancements. Video streaming is expected to drive greater demand
for broadband and capitalize on our fiber deployment. These
investments have and should continue to prepare us to meet
increased customer demand for enhanced wireless and broadband
services, including video streaming, augmented reality and "smart"
technologies. During 2021, we will continue to develop and provide
high-value, integrated mobile and broadband solutions. We believe
offering integrated services facilitates our customers' desire to
view content anywhere on demand and encourages customer
retention.
Wireless Service We are experiencing rapid growth in data usage
as consumers are demanding seamless access across their wireless
and wired devices, and businesses and municipalities are connecting
more and more equipment and facilities to the internet. We were
awarded the FirstNet contract in 2018, which provided us with
access to 20 MHz of nationwide low band spectrum and invested in
37/39 GHz spectrum in a Federal Communications Commission (FCC)
auction. These bands facilitate our 5G services. At December 31,
2020, our FirstNet coverage is more than 80 percent complete with
1.9 million FirstNet connections. Our 5G service went nationwide in
July 2020, and with that availability, we anticipate the
introduction of 5G handsets and devices will contribute to a
renewed interest in equipment upgrades. We will continue to invest
in our wireless network as we look to provide future service
offerings and participate in emerging technologies, such as 5G and
millimeter-wave bands. The increased speeds and network operating
efficiency expected with this technology should enable massive
deployment of devices connected to the internet as well as faster
delivery of data services. We expect that 5G will enhance our
customers' entire connected experience and not just provide faster
speeds.
Our network covers over 440 million people in North America with
4G LTE technology, and, in the United States, our network covers
all major metropolitan areas and more than 330 million people with
our LTE technology. Our 3G network provides services to customers
using older handsets and connected devices. We expect to redeploy
spectrum currently used for our 3G services as we transition to 5G
service and project that we will discontinue service on our 3G
network in early 2022; we will manage this process consistent with
previous network upgrades. As of December 31, 2020, about 5 percent
of our postpaid subscribers were using 3G handsets, and we expect
them to transition to newer technologies. We do not expect this
transition to have a material impact on our consolidated operating
results.
As the wireless industry has matured, future wireless growth
will increasingly depend on our ability to offer innovative data
services on a wireless network that has sufficient spectrum and
capacity to support these innovations. We continue to invest
significant capital in expanding our network capacity, as well as
obtaining additional spectrum that meets our long-term needs. We
participate in FCC spectrum auctions and have been redeploying
spectrum previously used for more basic services to support more
advanced mobile internet services.
Broadband Technology We are rapidly converting to a
software-based network and 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, of which we
have led the industry in virtualizing over 75 percent of our
network as of the end of 2020, delivers a demonstrable cost
advantage in the deployment of next-generation technology over the
traditional, hardware-intensive network approach. Our virtualized
network will be able to support next-generation applications like
5G and broadband-based services quickly and efficiently.
3
AT&T Inc.
Dollars in millions except per share amounts
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Media
We produce and distribute high-quality video content to take
advantage of growing global demand. Our media businesses use their
strong brands, distinctive intellectual property and global scale
to produce and distribute quality content. As the television
industry continues to evolve from a distribution system using
satellite and cable offerings to internet streaming video services,
we are well-positioned to address and capitalize on these changes,
but we face financial risks and new sources of competition
associated with these developments. In 2021, we plan to continue
providing more personalized services offered directly to consumers
through our own distribution and distribution partner channels,
including launching our streaming platform, HBO Max,
internationally beginning with Latin America. AT&T customers in
the U.S. that have premium video, mobile and broadband services can
bundle with HBO Max included at no additional charge. We also plan
to add an advertising-supported HBO Max offering in 2021 to take
advantage of our advertising capabilities. In the future, we expect
to provide HBO Max subscribers with highly attractive live,
interactive and special event programming.
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. Due in part to changes in the
legal and regulatory framework in Mexico, we acquired Mexican
wireless operations in 2015 to establish a seamless, cross-border
North American wireless network covering an area with over 440
million people and businesses in the United States and Mexico. With
the increased capacity from our completed LTE network, we also
expect additional reseller revenue in 2021. Our 4G LTE network in
Mexico now covers approximately 110 million people and businesses.
Our Vrio business unit provides video services to primarily
residential customers using satellite technology in Latin America
and the Caribbean. We have approximately 11 million video
subscribers in Latin America.
BUSINESS OPERATIONS
OPERATING SEGMENTS
Our segments are strategic business units that offer different
products and services over various technology platforms and/or in
different geographies that are managed accordingly. We analyze our
operating segments based on segment contribution, which consists of
operating income, excluding acquisition-related costs and other
significant items, and equity in net income (loss) of affiliates
for investments managed within each operating segment. We have
three reportable segments: (1) Communications, (2) WarnerMedia and
(3) Latin America. Historical results from Xandr, previously a
separate reportable segment, have been combined with the
WarnerMedia segment.
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, video and broadband services to consumers located in the
U.S. and businesses globally. Our Communications services and
products are marketed under the AT&T, Cricket, AT&T PREPAID
SM , AT&T TV, AT&T Fiber and DIRECTV brand names. The
Communications segment provided approximately 79% of 2020 segment
operating revenues and 80% of our 2020 total segment contribution.
This segment contains the Mobility, Video, Broadband and Business
Wireline business units.
Mobility - Our Mobility business unit provides nationwide
wireless services to consumers and wholesale and resale wireless
subscribers located in the United States by utilizing our network
to provide voice and data services, including high-speed internet
over wireless devices. We classify our subscribers as either
postpaid, prepaid, connected device or reseller. At December 31,
2020, we served 183 million Mobility subscribers, including 77
million postpaid, 18 million prepaid, 7 million reseller and 81
million connected devices. Our Mobility business unit revenue
includes the following categories: service and equipment.
Wireless Services
We offer a comprehensive range of high-quality nationwide
wireless voice and data communications services in a variety of
pricing plans to meet the communications needs of targeted customer
categories. Through our FirstNet services, we also provide a
nationwide wireless broadband network dedicated to public
safety.
4
AT&T Inc.
Dollars in millions except per share amounts
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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, wirelessly enabled computers
and wireless data cards 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. In
recent years, subscribers have been bringing their own devices or
retaining their handsets for longer periods, which could continue
to impact upgrade activity. Like other wireless service providers,
we also provide a limited number of postpaid contract subscribers
substantial equipment subsidies to initiate, renew or upgrade
service.
Video - Our Video business unit provides video and targeted
advertising services to customers in the United States. Our Video
business unit revenue includes the following categories: service
and equipment.
Video Services
Video service revenues are comprised of subscription and
advertising revenues, and are offered over satellite and IP-based
technologies (referred to as "premium" or "linear") as well as OTT
options that do not require either technology. Due to the rising
cost of programming and an increasingly competitive industry, we
have focused on acquiring and retaining high-value subscribers. Our
OTT offering is delivered over our software-based video
architecture and is bundled with our fiber broadband services.
We provide approximately 17 million subscribers with premium TV
and OTT services. Our video subscribers can use the internet and/or
our mobile applications from smartphones and tablets to view
authorized content, search program listings and schedule DVR
recordings. Consistent with industry trends, our customers continue
to shift from premium TV services to OTT service and/or
competitors, which has pressured our video revenues.
Equipment
We sell IP-based set-top boxes for delivery of video
services.
Broadband - Our Broadband business unit provides broadband,
including fiber, and legacy telephony internet and voice
communication to customers in the United States by utilizing our
IP-based and copper wired network. Our Broadband business unit
revenue includes the following categories: high-speed internet,
legacy voice and data services and other service and equipment.
High-Speed Internet
We offer broadband and internet services to more than 14 million
customer locations, with 5 million fiber broadband connections at
December 31, 2020. With changes in video viewing preferences and
the recent work and learn from home trends, we are experiencing
increasing demand for high-speed broadband services. Our investment
in expanding our industry-leading fiber network positions us to be
a leader in wired connectivity.
We believe that our flexible platform with a broadband and
wireless connection is the most efficient way to transport
direct-to-consumer video experiences both at home and on mobile
devices. Through this integrated approach, we can optimize the use
of storage in the home as well as in the cloud, while also
providing a seamless service for consumers across screens and
locations. Our WarnerMedia streaming platform, HBO Max, provides an
attractive offering of video options as well as bundling
opportunities for our wireless customers and is driving our direct
to consumer strategy.
5
AT&T Inc.
Dollars in millions except per share amounts
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Legacy Voice and Data Services
Revenues from our traditional voice services continue to decline
as customers switch to wireless or VoIP services provided by us,
cable companies or other internet-based providers. We have
responded by offering packages of combined voice and data services,
including broadband and video, and intend to continue this strategy
during 2021.
Other Services and Equipment
Other service revenues include AT&T U-verse voice services
(which use VoIP technology), customer fees and equipment.
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: strategic and managed services,
legacy voice and data services, and other services and
equipment.
Strategic and Managed Services
Strategic and managed services are our most advanced business
solutions and allow our customers to create and manage their own
internal networks and to access external data networks.
Additionally, we provide collaboration services that utilize our IP
infrastructure and allow our customers to utilize the most advanced
technology to improve their productivity. Our strategic and managed
services are made up of Strategic Data, Strategic Voice, Security,
Cloud Solutions, Outsourcing, Managed Services and Professional
Services. Strategic Data services include our Virtual Private
Networks (VPN), AT&T Dedicated Internet (ADI), and Ethernet and
broadband services. We continue to reconfigure our wireline network
to take advantage of the latest technologies and services. We have
developed services that rely on our SDN and NFV to enhance business
customers' digital agility in a rapidly evolving environment. We
also provide state-of-the-art security solutions like Threat
Management, Intrusion Detection and other business security
applications. Due to developing technology, our most advanced
business solutions are subject to change periodically. We review
and evaluate our strategic and managed service offerings annually,
which may result in an updated definition and the recast of our
historical financial information to conform to the current period
presentation. Any modifications will be reflected in the first
quarter.
Legacy Voice and Data Services
Voice services include services provided to business and
governmental customers, either directly or through wholesale
arrangements with other service providers. Our circuit-based,
traditional data products include switched and dedicated transport
services that allow customers to transmit data at high speeds, as
well as access to the internet using a DSL connection.
Other Services and Equipment
Other service revenues include licensing of intellectual
property and customer premises equipment.
Additional information on our Communications segment is
contained in the "Overview" section of Item 7.
WARNERMEDIA
Our WarnerMedia segment is comprised of leading media and
entertainment businesses that principally develop, produce and
distribute feature films, television content, and other content
globally; operate cable networks, premium pay television and
subscription video on demand (SVOD or streaming) services
domestically and internationally; and operate digital media
properties. The WarnerMedia segment provided approximately 17% of
2020 segment operating revenues and 22% of our 2020 total segment
contribution. This segment consists primarily of the Turner, Home
Box Office, including our HBO Max streaming platform, and Warner
Bros. business units.
Turner - The Turner business unit operates television networks
and related properties that offer branded news, entertainment,
sports and kids multi-platform content for consumers around the
world. Turner licenses programming to distributors, sells
advertising on its networks and digital properties owned or managed
for other companies, and licenses its original programming and
brands and characters for consumer products and other business
ventures. Turner revenue includes the following categories:
subscription, advertising and content and other.
Subscription
Turner's programming is primarily delivered by distributors and
is available to subscribers of the distributors for viewing live
and on demand through the distributors' services and Turner's
network apps. License agreements are typically multi-year
arrangements that provide for annual service fee increases and have
fee arrangements that are generally related to the number of
networks provided to and subscribers served by the distributor.
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AT&T Inc.
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Advertising
Advertising arrangements for Turner's networks generally have
terms of one year or less. In the U.S., the advertising revenues
generally depend on the size and demographics of a network's
audience delivered to an advertiser, the number of units of time
sold and the price per unit. The price per unit of advertising is
determined considering factors such as the type of program or
network and/or the time of day the advertising is to be run.
Certain advertising inventory is sold in the "upfront" market in
advance each year and other inventory in the "scatter" market
closer to the time a program airs. Outside the U.S., advertising is
generally sold at a fixed rate for the unit of time sold,
determined by the time of day and network.
Turner's digital properties consist of owned assets and those
managed and/or operated for sports leagues where Turner holds the
related programming rights. Digital properties managed or operated
for sports leagues include NBA.com, NBA Mobile and NCAA.com.
Content and Other
Turner licenses certain owned original programming to
international territories and to SVOD services. Turner also
licenses its brands and characters for consumer products and other
business ventures.
Home Box Office - Our Home Box Office business unit includes our
streaming platform, HBO Max, and leading multichannel pay
television services, HBO and Cinemax. In May 2020, we acquired the
remaining interest in HBO Latin America Group (HBO LAG), which owns
and operates various television channels and the streaming platform
HBO GO in Latin America and the Caribbean. Our Home Box Office
business unit revenue includes the following categories:
subscription and content and other.
Subscription
In the U.S., HBO and Cinemax premium programming services are
available to subscribers of traditional and digital distributors
for viewing live and on-demand on television and on various
internet-connected devices. We launched our streaming platform, HBO
Max, in May 2020 through which programming is made available on a
SVOD basis both direct-to-consumer and through distributors.
WarnerMedia's domestic license agreements with distributors are
multi-year arrangements that typically provide for packaging and
marketing support. Revenues depend on the specific terms of the
applicable agreement, which may include subscriber thresholds,
volume discounts and other performance-based discounts. As of
December 31, 2020, we had more than 41 million domestic HBO Max and
HBO subscribers (excluding Cinemax).
Internationally, HBO and Cinemax-branded premium pay, basic tier
television and/or SVOD services are distributed in over 70
countries in Latin America, Europe and Asia. As of December 31,
2020, we had nearly 61 million HBO Max and HBO subscribers
worldwide, including approximately 19 million international HBO
premium pay television and SVOD service subscribers (excluding
Cinemax and basic tier subscribers).
Content and Other
Original programming is licensed to television networks and OTT
services in over 150 countries and is also available to customers
in both physical and digital formats in the U.S. and various
international regions.
Warner Bros. - Our Warner Bros. business unit is one of the
largest television and film studios in the world. Warner Bros.
produces, distributes and licenses television programming and
feature films and distributes home entertainment products in both
physical and digital formats, as well as producing and distributing
games and licensing consumer products and brands. Warner Bros.
allows us to offer an expanded library of programming available
under HBO Max. At December 31, 2020, Warner Bros.' vast content
library consists of more than 120,000 hours of programming,
including over 10,000 feature films and 5,500 television seasons
comprised of tens of thousands of individual episodes.
The home entertainment industry is rapidly moving toward digital
formats. While consumer spending on the higher-margin digital
formats has increased in recent years, it has not offset decline in
spending on product in physical formats, like DVDs. As such, Warner
Bros. has been focusing on increasing the more profitable
electronic sell-through and transactional digital VOD rentals of
its film and television content while executing on opportunities to
improve the operational efficiency of the physical distribution
business.
Our Warner Bros. business unit revenue includes the following
categories: theatrical product, television product, and games and
other.
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AT&T Inc.
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Theatrical Product
Theatrical product consists of (1) rental fees paid by movie
theaters for the initial exhibition of feature films produced
and/or distributed by Warner Bros., (2) licensing fees paid by HBO
Max (which are eliminated in consolidation), television networks,
premium pay television services and OTT services for the exhibition
of feature films produced by Warner Bros. and (3) revenues from the
distribution of Warner Bros.' and other companies' feature films in
physical and digital formats. Our feature films also support key
brands and franchises, which helps generate consumer product and
brand licensing revenues based on Warner Bros.' films and
characters.
Driven by the pandemic-related partial closure of movie theaters
and the availability of our HBO Max streaming platform, we have
decided to release our 2021 films simultaneously on HBO Max and in
theaters for 31 days. Both the continued partial closure of movie
theaters and the resulting hybrid distribution model are expected
to pressure revenues in 2021.
Television Product
Television product consists of (1) fees for the initial
broadcast of television programming on U.S. broadcast and cable
television networks and premium pay television and OTT services,
(2) fees for the airing or other distribution of television
programming after the initial broadcast in secondary U.S.
distribution channels (such as basic cable networks, local
television stations and OTT services), (3) fees for the
international distribution of television programming for
free-to-air television, basic tier television services, premium pay
television services and OTT services, and (4) revenues from the
sale of the television programming in physical and digital formats.
Our television programming also supports Warner Bros.' key brands
and franchises, which helps generate consumer product and brand
licensing revenues based on the programming for years beyond the
initial airing of the programming on television. Warner Bros.
licenses its U.S. programming globally.
Games and Other
We develop, publish and distribute games, including mobile and
console games. The games are based on intellectual property owned
or licensed by Warner Bros. (including DC Entertainment properties,
Harry Potter and Mortal Kombat).
Additional information on our WarnerMedia segment is contained
in the "Overview" section of Item 7.
LATIN AMERICA
Our Latin America segment provides entertainment services in
Latin America and wireless services in Mexico. The Latin America
segment provided approximately 3% of 2020 segment operating
revenues. Our Latin America services and products are marketed
under the AT&T, DIRECTV, SKY and Unefon brand names. This
segment contains the Vrio and Mexico business units.
Vrio - Video entertainment services are provided to primarily
residential customers using satellite technology. We are a leading
provider of digital television services throughout Latin America,
providing a wide selection of local and international
digital-quality video entertainment and audio programming under the
DIRECTV and SKY brands. We provide one of the most extensive
collections of programming available in the Latin America pay-TV
market, including HD sports video content and the most innovative
interactive technology across the region. In addition, we have the
unique ability to sell superior offerings of our differentiated
products and services on a continent-wide basis with an operational
cost structure that we believe to be lower than that of our
competition.
In May 2020, we found it necessary to close our DIRECTV
operations in Venezuela due to political instability in the country
and to comply with sanctions of the U.S. government.
We have approximately 11 million video subscribers in Latin
America. Our business encompasses pay television services with
satellite operations serving Argentina, Brazil, Chile, Colombia,
Ecuador, Peru, Uruguay and parts of the Caribbean. Our operations
also include our 41% equity method investment in Innova, S. de R.L.
de C.V., or SKY Mexico. SKY Mexico financial results are accounted
for as an equity method investment.
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: wireless service and wireless
equipment.
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We provide postpaid and prepaid wireless services in Mexico to
approximately 19 million subscribers under the AT&T and Unefon
brands. Postpaid services allow for (1) no annual service contract
for subscribers who bring their own device or purchase a device on
installment (the device must be paid in full if the customer
chooses to drop their service from AT&T) and (2) service
contracts for periods up to 36 months for subscribers who purchase
their equipment under the traditional device subsidy model. Plans
offer no roaming charges in the United States or Canada, unlimited
minutes and messages to the extended AT&T community and
unlimited data access to social networking. We also offer prepaid
services to customers who prefer to pay in advance.
We sell a wide variety of handsets, including smartphones
manufactured by various suppliers for use with our voice and data
services. We sell through our own company-owned stores, agents and
third-party retail stores.
Additional information on our Latin America segment is contained
in the "Overview" section of Item 7.
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
2020 2019 2018
------------- -------------
Communications Segment
Wireless service 1 32 % 30 % 32 %
Subscription 2, 3 16 17 19
Advanced data 4 13 12 12
Equipment 10 9 10
WarnerMedia Segment
Subscription 8 8 4
Latin America Segment
Subscription 2 2 2 3
Wireless service 1 1 1
Equipment 1 1 1
--- ----------- --------- ---------
1 Excludes advertising revenues included as Wireless service in our Mobility
business unit of $291, $292 and $232 in 2020, 2019 and 2018, respectively.
2 Subscription is reported as Video in our Video and Vrio business units.
3 Excludes advertising revenues included as Video in our Video business unit
of $1,718, $1,672 and $1,595 in 2020, 2019 and 2018, respectively.
4 Advanced data is reported as High-speed internet and Strategic services in
our Broadband and Business Wireline business units, respectively.
Additional information on our geographical distribution of
revenues is contained in Note 4 of Item 8.
GOVERNMENT REGULATION
Wireless communications providers in the United States must be
licensed by the FCC to provide communications services at specified
spectrum frequencies within defined geographic areas and must
comply with the rules and policies governing the use of the
spectrum as adopted by the FCC. The FCC's rules have a direct
impact on whether the wireless industry has sufficient spectrum
available to support the high-quality, innovative services our
customers demand. Wireless licenses are issued for a fixed time
period, typically ten years, and we must seek renewal of these
licenses. While the FCC has generally renewed licenses given to
operating companies such as us, the FCC has authority to both
revoke a license for cause and to deny a license renewal if a
renewal is not in the public interest. Additionally, while wireless
communications providers' prices and service offerings are
generally not subject to regulation, the federal government and
various states periodically consider new regulations and
legislation relating to various aspects of wireless services.
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The Communications Act of 1934 and other related acts give the
FCC broad authority to regulate the U.S. operations of our
satellite services, which are licensed by the FCC, and some of
WarnerMedia's businesses are also subject to obligations under the
Communications Act and related FCC regulations. We continue to
support regulatory and legislative measures and efforts at both the
federal and state levels to minimize and/or moderate regulatory
burdens that are no longer appropriate in a competitive
communications market and that inhibit our ability to compete more
effectively and offer services wanted and needed by our customers,
including initiatives to transition services from traditional
networks to all IP-based networks. At the same time, we also seek
to ensure that legacy regulations are not further extended to
broadband or wireless services, which are subject to vigorous
competition.
Our ILEC subsidiaries are subject to regulation by state
governments, which have the power to regulate intrastate rates and
services, including local, long-distance and network access
services, provided such state regulation is consistent with federal
law. Some states have eliminated or reduced regulations on our
retail offerings. In addition, many states have adopted legislation
that enables us to provide IP-based video service through a single
statewide or state-approved franchise to offer a competitive video
product. These subsidiaries are also subject to the jurisdiction of
the FCC with respect to intercarrier compensation, interconnection,
and interstate and international rates and services, including
interstate access charges. Access charges are a form of
intercarrier compensation designed to reimburse our wireline
subsidiaries for the use of their networks by other carriers.
Our subsidiaries operating outside the United States are subject
to the jurisdiction of national and supranational regulatory
authorities in the market where service is provided.
The following discussion highlights significant regulatory
issues directly affecting our operations:
Communications Segment
Wireless
The industry-wide deployment of 5G technology, which is needed
to satisfy extensive demand for video and internet access, will
involve significant deployment of "small cell" equipment and
therefore increase the need for local permitting processes that
allow for the placement of small cell equipment on reasonable
timelines and terms. Federal regulations also can delay and impede
broadband services, including small cell equipment. In March,
August and September 2018, the FCC adopted orders to streamline the
wireless infrastructure review process in order to facilitate
deployment of next-generation wireless facilities. Specifically,
the FCC's March 2018 Order streamlined historical, tribal, and
environmental review requirements for wireless infrastructure,
including the exclusion of most small cell facilities from such
review. The Order was appealed and in August 2019, the D.C. Circuit
Court of Appeals vacated the FCC's finding that most small cell
facilities are excluded from review, but otherwise upheld the FCC's
Order. The FCC's August and September 2018 Orders simplified the
regulations for attaching telecommunications equipment to utility
poles and clarified when local government right-of-way access and
use restrictions can be preempted because they unlawfully prohibit
the provision of telecommunications services. Those orders were
appealed to the 9th Circuit Court of Appeals, which in August 2020
largely upheld the FCC Orders. Those orders have been appealed and
the various appeals remain pending in the D.C. Circuit and 9th
Circuit Court of Appeals. In addition, to date, 31 states and
Puerto Rico have adopted legislation to facilitate small cell
deployment.
Internet
In February 2015, the FCC released an order classifying both
fixed and mobile consumer broadband internet access services as
telecommunications services, subject to Title II of the
Communications Act. The Order, which represented a departure from
longstanding bipartisan precedent, significantly expanded the FCC's
authority to regulate broadband internet access services, as well
as internet interconnection arrangements. In December 2017, the FCC
reversed its 2015 decision by reclassifying fixed and mobile
consumer broadband services as information services and repealing
most of the rules that were adopted in 2015. In lieu of broad
conduct prohibitions, the order requires internet service providers
to disclose information about their network practices and terms of
service, including whether they block or throttle internet traffic
or offer paid prioritization. On October 1, 2019, the D.C. Circuit
issued a unanimous opinion upholding the FCC's reclassification of
broadband as an information service, and its reliance on
transparency requirements and competitive marketplace dynamics to
safeguard net neutrality. While the court vacated the FCC's express
preemption of any state regulation of net neutrality, it stressed
that its ruling did not prevent the FCC or ISPs from relying on
conflict preemption to invalidate particular state laws that are
inconsistent with the
FCC's regulatory objectives and framework. The court also
remanded the matter to the FCC for further consideration of the
impact of reclassifying broadband services as information services
on public safety, the Lifeline program, and pole attachment
regulation. In October 2020, the FCC adopted an order concluding
that those issues did not justify reversing its decision to
reclassify
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AT&T Inc.
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broadband services as information services. An appeal of the
FCC's remand decision is pending.
Following the FCC's 2017 decision to reclassify broadband as
information services, a number of states adopted legislation to
reimpose the very rules the FCC repealed. In some cases, state
legislation imposes requirements that go beyond the FCC's February
2015 order. Additionally, some state governors have issued
executive orders that effectively reimpose the repealed
requirements. Suits have been filed concerning laws in California
and Vermont. Both lawsuits were stayed pursuant to agreements by
those states not to enforce their laws pending final resolution of
all appeals of the FCC's December 2017 order. Because that order is
now final, the California suit has returned to active status.
Nonetheless, enforcement of both the California and Vermont laws
remain stayed pending a ruling by a U.S. District Court in
California on motions for a preliminary injunction against
enforcement of the California law. Argument on those motions is now
scheduled for February 2021. We expect that going forward
additional states may seek to impose net neutrality requirements.
We will continue to support congressional action to codify a set of
standard consumer rules for the internet.
Privacy-related legislation continues to be adopted or
considered in a number of jurisdictions. Legislative, regulatory
and litigation actions could result in significant penalties,
increased costs of compliance, further regulation or claims against
broadband internet access service providers and others, and
increased uncertainty in the value and availability of data.
WarnerMedia Segment
WarnerMedia creates, owns and distributes intellectual property,
including copyrights, trademarks and licenses of intellectual
property. To protect its intellectual property, WarnerMedia relies
on a combination of laws and license agreements. Outside the U.S.,
laws and regulations relating to intellectual property protection
and the effective enforcement of these laws and regulations vary
greatly from country to country. The European Union is pursuing
legislative and regulatory initiatives which could impact
WarnerMedia's activities in the EU. Piracy, particularly of digital
content, continues to threaten revenues from WarnerMedia's products
and services, as well as revenues from our pay TV business, and we
work to limit that threat through a combination of approaches,
including technological and legislative solutions. Outside the
U.S., various laws and regulations, as well as trade agreements
with the U.S., also apply to the distribution or licensing of
feature films for exhibition in theaters and on broadcast and cable
networks. For example, in certain countries, including China, laws
and regulations limit the number of foreign films exhibited in such
countries in a calendar year.
Additional information relating to regulation of our
subsidiaries is contained under the headings "Operating Environment
Overview" and "Regulatory Developments" of Item 7.
IMPORTANCE, DURATION AND EFFECT OF LICENSES
Certain of our subsidiaries own or have licenses to various
patents, copyrights, trademarks and other intellectual property
necessary to conduct business. Many of our subsidiaries also hold
government-issued licenses or franchises to provide wireline,
satellite or wireless services. Additional information relating to
regulation affecting those rights is contained under the heading
"Operating Environment Overview," of Item 7. We actively pursue
patents, trademarks and service marks to protect our intellectual
property within the United States and abroad. We maintain a
significant global portfolio of patents, trademarks and service
mark registrations. We have also entered into agreements that
permit other companies, in exchange for fees and rights, and
subject to appropriate safeguards and restrictions, to utilize
certain of our patents, trademarks and service marks. As we
transition our network from a switch-based network to an IP,
software-based network, we have increasingly entered into licensing
agreements with software developers.
We periodically receive offers from third parties to obtain
licenses for patents and other intellectual rights in exchange for
royalties or other payments. We also receive notices asserting that
our products or services sold to customers or software-based
network functions infringe on their patents and other intellectual
property rights. These claims, whether against us directly, such as
network functions or against third-party suppliers of products or
services that we, in turn, sell to our customers, such as wireless
handsets, could require us to pay damages, royalties, stop offering
the relevant products or services and/or cease network functions or
other activities. While the outcome of any litigation is uncertain,
we do not believe that the resolution of any of these infringement
claims or the expiration or non-renewal of any of our intellectual
property rights would have a material adverse effect on our results
of operations.
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AT&T Inc.
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MAJOR CUSTOMERS
No customer accounted for 10% or more of our consolidated
revenues in 2020, 2019 or 2018.
COMPETITION
Competition continues to increase for communications, media
entertainment and digital services from traditional and
nontraditional competitors. Technological advances have expanded
the types and uses of services and products available. In addition,
lack of or a reduced level of regulation of comparable legacy
services has lowered costs for alternative communications service
providers. As a result, we face continuing competition as well as
some new opportunities in significant portions of our business.
Wireless We face substantial competition in our wireless
businesses. Under current FCC rules, multiple licensees, who
provide wireless services on the cellular, PCS, Advanced Wireless
Services, 700 MHz and other spectrum bands, may operate in each of
our U.S. service areas. Our competitors include two national
wireless providers; a larger number of regional providers and
resellers of those services; and certain cable companies. In
addition, we face competition from providers who offer voice, text
messaging and other services as applications on data networks. We
are one of four facilities-based providers in Mexico (retail and
wholesale), with the most significant market share controlled by
América Móvil. We may experience significant competition from
companies that provide similar services using other communications
technologies and services. While some of these technologies and
services are now operational, others are being developed or may be
developed. We compete for customers based principally on
service/device offerings, price, network quality, coverage area and
customer service.
Video/Broadband Our businesses providing communications and
digital entertainment services will face continued competitive
pressure in 2021 from multiple providers, including wireless,
satellite, cable, online video providers, and resellers. In
addition, 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 or competitors'
wireless, satellite and internet-based services. We have launched
our own video OTT and/or streaming options to attract or retain
customers that do not want a full-scale traditional video package.
In most U.S. markets, we compete for customers with large cable
companies for high-speed internet, video and voice services and
other smaller telecommunications companies for both long-distance
and local services. In addition, in Latin American countries served
by our Vrio subsidiary, we also face competition from other video
providers, including América Móvil and Telefónica.
Legacy Voice and Data We continue to lose legacy voice and data
subscribers due to competitors (e.g., wireless, cable and VoIP
providers) who can provide comparable services at lower prices
because they are not subject to traditional telephone industry
regulation (or the extent of regulation they are subject to is in
dispute), utilize different technologies or promote a different
business model (such as advertising-based). In response to these
competitive pressures, for a number of years we have used a
bundling strategy that rewards customers who consolidate their
services with us. We continue to focus on bundling services,
including combined packages of wireless and video service through
our IP-based services. We will continue to develop innovative and
integrated services that capitalize on our wireless and IP-based
network.
Additionally, we provide local and interstate telephone and
switched services to other service providers, primarily large
internet service providers using the largest class of nationwide
internet networks (internet backbone), wireless carriers, other
telephone companies, cable companies and systems integrators. These
services are subject to additional competitive pressures from the
development of new technologies, the introduction of innovative
offerings and increasing satellite, wireless, fiber-optic and cable
transmission capacity for services. We face a number of
international competitors, including Orange Business Services, BT,
Singapore Telecommunications Limited and Verizon Communications
Inc., as well as competition from a number of large systems
integrators.
Media Our WarnerMedia businesses face shifts in consumer viewing
patterns, increased competition from streaming services and the
expansion by other companies, in particular, technology companies.
In May 2020, we launched HBO Max, our platform for premium content
and video offered directly to consumers, as well as through our
traditional distributors.
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AT&T Inc.
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WarnerMedia competes with other studios and television
production groups and independents to produce and sell programming.
Many television networks and online platforms have affiliated
production companies from which they are increasingly obtaining
their programming, which has reduced their demand for programming
from non-affiliated production companies. WarnerMedia also faces
competition from other television networks, online platforms, and
premium pay television services for distribution and marketing of
its television networks and premium pay and basic tier television
services by affiliates.
Our WarnerMedia businesses compete with other production
companies and studios for the services of producers, directors,
writers, actors and others and for the acquisition of literary
properties. In recent years, technology companies also have begun
to produce programming and compete with WarnerMedia for talent and
property rights.
Advertising The increased amount of consumer time spent online
and on mobile activities has resulted in the shift of advertising
budgets away from traditional television to digital advertising.
WarnerMedia's advertising-supported television networks and digital
properties compete with streaming services, other networks and
digital properties, print, radio and other media. Our programmatic
advertising business faces competition from a variety of technology
companies. Similar to all participants in the advertising
technology sector, we contend with the dominance of Google, as well
as the influence of Facebook, whose practices may result in the
decreased ability and willingness of advertisers and programmers to
adopt programmatic solutions offered by alternative suppliers.
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, satellite technology, video platform development
and data analytics. The majority of the development activities are
performed to create new services and to invent tools and systems to
manage secure and reliable networks for us and our customers.
Research and development expenses were $1,210 in 2020, $1,276 in
2019, and $1,194 in 2018.
HUMAN CAPITAL
Number of Employees As of January 31, 2021, we employed
approximately 230,000 persons.
Employee Development We believe our success depends on our
employees' success and that all employees must have the skills they
need to thrive. We offer training and elective courses that give
employees the opportunity to enhance their skills. We also intend
to help cultivate the next generation of talent that will lead our
company into the future by providing employees with educational
opportunities through our award-winning internal training
organization, AT&T University.
Labor Contracts Approximately 37% of our employees are
represented by the Communications Workers of America (CWA), the
International Brotherhood of Electrical Workers (IBEW) or other
unions. After expiration of the collective bargaining agreements,
work stoppages or labor disruptions may occur in the absence of new
contracts or other agreements being reached. There are no
significant contracts expiring in 2021. A contract covering
approximately 14,000 Mobility employees in 36 states and the
District of Columbia that was set to expire in February 2021 was
extended until February 2022. A contract covering approximately
10,000 Mobility employees in nine Southeast states that was set to
expire in February 2022 was extended until February 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,
2020, we had approximately 517,000 retirees and dependents that
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.
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Employee Safety We provide our employees access to flexible and
convenient health and welfare programs and workplace
accommodations. In response to the COVID-19 pandemic, we consulted
with medical professionals to institute policies that best
protected our employees and their families. We have prioritized
self-care and emphasized a focus on wellness, providing personal
protective equipment, flexible scheduling or time-off options and
implementing technologies to enhance the necessary remote-work
environment. As we look to life and operations beyond the pandemic,
we are revising our business models to support flexible office
space and at-home productivity for many employees on a permanent
basis.
Diversity and Inclusion We believe that championing diversity
and fostering inclusion do more than just make us a better company,
they contribute to a world where people are empowered to be their
very best. That is why one of our core values is to stand for
equality and why our mission is to inspire human progress through
the power of communication and entertainment.
To have a diverse and inclusive workforce, we have put an
emphasis on attracting and hiring talented people who represent a
mix of genders, races, abilities 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, project management and media and entertainment
technology. When everyone's unique story is celebrated, we are able
to connect, create and innovate in real and meaningful ways. It is
important that our employees feel valued, have a sense of belonging
and are fully engaged in our success.
ITEM 1A. RISK FACTORS
In addition to the other information set forth in this document,
including the matters contained under the caption "Cautionary
Language Concerning Forward-Looking Statements," you should
carefully read the matters described below. We believe that each of
these matters could materially affect our business. We recognize
that most of these factors are beyond our ability to control and
therefore we cannot predict an outcome.
Macro-economic Factors:
Adverse changes in the U.S. securities markets, interest rates
and medical costs could materially increase our benefit plan costs
and future funding requirements.
Our costs to provide current benefits and funding for future
benefits are subject to increases, primarily due to continuing
increases in medical and prescription drug costs, and can be
affected by lower returns on assets held by our pension and other
benefit plans, which are reflected in our financial statements for
that year. In calculating the costs included on our financial
statements of providing benefits under our plans, we have made
certain assumptions regarding future investment returns, interest
rates and medical costs. These assumptions could change
significantly over time and could be materially different than
originally projected. Lower than assumed investment returns, a
decline in interest rates with a corresponding increase in our
benefit obligations, and higher than assumed medical and
prescription drug costs will increase expenses.
The Financial Accounting Standards Board requires companies to
recognize the funded status of defined benefit pension and
postretirement plans as an asset or liability in their statement of
financial position and to recognize changes in that funded status
in the year in which the changes occur. We have elected to reflect
the annual adjustments to the funded status in our consolidated
statement of income. Therefore, an increase in our costs or adverse
market conditions will have a negative effect on our operating
results.
Significant adverse changes in capital markets could result in
the deterioration of our defined benefit plans' funded status and
result in increased contribution requirements for such plans, which
could be material.
14
AT&T Inc.
Dollars in millions except per share amounts
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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 2020, uncertainty surrounding global growth rates and the
impact of the COVID-19 pandemic helped create volatility in the
credit, currency, equity and fixed income 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 LIBOR, has
announced that it intends to phase out LIBOR by the end of 2021.
Although our securities may provide for alternative methods of
calculating the interest rate payable on such indebtedness,
uncertainty as to the extent and manner of future changes may
adversely affect the current trading market for LIBOR-based
securities, and the value of variable rate indebtedness in general.
A company's cost of borrowing is also affected by evaluations given
by various credit rating agencies and these agencies have been
applying tighter credit standards when evaluating debt levels and
future growth prospects. While we have been successful in
continuing to access the credit and fixed income markets when
needed, adverse changes in the financial markets could render us
either unable to access these markets or able to access these
markets only at higher interest costs and with restrictive
financial or other conditions, severely affecting our business
operations. Additionally, downgrades of our credit rating by the
major credit rating agencies could increase our cost of borrowing
and also impact the collateral we would be required to post under
certain agreements we have entered into with our derivative
counterparties, which could negatively impact our liquidity.
Further, valuation changes in our derivative portfolio due to
interest rates and foreign exchange rates could require us to post
collateral and thus may negatively impact our liquidity.
Our international operations have increased our exposure to
political instability, to changes in the international economy and
to the level of regulation on our business and these risks could
offset our expected growth opportunities.
We have international operations, particularly in Latin America,
including Mexico, and worldwide through WarnerMedia's content
distribution. We need to comply with a wide variety of complex
local laws, regulations and treaties. We are exposed to
restrictions on cash repatriation, foreign exchange controls,
fluctuations in currency values, changes in relationships between
U.S. and foreign governments, trade restrictions including
potential tariffs, differences in intellectual property protection
laws, and other regulations that may affect materially our
earnings. Our Mexico operations, in particular, rely on a
continuation of a regulatory regime that fosters competition. While
our foreign operations represent significant opportunities to sell
our services, a number of foreign countries where we operate have
experienced unstable growth patterns, increased inflation, currency
devaluation, foreign exchange controls, instability in the banking
sector and high unemployment. In addition, significant political
turmoil has continued in several Latin American countries. Should
these conditions persist, our ability to offer service in one or
more countries could be adversely affected and customers in these
countries may be unable to purchase the services we offer or pay
for services already provided. For example, we found it necessary
in May 2020 to close our DIRECTV operations in Venezuela due to
political instability in the country and in order to comply with
sanctions of the U.S. government.
In addition, operating in foreign countries also typically
involves participating with local businesses, either to comply with
local laws or, for example, to enhance product marketing, deploy
networks or execute on other capital projects. Involvement with
foreign firms exposes us to the risk of being unable to control the
actions of those firms and therefore exposes us to risks associated
with our obligation to comply with the Foreign Corrupt Practices
Act (FCPA). Violations of the FCPA could have a material adverse
effect on our operating results.
15
AT&T Inc.
Dollars in millions except per share amounts
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Industry-wide Factors:
Our business is subject to risks arising from the outbreak of
the COVID-19 virus.
The COVID-19 pandemic and resulting mitigation measures have
caused, and may continue to cause, a negative effect on our
operating results. To date, mitigation measures have caused sports
leagues to modify their seasons and suspend certain operations as
the cancellation of many sporting events, including the 2020 NCAA
tournament, which has adversely affected our advertising revenues,
may result in contract disputes concerning carriage rights and has
caused us to incur expenses relating to certain of these sporting
events notwithstanding their cancellation. The closure or avoidance
of theaters, and the interruptions in movie production and other
programming caused by COVID-19 are expected to continue to impact
the timing of revenues and may cause a loss of revenue to our
WarnerMedia business over the long term. The COVID-19 pandemic
could also drive higher costs for our WarnerMedia business in 2021
based on the hybrid distribution model for releasing films in 2021
and costs associated with safety measures put in place to help
provide a safe environment for content production. If the
mitigation measures or the associated effects are prolonged, we
expect business customers in industries most significantly impacted
will continue to reduce or terminate services, having a negative
effect on the performance of our Business Wireline business unit.
Further, concerns over the COVID-19 pandemic could again result in
the prolonged closure of many of our retail stores and deter
customers from accessing our stores even as the pandemic subsides.
These pandemic concerns may also result in continued impact to our
customers' ability to pay for our products and services. We may
also continue to see significant impact on roaming revenues due to
a downturn in international travel. The COVID-19 pandemic has
caused and could further cause reduced staffing levels at our call
centers and field operations, resulting in delays in service.
Further reductions in staffing levels could additionally limit our
ability to provide services, adversely impacting our competitive
position. We may also incur significantly higher expenses
attributable to infrastructure investments required to meet higher
network utilization from more customers consuming bandwidth from
changes in work from home trends; extended cancellation periods;
and increased labor costs if the COVID-19 pandemic continues for an
extended period.
The COVID-19 pandemic and mitigation measures have caused, and
may continue to cause, adverse impacts on global economic
conditions and consumer confidence, spending and consumer behavior,
which could affect demand for our products and services. The extent
to which the COVID-19 pandemic impacts our business results of
operations, cash flows and financial condition will depend on
future developments that are highly uncertain and cannot be
predicted, including new information that may emerge concerning
other strains of the virus and the actions to contain its impact.
Due to the speed with which the situation continues to develop and
change, we are not able at this time to estimate the additional
impact of COVID-19 on our financial or operational results, but the
impact could be material.
Changes to federal, state and foreign government regulations and
decisions in regulatory proceedings, as well as private litigation,
could further increase our operating costs and/or alter customer
perceptions of our operations, which could materially adversely
affect us.
Our subsidiaries providing wired services are subject to
significant federal and state regulation while many of our
competitors are not. In addition, our subsidiaries and affiliates
operating outside the United States are also subject to the
jurisdiction of national and supranational regulatory authorities
in the market where service is provided. Our wireless and various
video subsidiaries are regulated to varying degrees by the FCC and
in some instances, by state and local agencies. Adverse regulations
and rulings by the FCC relating to broadband, wireless deployment
and satellite video issues could impede our ability to manage our
networks and recover costs and lessen incentives to invest in our
networks. The continuing growth of IP-based services, especially
when accessed by wireless devices, has created or potentially could
create conflicting regulation between the FCC and various state and
local authorities, which may involve lengthy litigation to resolve
and may result in outcomes unfavorable to us. In addition,
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.
16
AT&T Inc.
Dollars in millions except per share amounts
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Continuing growth in and the converging nature of wireless,
video 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, video and broadband services are undergoing rapid and
significant technological changes and a dramatic increase in usage,
in particular, the demand for faster and seamless usage of video
and data across mobile and fixed devices. The COVID-19 pandemic has
accelerated these changes and also resulted in higher network
utilization, as more customers consume bandwidth from changes in
work from home trends. We must continually invest in our networks
in order to improve our wireless, video 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 video, data and voice between cell and
fixed landline sites. To this end, we participate in spectrum
auctions and continue to deploy software and other technology
advancements in order to efficiently invest in our network.
Network service enhancements and product launches may not occur
as scheduled or at the cost expected due to many factors, including
delays in determining equipment and wireless handset operating
standards, supplier delays, software issues, increases in network
and handset component costs, regulatory permitting delays for tower
sites or enhancements, or labor-related delays. Deployment of new
technology also may adversely affect the performance of the network
for existing services. If we cannot acquire needed spectrum or
deploy the services customers desire on a timely basis with
acceptable quality and at reasonable costs, then our ability to
attract and retain customers, and, therefore, maintain and improve
our operating margins, could be materially adversely affected.
Increasing competition for wireless customers could materially
adversely affect our operating results.
We have multiple wireless competitors in each of our service
areas and compete for customers based principally on service/device
offerings, price, network quality, coverage area and customer
service. In addition, we are facing growing competition from
providers offering services using advanced wireless technologies
and IP-based networks. We expect market saturation to continue to
cause the wireless industry's customer growth rate to moderate in
comparison with historical growth rates, leading to increased
competition for customers. Our share of industry sales could be
reduced due to aggressive pricing strategies pursued by
competitors. We also expect that our customers' growing demand for
high-speed video and data services will place constraints on our
network capacity. These competition and capacity constraints will
continue to put pressure on pricing and margins as companies
compete for potential customers. Our ability to respond will
depend, among other things, on continued improvement in network
quality and customer service and our ability to price our products
and services competitively as well as effective marketing of
attractive products and services. These efforts will involve
significant expenses and require strategic management decisions on,
and timely implementation of, equipment choices, network deployment
and service offerings.
Ongoing changes in the television industry and consumer viewing
patterns could materially adversely affect our operating
results.
Our video subsidiaries derive substantial revenues and profits
from cable networks and premium pay television services and the
production and licensing of television programming to broadcast and
cable networks and premium pay television services. The U.S.
television industry is continuing to evolve rapidly, with
developments in technology leading to new methods for the
distribution of video content and changes in when, where and how
audiences consume video content. These changes have led to (1)
internet-based streaming competitors, which are increasing in
number and some of which have significant and growing
subscriber/user bases, and (2) reduced viewers of traditional
advertising-supported television resulting from increased video
consumption through SVOD services (including our own), time-shifted
viewing of television programming and the use of DVRs to skip
advertisements. The number of subscribers to traditional linear
programming in the U.S. has been declining in recent years and the
U.S. television industry has generally experienced declines in
ratings for programming, which have negatively affected
subscription and advertising revenues, and these trends are
expected to continue. The popularity of content, whether on
television, on the internet, or through movies, is difficult to
predict and can change rapidly, and low public acceptance of our
television, OTT and movie content, including WarnerMedia's content,
could adversely affect our results of operations. We are taking
steps to mitigate the risks from these changes, such as the launch
of our HBO Max direct-to-consumer streaming platform and new,
enhanced advertising opportunities, but there can be no assurance
that these and other efforts will be successful in responding to
these changes.
17
AT&T Inc.
Dollars in millions except per share amounts
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Intellectual property rights may be adversely affected by piracy
or be inadequate to take advantage of business opportunities, such
as new distribution platforms, which may materially adversely
affect our operations.
Increased piracy of video content, products and other
intellectual property, particularly in our foreign WarnerMedia and
Latin American operations, will decrease revenues. Mobile and
broadband technological developments have made it easier to
reproduce and distribute high-quality unauthorized copies of
content. Piracy is particularly prevalent in countries that lack
effective copyright and other legal protections or enforcement
measures and thieves can attract users throughout the world.
Effective intellectual property protection may not be available in
every country where we operate. We may need to spend significant
amounts of money to protect our rights. We are also increasingly
negotiating broader licensing agreements to expand our ability to
use new methods to distribute content to customers. Any impairment
of our intellectual property rights, including due to changes in
U.S. or foreign intellectual property laws or the absence of
effective legal protections or enforcement measures, or our
inability to negotiate broader distribution rights, could
materially adversely impact our operations.
Incidents leading to damage to our reputation, and any resulting
lawsuits, claims or other legal proceedings, could have a material
adverse effect on our business.
We believe that our brand image, awareness and reputation
strengthen our relationship with consumers and contribute
significantly to the success of our business. We strive to create a
culture in which our colleagues act with integrity and respect and
feel comfortable speaking up to report instances of misconduct or
other concerns. Our ability to attract and retain employees is
highly dependent upon our commitment to a diverse and inclusive
workplace, ethical business practices and other qualities. Acts of
misconduct by any employee, and particularly by senior management,
could erode trust and confidence and damage our reputation.
Negative public opinion could result from actual or alleged conduct
by us or those currently or formerly associated with us, and from
any number of activities or circumstances, including operations,
employment-related offenses (such as sexual harassment and
discrimination), regulatory compliance and actions taken by
regulators or others in response to such conduct. We have in the
past been, and may in the future be, named as a defendant in
lawsuits, claims and other legal proceedings that arise in the
ordinary course of our business based on alleged acts of misconduct
by employees. These actions seek, among other things, compensation
for alleged personal injury (including claims for loss of life),
workers' compensation, employment discrimination, sexual
harassment, workplace misconduct, wage and hour claims and other
employment-related damages, compensation for breach of contract,
statutory or regulatory claims, negligence or gross negligence,
punitive damages, consequential damages, and civil penalties or
other losses or injunctive or declaratory relief. The outcome of
any allegations, lawsuits, claims or legal proceedings is
inherently uncertain and could result in significant costs, damage
to our brands or reputation and diversion of management's attention
from our business. Additionally, our news organization makes
editorial judgments around what is covered and how it is covered in
the normal course of business. Although we have disciplined
practices that are used to make such editorial judgments, it is
possible that our news coverage alienates some consumers, adversely
impacts our reputation and therefore impacts demand for our other
products and services. Any damage to our reputation or payments of
significant amounts, even if reserved, could materially and
adversely affect our business, reputation, financial condition,
results of operations and cash flows.
Company-Specific Financial Factors:
Adoption of new software-based technologies may involve quality
and supply chain issues and could increase capital costs.
The communications and digital entertainment industry has
experienced rapid changes in the past several years. An increasing
number of our customers are using mobile devices as the primary
means of viewing video and an increasing number of nontraditional
video providers are developing content and technologies to satisfy
the desire for video entertainment demand. In addition, businesses
and government bodies are broadly shifting to wireless-based
services for homes and infrastructure to improve services to their
respective customers and constituencies. We are spending
significant capital to shift our wired network to software-based
technology to manage this demand and are expanding 5G wireless
technology to address these consumer demands. We are entering into
a significant number of software licensing agreements and working
with software developers to provide network functions in lieu of
installing switches or other physical network equipment in order to
respond to rapid developments in video and wireless demand. While
software-based functionality can be changed much more quickly than,
for example, physical switches, the rapid pace of development means
that we may increasingly need to rely on single-source and software
solutions that have not previously been deployed in production
environments. Should this software not function as intended or our
license agreements provide inadequate protection from intellectual
property infringement claims, we could be forced to either
substitute (if available) or else spend time to develop alternative
technologies at a much higher cost and incur harm to our reputation
for reliability, and, as a result, our ability to remain
competitive could be materially adversely affected.
18
AT&T Inc.
Dollars in millions except per share amounts
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We depend on various suppliers to provide equipment to operate
our business and satisfy customer demand and interruption or delay
in supply can adversely impact our operating results.
We depend on suppliers to provide us, directly or through other
suppliers, with items such as network equipment, customer premises
equipment, video equipment and wireless-related equipment such as
mobile hotspots, handsets, wirelessly enabled computers, wireless
data cards and other connected devices for our customers. These
suppliers could fail to provide equipment on a timely basis, or
fail to meet our performance expectations, for a number of reasons,
including difficulties in obtaining export licenses for certain
technologies, inability to secure component parts, general business
disruption, natural disasters, safety issues, economic and
political instability and public health emergencies such as the
COVID-19 pandemic. The COVID-19 pandemic has caused, and may again
cause, delays in the development, manufacturing (including the
sourcing of key components) and shipment of products. In certain
limited circumstances, suppliers have been unable to supply
products in a timely fashion. In such limited circumstances, we
have been unable to provide products and services precisely as and
when requested by our customers. It is possible that, in some
circumstances, we could be forced to switch to a different key
supplier. Because of the cost and time lag that can be associated
with transitioning from one supplier to another, our business could
be substantially disrupted if we were required to, or chose to,
replace the products of one or more key suppliers with products
from another source, especially if the replacement became necessary
on short notice. Any such disruption could increase our costs,
decrease our operating efficiencies and have a negative effect on
our operating results.
Increasing costs to provide video and other services 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. In addition, most of our video
programming that we distribute via our linear services is provided
by other companies and historically the rates they charge us for
programming have often increased more than the rate of inflation.
In addition, as customer viewing habits shift to mobile, on-demand
and streaming from linear programming, negotiating licensing rights
is increasingly complicated. We are attempting to use our scale and
access to wireless customers to change this trend but such
negotiations are difficult and also may result in programming
disruption. Our HBO Max streaming platform is another component of
our strategy to reach nontraditional video customers and we are
investing heavily to provide a competitive and attractive offering.
If we are unable to restrain these costs or provide programming
desired by our customers, it could impact margins and our ability
to attract and retain customers. Our WarnerMedia operations, which
create and license content to other providers, also may experience
increasing difficulties securing favorable terms, including those
related to pricing, positioning and packaging, during contract
negotiations, which may lead to blackouts of WarnerMedia
programming, and WarnerMedia may face greater difficulty in
achieving placement of its networks and premium pay television
services in offerings by third parties.
A number of our competitors offering comparable legacy services
that rely on alternative technologies and business models are
typically subject to less (or no) regulation, and therefore are
able to operate with lower costs. These competitors generally can
focus on discrete customer segments since they do not have
regulatory obligations to provide universal service. Also, these
competitors have cost advantages compared to us, due in part to
operating on newer, more technically advanced and lower-cost
networks and 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, which are designed to reduce costs, streamline
distribution, remove redundancies and simplify and improve
processes and support functions. Our focus is on supporting added
customer value with an improved customer experience. We intend for
these efficiencies to enable increased investments in our strategic
areas of focus which consist of improving broadband connectivity
(for example, fiber and 5G), developing software-based
entertainment (such as HBO Max and AT&T TV) and utilizing
WarnerMedia's storytelling legacy to engage consumers and gain
insights across multiple distribution points. If we do not
successfully manage and execute these initiatives, or if they are
inadequate or ineffective, we may fail to meet our financial goals
and achieve anticipated benefits, improvements may be delayed, not
sustained or not realized and our business, operations and
competitive position could be adversely affected.
19
AT&T Inc.
Dollars in millions except per share amounts
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If our efforts to attract and retain subscribers to our new HBO
Max platform are not successful, our business will be adversely
affected.
HBO Max's future success is subject to inherent uncertainty. Our
ability to continue to attract subscribers to the HBO Max platform
will depend in part on our ability to consistently provide
subscribers with compelling content choices, as well as a quality
experience for selecting and viewing those content choices.
Furthermore, the relative service levels, content offerings,
promotions, and pricing and related features of competitors to HBO
Max may adversely impact our ability to attract and retain
subscribers. If consumers do not perceive our offerings to be of
value, including if we introduce new or adjust existing features,
adjust pricing or offerings, terminate or modify promotional or
trial period offerings, experience technical issues, or change the
mix of content in a manner that is not favorably received by them,
we may not be able to attract and retain subscribers. In addition,
many subscribers to these types of offerings originate from
word-of-mouth advertising from then existing subscribers. If our
efforts to satisfy subscribers are not successful, including
because we terminate or modify promotional or trial-period
offerings or because of technical issues with the platform, we may
not be able to attract or retain subscribers, and as a result, our
ability to maintain and/or grow our business will be adversely
affected.
If subscribers cancel or decide to not continue subscriptions
for any reason, including a perception that they do not use it
sufficiently, the need to cut household expenses, unsatisfactory
availability of content, promotions or trial-period offers expire
or are modified, competitive services or promotions provide a
better value or experience, and customer service or technical
issues are not satisfactorily resolved, our business will be
adversely affected. We must continually add new subscribers both to
replace canceled subscribers and to grow our business. If we do not
grow as expected, given, in particular, that a significant portion
of our content costs are committed and contracted over several
years based on minimum subscriber delivery levels, we may not be
able to adjust our expenditures or increase our (per subscriber)
revenues commensurate with the lowered growth rate such that our
margins, liquidity and results of operations may be adversely
impacted. If we are unable to successfully compete with competitors
in retaining and attracting new subscribers, our business will be
adversely affected. Further, if excessive numbers of subscribers do
cancel, we may be required to incur significantly higher marketing
expenditures or offer significantly more generous promotions to
replace these subscribers with new subscribers.
Unfavorable litigation or governmental investigation results
could require us to pay significant amounts or lead to onerous
operating procedures.
We are subject to a number of lawsuits both in the United States
and in foreign countries, including, at any particular time, claims
relating to antitrust; patent infringement; wage and hour; personal
injury; customer privacy violations; regulatory proceedings; and
selling and collection practices. We also spend substantial
resources complying with various government standards, which may
entail related investigations and litigation. In the wireless area,
we also face current and potential litigation relating to alleged
adverse health effects on customers or employees who use such
technologies including, for example, wireless devices. We may incur
significant expenses defending such suits or government charges and
may be required to pay amounts or otherwise change our operations
in ways that could materially adversely affect our operations or
financial results.
Cyberattacks, equipment failures, natural disasters and
terrorist acts may materially adversely affect our operations.
Cyberattacks, major equipment failures or natural disasters,
such as flooding, hurricanes and forest fires, whether caused by
discrete severe weather events and/or precipitated by long-term
climate change and earthquakes, software problems, terrorist acts
or other breaches of network or IT security that affect our
networks, including software and switches, microwave links,
third-party-owned local and long-distance networks on which we
rely, our cell sites or other equipment, our satellites, our
customer account support and information systems, or employee and
business records could have a material adverse effect on our
operations. Our wired network in particular is becoming
increasingly reliant on software as it evolves to handle increasing
demands for video transmission. While we have been subject to
security incidents or cyberattacks, these did not result in a
material adverse effect on our operations. However, as such attacks
continue to increase in scope and frequency, we may be unable to
prevent a significant attack in the future. Our ability to maintain
and upgrade our video programming also depends on our ability to
successfully deploy and operate video satellites. Our inability to
deploy or operate our networks or customer support systems or
protect sensitive personal information of customers or employees or
valuable technical and marketing information could result in
significant expenses, potential legal liability, a loss of current
or future customers and reputation damage, any of which could have
a material adverse effect on our operations and financial
condition.
20
AT&T Inc.
Dollars in millions except per share amounts
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Increases in our debt levels to fund acquisitions, additional
spectrum purchases, or other strategic decisions could adversely
affect our ability to finance future debt at attractive rates and
reduce our ability to respond to competition and adverse economic
trends.
We have incurred debt to fund significant acquisitions, as well
as spectrum purchases needed to compete in our industry. While we
believe such decisions were prudent and necessary to take advantage
of both growth opportunities and respond to industry developments,
we did experience credit-rating downgrades from historical levels.
Banks and potential purchasers of our publicly traded debt may
decide that these strategic decisions and similar actions we may
take in the future, as well as expected trends in the industry,
will continue to increase the risk of investing in our debt and may
demand a higher rate of interest, impose restrictive covenants or
otherwise limit the amount of potential borrowing. Additionally,
our capital allocation plan is focused on, among other things,
managing our debt level going forward. Any failure to successfully
execute this plan could adversely affect our cost of funds,
liquidity, competitive position and access to capital markets.
Our business may be impacted by changes in tax laws and
regulations, judicial interpretations of same or administrative
actions by federal, state, local and foreign taxing
authorities.
Tax laws are dynamic and subject to change as new laws are
passed and new interpretations of the law are issued or applied. In
many cases, the application of existing, newly enacted or amended
tax laws (such as the U.S. Tax Cuts and Jobs Act of 2017) may be
uncertain and subject to differing interpretations, especially when
evaluated against ever changing products and services provided by
our global telecommunications, media, and technology businesses. In
addition, tax legislation has been introduced or is being
considered in various jurisdictions that could significantly impact
our tax rate, tax liabilities, 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.
21
AT&T Inc.
Dollars in millions except per share amounts
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CAUTIONARY LANGUAGE CONCERNING FORWARD-LOOKING STATEMENTS
Information set forth in this report contains forward-looking
statements that are subject to risks and uncertainties, and actual
results could differ materially. Many of these factors are
discussed in more detail in the "Risk Factors" section. We claim
the protection of the safe harbor for forward-looking statements
provided by the Private Securities Litigation Reform Act of
1995.
The following factors could cause our future results to differ
materially from those expressed in the forward-looking
statements:
--The severity, magnitude and duration of the COVID-19 pandemic
and containment, mitigation and other measures taken in response,
including the potential impacts of these matters on our business
and operations.
--Our inability to predict the extent to which the COVID-19
pandemic and related impacts will continue to impact our business
operations, financial performance and results of operations.
--Adverse economic, political and/or capital access changes in
the markets served by us or in countries in which we have
significant investments and/or operations, including the impact on
customer demand and our ability and our suppliers' ability to
access financial markets at favorable rates and terms.
--Increases in our benefit plans' costs, including increases due
to adverse changes in the United States and foreign securities
markets, resulting in worse-than-assumed investment returns and
discount rates; adverse changes in mortality assumptions; adverse
medical cost trends; and unfavorable or delayed implementation or
repeal of healthcare legislation, regulations or related court
decisions.
--The final outcome of FCC and other federal, state or foreign
government agency proceedings (including judicial review, if any,
of such proceedings) and legislative efforts involving issues that
are important to our business, including, without limitation,
pending Notices of Apparent Liability; the transition from legacy
technologies to IP-based infrastructure, including the withdrawal
of legacy TDM-based services; universal service; broadband
deployment; wireless equipment siting regulations and, in
particular, siting for 5G service; E911 services; competition
policy; privacy; net neutrality; multichannel video programming
distributor services and equipment; content licensing and copyright
protection; availability of new spectrum on fair and balanced
terms; and wireless and satellite license awards and renewals.
--Enactment of additional state, local, federal and/or foreign
regulatory and tax laws and regulations, or changes to existing
standards and actions by tax agencies and judicial authorities
including the resolution of disputes with any taxing jurisdictions,
pertaining to our subsidiaries and foreign investments, including
laws and regulations that reduce our incentive to invest in our
networks, resulting in lower revenue growth and/or higher operating
costs.
--Potential changes to the electromagnetic spectrum currently
used for broadcast television and satellite distribution being
considered by the FCC could negatively impact WarnerMedia's ability
to deliver linear network feeds of its domestic cable networks to
its affiliates, and in some cases, WarnerMedia's ability to produce
high-value news and entertainment programming on location.
--U.S. and foreign laws and regulations, as well as possible
private rights of action, regarding intellectual property rights
protection and privacy, personal data protection and user consent
are complex and rapidly evolving and could result in adverse
impacts to our business plans, increased costs, or claims against
us that may harm our reputation.
--The ability of our competitors to offer product/service
offerings at lower prices due to lower cost structures and
regulatory and legislative actions adverse to us, including
non-regulation of comparable alternative technologies and/or
government-owned or subsidized networks.
--Disruption in our supply chain for a number of reasons,
including, difficulties in obtaining export licenses for certain
technology, inability to secure component parts, general business
disruption, natural disasters, safety issues, economic and
political instability and public health emergencies.
--The continued development and delivery of attractive and
profitable wireless, video and broadband offerings and devices,
and, in particular, the success of our HBO Max platform; the extent
to which regulatory and build-out requirements apply to our
offerings; our ability to match speeds offered by our competitors
and the availability, cost and/or reliability of the various
technologies and/or content required to provide such offerings.
--Our ability to generate advertising revenue from attractive
video content, especially from WarnerMedia, in the face of
unpredictable and rapidly evolving public viewing habits and legal
restrictions on the use of personal data.
--The availability and cost and our ability to adequately fund
additional wireless spectrum and network upgrades; and regulations
and conditions relating to spectrum use, licensing, obtaining
additional spectrum, technical standards and deployment and usage,
including network management rules.
--Our ability to manage growth in wireless data services,
including network quality and acquisition of adequate spectrum at
reasonable costs and terms.
--The outcome of pending, threatened or potential litigation
(which includes arbitrations), including, without limitation,
patent and product safety claims by or against third parties.
--The impact from major equipment or software failures on our
networks, including satellites operated by DIRECTV; 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; and in the case of satellites
launched, timely provisioning of services from vendors; or severe
weather conditions including flooding and hurricanes, natural
disasters including earthquakes and forest fires, pandemics, energy
shortages, wars or terrorist attacks.
--The issuance by the Financial Accounting Standards Board or
other accounting oversight bodies of new accounting standards or
changes to existing standards.
--Our ability to successfully integrate our WarnerMedia
operations, including the ability to manage various businesses in
widely dispersed business locations and with decentralized
management.
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--Changes in our corporate strategies, such as changing
network-related requirements or acquisitions and dispositions,
which may require significant amounts of cash or stock, to respond
to competition and regulatory, legislative and technological
developments.
--The uncertainty surrounding further congressional action to
address spending reductions, which may result in a significant
decrease in government spending and reluctance of businesses and
consumers to spend in general.
Readers are cautioned that other factors discussed in this
report, although not enumerated here, also could materially affect
our future earnings.
ITEM 2. PROPERTIES
Our properties do not lend themselves to description by
character and location of principal units. At December 31, 2020, of
our total property, plant and equipment, central office equipment
represented 29%; outside plant (including cable, wiring and other
non-central office network equipment) represented 23%; other
equipment, comprised principally of satellites, wireless network
equipment attached to towers, furniture and office equipment and
vehicles and other work equipment, represented 28%; land, building
and wireless communications towers represented 13%; and other
miscellaneous property represented 7%.
For our Communications segment, substantially all of the
installations of central office equipment are located in buildings
and on land we own. Many garages, administrative and business
offices, wireless towers, telephone centers and retail stores are
leased. Property on which communication towers are located may be
either owned or leased.
For our WarnerMedia segment, we own or lease offices; studios;
technical, production and warehouse spaces; communications
facilities and other properties in numerous locations globally.
ITEM 3. LEGAL PROCEEDINGS
We are a party to numerous lawsuits, regulatory proceedings and
other matters arising in the ordinary course of business. As of the
date of this report, we do not believe any pending legal
proceedings to which we or our subsidiaries are subject are
required to be disclosed as material legal proceedings pursuant to
this item.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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Information about our Executive Officers
(As of February 1, 2021)
Name Age Position Held Since
John T. Stankey 58 Chief Executive Officer and President 7/2020
Senior Executive Vice President - External
and Legislative Affairs, AT&T Services,
Edward W. Gillespie 59 Inc. 4/2020
Senior Executive Vice President and Chief
David S. Huntley 62 Compliance Officer 12/2014
Jason Kilar 49 Chief Executive Officer, Warner Media, LLC 5/2020
Chief Executive Officer-AT&T Latin America
Lori M. Lee 55 and Global Marketing Officer 8/2017
Senior Executive Vice President and General
David R. McAtee II 52 Counsel 10/2015
Chief Executive Officer, AT&T Communications,
Jeffery S. McElfresh 50 LLC 10/2019
Senior Executive Vice President - Human
Angela R. Santone 49 Resources 12/2019
Senior Executive Vice President and Chief
John J. Stephens 61 Financial Officer 6/2011
All of 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. Gillespie, Mr. Kilar and
Ms. Santone. Mr. Gillespie was previously Managing Director of Sard
Verbinnen & Co. from June 2018 to April 2020, Founder and
Principal of Ed Gillespie Strategies from February 2009 to December
2016, and Counselor to the President for George W. Bush, Executive
Office of the President at The White House, from July 2007 to
January 2009. Mr. Kilar was previously Co-Founder and Chief
Executive Officer of Vessel from 2013 to 2017 and Founder and Chief
Executive Officer of Hulu from 2007 to 2013. Ms. Santone was
previously Chief Administrative Officer of AT&T from May 2019
to December 2019, Executive Vice President and Global Chief Human
Resources Officer of Turner from February 2016 to April 2019, and
Senior Vice President and Chief Human Resources Officer of Turner
from June 2013 to January 2016. Executive officers are not
appointed to a fixed term of office.
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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, 2020 and 2019 was 858,373 and 891,449. The number of
stockholders of record as of February 12, 2021, was 854,769. We
declared dividends on common stock, on a quarterly basis, totaling
$2.08 per share in 2020 and $2.05 per share in 2019.
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Our Board of Directors has approved the following authorizations
to repurchase common stock: (1) March 2013 authorization program of
300 million shares (19 million outstanding at December 31, 2019,
which we completed during the first quarter of 2020) and (2) March
2014 authorization program for 300 million shares, with 178 million
outstanding at December 31, 2020. Excluding the impact of
acquisitions, our 2021 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.
To implement these authorizations, we used open market
repurchases, relying on Rule 10b5-1 of the Securities Exchange Act
of 1934, where feasible. We entered into an Accelerated Share
Repurchase agreement and repurchased $4,000 of common stock during
the first quarter of 2020.
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.
A summary of our repurchases of common stock during the fourth
quarter of 2020 is as follows:
ISSUER PURCHASES OF EQUITY SECURITIES
(a) (b) (c) (d)
Maximum Number
(or Approximate
Total Number of Dollar Value) of
Shares (or Units) Shares (or Units)
Purchased That May Yet Be
Total Number of Average Price as Part of Publicly Purchased Under
Shares (or Units) Paid Per Share Announced Plans The Plans or
Period Purchased 1,2,3 (or Unit) or Programs 1 Programs
October 1, 2020
-
October 31, 2020 294,518 $ 28.52 6,374 177,935,856
November 1, 2020
-
November 30, 2020 78,988 $ 28.69 5,062 177,930,794
December 1, 2020
-
December 31, 2020 702,940 $ 28.58 586 177,930,208
Total 1,076,446 $ 28.57 12,022
==================== ================== === ============ =================== ==================
1 In March 2014, our Board of Directors approved an
authorization to repurchase up to 300 million shares of our common
stock. The authorization has no expiration date.
2 Of the shares purchased, 510,190 shares were acquired through
the withholding of taxes on the vesting of restricted stock and
performance shares or in respect of the exercise price of
options.
3 Of the shares repurchased or transferred, 554,234 shares were
transferred from AT&T maintained Voluntary Employee Benefit
Association (VEBA) trusts.
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ITEM 6. SELECTED FINANCIAL DATA
At December 31 and for the year
ended: 2020 2019 2018 2017 2016
Financial Data
Operating revenues $171,760 $181,193 $170,756 $ 160,546 $163,786
Operating expenses $165,355 $153,238 $144,660 $ 140,576 $140,243
Operating income $ 6,405 $ 27,955 $ 26,096 $ 19,970 $ 23,543
Interest expense $ 7,925 $ 8,422 $ 7,957 $ 6,300 $ 4,910
Equity in net income (loss) of
affiliates $ 95 $ 6 $ (48) $ (128) $ 98
Other income (expense) - net $(1,431) $(1,071) $ 6,782 $ 1,597 $ 1,081
Income tax (benefit) expense $ 965 $ 3,493 $ 4,920 $(14,708) $ 6,479
Net Income (Loss) $(3,821) $ 14,975 $ 19,953 $ 29,847 $ 13,333
Less: Net Income
Attributable to
Noncontrolling Interest $(1,355) $(1,072) $ (583) $ (397) $ (357)
Net Income (Loss) Attributable
to AT&T $(5,176) $ 13,903 $ 19,370 $ 29,450 $ 12,976
Net Income (Loss) Attributable
to Common Stock $(5,369) $ 13,900 $ 19,370 $ 29,450 $ 12,976
Basic Earnings Per Common
Share:
Net Income (Loss)
Attributable
to Common
Stock $ (0.75) $ 1.90 $ 2.85 $ 4.77 $ 2.10
Diluted Earnings Per Common
Share:
Net Income (Loss)
Attributable
to Common
Stock $ (0.75) $ 1.89 $ 2.85 $ 4.76 $ 2.10
Weighted-average common shares
outstanding
(000,000) 7,157 7,319 6,778 6,164 6,168
Weighted-average common shares
outstanding
with dilution (000,000) 7,183 7,348 6,806 6,183 6,189
End of period common shares
outstanding
(000,000) 7,126 7,255 7,282 6,139 6,139
Dividends declared per common
share $ 2.08 $ 2.05 $ 2.01 $ 1.97 $ 1.93
Cash and cash equivalents $ 9,740 $ 12,130 $ 5,204 $ 50,498 $ 5,788
Total assets $525,761 $551,669 $531,864 $ 444,097 $403,821
Long-term debt $153,775 $151,309 $166,250 $ 125,972 $113,681
Total debt $157,245 $163,147 $176,505 $ 164,346 $123,513
Debt ratio 46.7% 44.7% 47.7% 53.6% 49.9%
Net debt ratio 43.8% 41.4% 46.2% 37.2% 47.5%
Book value per common share $ 25.15 $ 27.84 $ 26.63 $ 23.13 $ 20.22
Capital expenditures $ 15,675 $ 19,635 $ 21,251 $ 21,550 $ 22,408
Vendor financing payments $ 2,966 $ 3,050 $ 560 $ 572 $ -
Gross capital investment 1 $ 19,704 $ 23,690 $ 23,240 $ 22,401 $ 22,408
Spectrum acquisitions 2 $ 1,613 $ 1,316 $ 447 $ (1,380) $ 2,477
Number of employees 230,760 247,800 268,220 254,000 268,540
-------- -------- -------- --------- --------
1 Includes capital expenditures and vendor financing payments and excludes FirstNet
reimbursements of $1,063 in 2020, $1,005 in 2019, $1,429 in 2018, $279 in 2017
and $0 in 2016 (see Note 20).
2 Cash paid for FCC license and domestic spectrum acquired in business acquisitions
and swaps, net of auction deposit returns.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
AT&T Inc. is referred to as "we," "AT&T" or the
"Company" throughout this document, and the names of the particular
subsidiaries and affiliates providing the services generally have
been omitted. AT&T is a holding company whose subsidiaries and
affiliates operate worldwide in the telecommunications, media and
technology industries. You should read this discussion in
conjunction with the consolidated financial statements and
accompanying notes (Notes). We completed the acquisition of Time
Warner Inc. (Time Warner) on June 14, 2018, and have included its
results after that date. In accordance with U.S. generally accepted
accounting principles (GAAP), operating results from Time Warner
prior to the acquisition are excluded.
Our Management's Discussion and Analysis of Financial Condition
and Results of Operations included in this document generally
discusses 2020 and 2019 items and year-to-year comparisons between
2020 and 2019. Discussions of 2018 items and year-to-year
comparisons between 2019 and 2018 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, 2019.
We have three reportable segments: (1) Communications, (2)
WarnerMedia and (3) Latin America. Our segment results presented in
Note 4 and discussed below follow our internal management
reporting. We analyze our segments based on segment operating
contribution, which consists of operating income, excluding
acquisition-related costs and other significant items and equity in
net income (loss) of affiliates for investments managed within each
segment. Each segment's percentage calculation of total segment
operating revenue and contribution is derived from our segment
results table in Note 4 and may total more than 100% due to losses
in one or more segments. Percentage increases and decreases that
are not considered meaningful are denoted with a dash.
We have recast our segment results for all prior periods
presented to include our prior Xandr segment within our WarnerMedia
segment and to remove the Crunchyroll anime business that is
classified as held-for-sale and removed from the WarnerMedia
segment, instead including it in Corporate and Other.
Percent Change
2020 2019 2018 2020 vs. 2019 2019 vs. 2018
Operating Revenues
Communications $138,850 $142,359 $143,721 (2.5) % (0.9)%
WarnerMedia 30,442 35,259 20,585 (13.7) 71.3
Latin America 5,716 6,963 7,652 (17.9) (9.0)
Corporate and other 1,932 1,865 2,197 3.6 (15.1)
Eliminations and consolidation (5,180) (5,253) (3,399) 1.4 (54.5)
AT&T Operating Revenues 171,760 181,193 170,756 (5.2) 6.1
Operating Contribution
Communications 30,521 32,230 32,108 (5.3) 0.4
WarnerMedia 8,210 10,659 7,020 (23.0) 51.8
Latin America (729) (635) (710) (14.8) 10.6
Segment Operating Contribution $ 38,002 $ 42,254 $ 38,418 (10.1)% 10.0%
================================== ======= ======= ======= ========= === ==========
The Communications segment accounted for approximately 79% of
our 2020 total segment operating revenues compared to 77% in 2019
and 80% of our 2020 total segment operating contribution as
compared to 76% in 2019. 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. In
December 2020, we changed our management strategy and reevaluated
our domestic video business, allowing us to maximize value in our
domestic video business and further accelerate our ability to
innovate and execute in our fast-growing broadband and fiber
business. In conjunction with the strategy change, we separated the
former Entertainment Group into two business units, Video and
Broadband, which includes legacy telephony operations. We have
recast our results for all prior periods to split the Entertainment
Group into two separate business units, Video and Broadband, and
removed video operations from Business Wireline, combining all
video operations in the Video business unit. This segment contains
the following business units:
--Mobility provides nationwide wireless service and
equipment.
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--Video provides video, including over-the-top (OTT) services
and also sells multiplatform advertising services as video
revenues.
--Broadband provides internet, including broadband fiber, and
legacy telephony voice communication services to residential
customers.
--Business Wireline provides advanced IP-based services, as well
as traditional voice and data services to business customers.
The WarnerMedia segment accounted for approximately 17% of our
2020 total segment operating revenues compared to 19% in 2019 and
22% of our 2020 total segment operating contribution compared to
25% in 2019. This segment develops, produces and distributes
feature films, television, gaming and other content over various
physical and digital formats globally. Historical financial results
of Eliminations & Other included in the WarnerMedia segment
have been recast to include Xandr, previously a separate reportable
segment, and to remove the Crunchyroll anime business that was
classified as held-for-sale. This segment contains the
following:
--Turner primarily operates multichannel basic television
networks and digital properties. Turner also sells advertising on
its networks and digital properties.
--Home Box Office consists of premium pay television and HBO Max
domestically and premium pay, basic tier television internationally
and content licensing and home entertainment.
--Warner Bros. primarily consists of the production,
distribution and licensing of television programming and feature
films, the distribution of home entertainment products and the
production and distribution of games.
--Eliminations & Other includes the Xandr advertising
business, and also removes transactions between the Turner, Home
Box Office and Warner Bros. business units, including internal
sales of content to the HBO Max platform that began in the fourth
quarter of 2019 (see Note 5).
The Latin America segment accounted for approximately 3% of our
2020 total segment operating revenues compared to 4% in 2019. This
segment provides entertainment and wireless services outside of the
U.S. This segment contains the following business units:
--Vrio provides video services primarily to residential
customers using satellite technology in Latin America and the
Caribbean.
--Mexico provides wireless service and equipment to customers in
Mexico.
COVID-19 Update
Disruptions caused by the coronavirus (COVID-19) and measures
taken to prevent its spread or mitigate its effects both
domestically and internationally have impacted our results of
operations. We recorded approximately $850, or $0.10 per diluted
share, for the year ended December 31, 2020, of incremental costs
associated with voluntary corporate actions taken to protect and
compensate front-line employees and contractors and additional
WarnerMedia production disruption.
In addition to these incremental costs, we estimate that our
operations and comparability were impacted by approximately $2,925,
or $0.33 per diluted share, for the year ended December 31, 2020,
for: (1) reluctance of consumers to travel at previous levels,
driving significantly lower international wireless roaming service
revenues that do not have a directly correlated expense reduction,
(2) the partial closure of movie theaters and postponement of
theatrical releases, leading to lower content revenues, and (3)
lower television licensing and production revenues due to
production hiatus, and associated expenses.
With partial reopening of the economy and improved collections
experience, the economic effects of the pandemic and resulting
societal changes remain unpredictable. There are a number of
uncertainties that could impact our future results of operations,
including the effectiveness of COVID-19 mitigation measures, the
duration of the pandemic, the efficacy and widespread distribution
of a vaccine, global economic conditions, changes to our
operations, changes in consumer confidence, behaviors and spending,
work and learn from home trends and the sustainability of supply
chains. We expect operating results and cash flows to continue to
be adversely impacted by COVID-19 for the duration of the pandemic.
We expect our 2021 results to be impacted by the following:
--Lower revenues from the continued partial closure of movie
theaters and higher costs based on our decision to distribute 2021
films on HBO Max in the U.S. simultaneous with theaters for 31 days
and costs associated with the international launch of HBO Max;
--Uncertainty in revenues from international wireless roaming
services due to reduced travel, particularly in the first quarter;
and
--Continued expenses to protect front-line employees,
contractors and customers.
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RESULTS OF OPERATIONS
Consolidated Results Our financial results are summarized in the
following table. We then discuss factors affecting our overall
results. Additional analysis is discussed in our "Segment Results"
section. We also discuss our expected revenue and expense trends
for 2021 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
2020 vs. 2019 vs.
2020 2019 2018 2019 2018
Operating revenues
Service $152,767 $163,499 $152,345 (6.6) % 7.3 %
Equipment 18,993 17,694 18,411 7.3 (3.9)
Total Operating Revenues 171,760 181,193 170,756 (5.2) 6.1
Operating expenses
Operations and support 117,959 123,563 116,184 (4.5) 6.4
Asset impairments and abandonments 18,880 1,458 46 - -
Depreciation and amortization 28,516 28,217 28,430 1.1 (0.7)
Total Operating Expenses 165,355 153,238 144,660 7.9 5.9
Operating Income 6,405 27,955 26,096 (77.1) 7.1
Interest expense 7,925 8,422 7,957 (5.9) 5.8
Equity in net income (loss)
of affiliates 95 6 (48) - -
Other income (expense) - net (1,431) (1,071) 6,782 (33.6) -
Income (Loss) Before Income
Taxes (2,856) 18,468 24,873 - (25.8)
Net Income (Loss) (3,821) 14,975 19,953 - (24.9)
Net Income (Loss) Attributable
to AT&T (5,176) 13,903 19,370 - (28.2)
Net Income (Loss) Attributable
to
Common Stock $(5,369) $ 13,900 $ 19,370 -% (28.2)%
======================================= ======= ======= ======= ======== ======
OVERVIEW
Operating revenues decreased in 2020, with declines in all
segments reflecting impacts of the COVID-19 pandemic. Lower
WarnerMedia segment revenues reflect limited and postponed
theatrical and home entertainment releases as well as lower
television licensing, productions and advertising revenues.
Communications segment revenue declines were driven by continued
declines in video and legacy services, partially offset by higher
wireless device sales and increases in strategic and managed
business service revenues. Latin America segment revenue declines
were primarily due to foreign exchange rates.
Operations and support expenses decreased in 2020, driven by
impacts of the pandemic which resulted in lower broadcast and
programming costs in our Communications and WarnerMedia segments
and lower film-related print and advertising costs at WarnerMedia.
Also contributing to declines were a noncash gain of $900 on a
spectrum transaction in the first quarter that was recorded as an
offset to operating expenses as well as our continued focus on cost
management. Offsetting these expense decreases were higher costs
associated with our investment in HBO Max, employee separation
charges and incremental costs related to COVID-19. As part of our
cost and efficiency initiatives, we expect operations and support
expense improvements to continue as we size our operations to
reflect the current economic activity level.
Asset impairments and abandonments increased in 2020, primarily
due to noncash impairment charges of $15,508 in the fourth quarter,
resulting from our assessment of the recoverability of the
long-lived assets and goodwill associated with our video business
(see Notes 7 and 9). The increase also includes a goodwill
impairment of $2,212 at our Vrio business unit in the second
quarter (see Note 9) and $780 from the impairment of production and
other content inventory at WarnerMedia, with approximately $524
resulting from the continued shutdown of theaters during the
pandemic and the hybrid distribution model for our 2021 film slate
(see Note 11). Charges in 2019 primarily related to the abandonment
of certain copper assets that were not necessary to support future
network activity (see Note 7).
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Depreciation and amortization expense increased in 2020.
Amortization expense increased $307, or 3.9%, in 2020 due to the
amortization of orbital slot licenses, which began in the first
quarter of 2020 (see Note 1). Amortization expense in 2021 will
reflect approximately $1,200 of reductions from the 2020 impairment
of orbital slots and customers lists associated with our domestic
video business (see Note 9).
Depreciation expense decreased $8 in 2020 primarily due to
ongoing capital spend for network upgrades and expansion partially
offset by fully depreciated assets in our Communications segment.
Depreciation expense in 2021 will reflect approximately $480 of
reductions from the 2020 impairment of property, plant and
equipment associated with our domestic video business (see Note
7).
Operating income decreased in 2020 and increased in 2019. Our
operating margin was 3.7% in 2020, compared to 15.4% in 2019 and
15.3% in 2018.
Interest expense decreased in 2020, primarily due to lower
interest rates and debt balances.
Equity in net income (loss) of affiliates increased in 2020,
reflecting changes in our investment portfolio, including $130
equity in earnings resulting from an investee transaction.
Other income (expense) - net decreased in 2020 primarily due to
the recognition of $1,405 of debt redemption costs and lower income
from Rabbi trusts and other investments. Offsetting the decrease
were lower actuarial losses in 2020, $4,169 compared to $5,171 in
2019 (see Note 15).
Income tax expense decreased in 2020, primarily driven by
decreased income before income taxes offset by impairments of
goodwill (see Note 9), which are not deductible for tax
purposes.
Our effective tax rate was (33.8)% in 2020, 18.9% in 2019, and
19.8% in 2018. The effective tax rate in 2020 was impacted by the
goodwill impairments, which are not deductible for tax
purposes.
Segment Results Our segments are strategic business units that
offer different products and services over various technology
platforms and/or in different geographies that are managed
accordingly. Our segment results presented below follow our
internal management reporting. In addition to segment operating
contribution, we also evaluate segment performance based on EBITDA
and/or EBITDA margin. EBITDA is defined as segment operating
contribution, excluding equity in net income (loss) of affiliates
and depreciation and amortization. We believe EBITDA to be a
relevant and useful measurement to our investors as it is part of
our internal management reporting and planning processes and it is
an important metric that management uses to evaluate operating
performance. EBITDA does not give effect to depreciation and
amortization expenses incurred in operating contribution nor is it
burdened by cash used for debt service requirements and thus does
not reflect available funds for distributions, reinvestment or
other discretionary uses. EBITDA margin is EBITDA divided by total
revenues.
31
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------------------
COMMUNICATIONS SEGMENT Percent Change
2020 vs. 2019 vs.
2020 2019 2018 2019 2018
Segment Operating Revenues
Mobility $72,564 $71,056 $70,521 2.1 % 0.8 %
Video 28,610 32,124 33,363 (10.9) (3.7)
Broadband 12,318 13,012 13,108 (5.3) (0.7)
Business Wireline 25,358 26,167 26,729 (3.1) (2.1)
Total Segment Operating Revenues 138,850 142,359 143,721 (2.5) (0.9)
Segment Operating Contribution
Mobility 22,372 22,321 21,568 0.2 3.5
Video 1,729 2,064 1,331 (16.2) 55.1
Broadband 1,822 2,681 3,369 (32.0) (20.4)
Business Wireline 4,598 5,164 5,840 (11.0) (11.6)
Total Segment Operating Contribution $30,521 $32,230 $32,108 (5.3) % 0.4 %
Selected Subscribers and Connections
December 31,
(000s) 2020 2019 2018
Mobility subscribers 182,558 165,889 151,921
Total domestic broadband connections 15,384 15,389 15,701
Network access lines in service 7,263 8,487 10,002
U-verse VoIP connections 3,816 4,370 5,114
======= ======= ======= ========= === ======= ===
Operating revenues decreased in 2020 and were impacted by the
COVID-19 pandemic. Declines in our Video, Broadband and Business
Wireline business units were partially offset by increases in our
Mobility business unit. The decrease also reflects the continued
shift away from linear video and legacy services, partially offset
by higher equipment and service revenues.
Operating contribution decreased in 2020 and increased in 2019.
The 2020 operating contribution includes declines in our Video,
Broadband and Business Wireline business units, and reflects stable
operating contribution from our Mobility business. Our
Communications segment operating income margin was 22.0% in 2020,
22.6% in 2019 and 22.3% in 2018.
Communications Business Unit Discussion
Mobility Results
----------
Percent Change
2020 vs. 2019 vs.
2020 2019 2018 2019 2018
Operating revenues
Service $55,542 $55,331 $54,295 0.4 % 1.9%
Equipment 17,022 15,725 16,226 8.2 (3.1)
Total Operating Revenues 72,564 71,056 70,521 2.1 0.8
Operating expenses
Operations and support 42,106 40,681 40,690 3.5 -
Depreciation and amortization 8,086 8,054 8,263 0.4 (2.5)
Total Operating Expenses 50,192 48,735 48,953 3.0 (0.4)
Operating Income 22,372 22,321 21,568 0.2 3.5
Equity in Net Income (Loss)
of Affiliates - - - - -
Operating Contribution $22,372 $22,321 $21,568 0.2 % 3.5 %
================================== ====== ====== ====== ====== ===== ===== ===
32
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------------------
The following tables highlight other key measures of performance
for Mobility:
Subscribers
-----------
Percent Change
2020 vs. 2019 vs.
(in 000s) 2020 2019 2018 2019 2018
Postpaid 77,154 75,207 76,068 2.6% (1.1)%
Prepaid 18,102 17,803 16,828 1.7 5.8
Reseller 6,535 6,893 7,693 (5.2) (10.4)
Connected devices 1 80,767 65,986 51,332 22.4 28.5
Total Mobility Subscribers 182,558 165,889 151,921 10.0 % 9.2 %
======= ======= ======= ======= ==== ====== ===
Mobility Net Additions
--------------
Percent Change
2020 vs. 2019 vs.
(in 000s) 2020 2019 2018 2019 2018
Postpaid Phone Net Additions 1,457 483 194 - % - %
Total Phone Net Additions
5 1,640 989 1,248 65.8 (20.8)
Postpaid 2, 6 2,183 (435) (90) - -
Prepaid 5, 6 379 677 1,301 (44.0) (48.0)
Reseller 6 (449) (928) (1,599) 51.6 42.0
Connected devices 3 14,785 14,645 12,324 1.0 18.8
Mobility Net Subscriber
Additions 1 16,898 13,959 11,936 21.1 % 16.9 %
Postpaid Churn 4 0.98 % 1.18 % 1.12 % (20) BP 6 BP
Postpaid Phone-Only Churn
4 0.79 % 0.95 % 0.90 % (16) BP 5 BP
==== ===== ==== ==== ==== ==== ====== ====== ====== ======
1 Excludes acquisition-related additions during the period.
2 In addition to postpaid phones, includes tablets and wearables and other.
Tablet net (losses) were (512), (1,487) and (1,200) for the years ended December
31, 2020, 2019 and 2018, respectively. Wearables and other net adds were 1,223,
569 and 916 for the years ended December 31, 2020, 2019 and 2018, respectively.
3 Includes data-centric devices such as session-based tablets, monitoring devices
and primarily wholesale automobile systems. Excludes postpaid tablets.
4 Calculated by dividing the aggregate number of wireless subscribers who canceled
service during a month by the total number of wireless subscribers at the beginning
of that month. The churn rate for the period is equal to the average of the
churn rate for each month of that period.
5 The year ended December 31, 2020, includes 188 subscriber disconnections resulting
from updating our prepaid activation policy.
6 The year ended December 31, 2020, includes subscribers transferred in connection
with business dispositions.
Service revenue increased during 2020 largely due to growth in
phone subscribers and connected devices, offset by declines in
international roaming revenue due to reduced travel during the
pandemic. Successful offers aimed at customer retention contributed
to subscriber growth and lower churn.
ARPU
Average revenue per subscriber (ARPU) decreased primarily due to
the decline in international roaming and waived fees.
Churn
The effective management of subscriber churn is critical to our
ability to maximize revenue growth and to maintain and improve
margins. Postpaid churn and postpaid phone-only churn were lower in
2020 due to migrations to unlimited plans, continued network
improvements, subscriber retention offers in the fourth quarter,
and lower overall involuntary disconnects.
33
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------------------
Equipment revenue increased in 2020 primarily due to higher
equipment revenue from higher postpaid upgrade volumes, the mix of
sales of higher-priced smartphones, and higher sales of data
devices, including wearables, wireless modems and hotspots.
Operations and support expenses increased in 2020, largely
driven by higher equipment costs, increased commission deferral
amortization and intercompany content costs associated with plans
offering HBO Max, partially offset by lower bad debt expense. The
increase in commission deferral amortization is partly offset by
the impacts of our second-quarter 2020 updates to extend the
expected economic life of our Mobility customers.
Depreciation expense increased in 2020, primarily due to ongoing
capital spending for network upgrades and expansion partially
offset by fully depreciated assets.
Operating income increased in 2020 and 2019. Our Mobility
operating income margin was 30.8% in 2020, 31.4% in 2019 and 30.6%
in 2018. Our Mobility EBITDA margin was 42.0% in 2020, 42.7% in
2019 and 42.3% in 2018.
Subscriber Relationships
As the wireless industry has matured, future wireless growth
will depend on our ability to offer innovative services, plans and
devices that take advantage of our premier 5G wireless network,
which went nationwide in July 2020, and to provide these services
in bundled product offerings. Subscribers that purchase two or more
services from us have significantly lower churn than subscribers
that purchase only one service. 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.
To attract and retain subscribers in a mature and highly
competitive market, we have launched a wide variety of plans,
including our FirstNet and prepaid products, and arrangements that
bundle our video services. Virtually all of our postpaid smartphone
subscribers are on plans that provide for service on multiple
devices at reduced rates, and subscribers to such plans tend to
have higher retention and lower churn rates. We offer unlimited
data plans and such subscribers also tend to have higher retention
and lower churn rates. Our offerings are intended to encourage
existing subscribers to upgrade their current services and/or add
devices, attract subscribers from other providers and/or minimize
subscriber churn.
Connected Devices
Connected devices include data-centric devices such as wholesale
automobile systems, monitoring devices, fleet management and
session-based tablets. Connected device subscribers increased in
2020, and we added approximately 9.9 million wholesale connected
cars through agreements with various carmakers, and experienced
strong growth in other Internet of Things (IoT) connections. These
connected car agreements give us the opportunity to create future
retail relationships with the car owners.
Video Results
----------
Percent Change
2020 vs. 2019 vs.
2020 2019 2018 2019 2018
Operating revenues
Service $28,465 $32,123 $33,363 (11.4)% (3.7)%
Equipment 145 1 - - -
Total Operating Revenues 28,610 32,124 33,363 (10.9) (3.7)
Operating expenses
Operations and support 24,619 27,599 29,334 (10.8) (5.9)
Depreciation and amortization 2,262 2,461 2,698 (8.1) (8.8)
Total Operating Expenses 26,881 30,060 32,032 (10.6) (6.2)
Operating Income 1,729 2,064 1,331 (16.2) 55.1
Equity in Net Income (Loss)
of Affiliates - - - - -
Operating Contribution $ 1,729 $ 2,064 $ 1,331 (16.2) % 55.1%
================================== ====== ====== ====== ======== ==== ======
34
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------------------
The following tables highlight other key measures of performance
for Video:
Connections
-------------------
Percent Change
2020 vs. 2019 vs.
(in 000s) 2020 2019 2018 2019 2018
Video Connections
Premium TV 16,505 19,496 22,926 (15.3)% (15.0)%
AT&T TV NOW 1 656 926 1,591 (29.2) (41.8)
Total Video
Connections 1 17,161 20,422 24,517 (16.0)% (16.7)%
======== ========= ========= ========= ==== =========== =====
1 Beginning in January 2021, AT&T TV NOW has been combined with AT&T TV.
Net Additions
-----------
Percent Change
2020 vs. 2019 vs.
(in 000s) 2020 2019 2018 2019 2018
Video Net
Additions
Premium TV (2,991) (3,430) (1,189) 12.8% -%
AT&T TV NOW 1 (270) (665) 436 59.4 -
Net Video
Additions 1 (3,261) (4,095) (753) 20.4% -%
================ ========== ========= ======= ===== === =====
1 Beginning in January 2021, AT&T TV NOW has been combined with AT&T TV.
Service revenues are comprised of video entertainment
subscription and advertising revenues. Revenues decreased in 2020
and 2019, largely driven by a decline in premium TV and OTT
subscribers as we continue to focus on retention of existing
subscribers with a particular focus on our high-value subscribers.
Partially offsetting video revenue declines was higher advertising
revenues during a general election year. Consistent with the rest
of the industry, our customers continue to shift from a premium
linear video service to more economically priced OTT and
subscription video on demand offerings, which has impacted our
video revenues.
Equipment revenue increased in 2020 primarily due to the
nationwide introduction of our IP-based AT&T TV service in
early 2020.
Operations and support expenses decreased in 2020 and 2019,
largely driven by lower content costs from fewer subscribers,
partially offset by annual content rate increases, including those
associated with NFL SUNDAY TICKET and pandemic-related compassion
payments made in the first half of 2020.
Depreciation expense decreased in 2020 and 2019, due to network
assets becoming fully depreciated.
Operating income decreased in 2020 and increased in 2019. Our
Video operating income margin was 6.0% in 2020, 6.4% in 2019 and
4.0% in 2018. Our Video EBITDA margin was 13.9% in 2020, 14.1% in
2019 and 12.1% in 2018.
35
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------------------
Broadband Results
----------
Percent Change
2020 vs. 2019 vs.
2020 2019 2018 2019 2018
Operating revenues
High-speed internet $8,534 $8,403 $7,956 1.6% 5.6%
Legacy voice and data services 2,213 2,573 3,042 (14.0) (15.4)
Other service and equipment 1,571 2,036 2,110 (22.8) (3.5)
Total Operating Revenues 12,318 13,012 13,108 (5.3) (0.7)
Operating expenses
Operations and support 7,582 7,451 7,116 1.8 4.7
Depreciation and amortization 2,914 2,880 2,623 1.2 9.8
Total Operating Expenses 10,496 10,331 9,739 1.6 6.1
Operating Income 1,822 2,681 3,369 (32.0) (20.4)
Equity in Net Income (Loss)
of Affiliates - - - - -
Operating Contribution $1,822 $2,681 $3,369 (32.0) % (20.4)%
=================================== ===== ===== ===== ======== ==== ======
The following tables highlight other key measures of performance
for Broadband:
Connections
------------------
Percent Change
2020 vs. 2019 vs.
(in 000s) 2020 2019 2018 2019 2018
Broadband Connections
Total Broadband
Connections 14,100 14,119 14,409 (0.1) % (2.0)%
Fiber Broadband
Connections 4,951 3,887 2,763 27.4 40.7
Voice Connections
Retail Consumer
Switched
Access Lines 2,862 3,329 3,967 (14.0) (16.1)
U-verse Consumer VoIP
Connections 3,231 3,794 4,582 (14.8) (17.2)
Total Retail Consumer
Voice
Connections 6,093 7,123 8,549 (14.5) % (16.7)%
======= ======== ======= ======== ===== =============
Net Additions
----------
Percent Change
2020 vs. 2019 vs.
(in 000s) 2020 2019 2018 2019 2018
Broadband Net
Additions
Total Broadband Net
Additions (19) (290) 59 93.4 % -%
Fiber Broadband
Net Additions 1,064 1,124 1,034 (5.3) % 8.7%
---------------------- ------- ------- -------- --------------- ------ -----
High-speed internet revenues increased in 2020 and 2019,
reflecting higher ARPU resulting from the continued shift of
subscribers to our higher-speed fiber services and pricing
actions.
Legacy voice and data service revenues decreased in 2020 and
2019, reflecting the continued decline in the number of
customers.
Other service and equipment revenues decreased in 2020 and 2019,
reflecting the continued decline in the number of VoIP
customers.
36
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------------------
Operations and support expenses increased in 2020, largely
driven by intercompany content costs associated with plans offering
HBO Max. Expense increases in 2020 and 2019 also reflect higher
acquisition and fulfillment cost deferral amortization, including
the impact of updates to decrease the estimated economic life of
our subscribers.
Depreciation expense increased in 2020 and 2019, primarily due
to ongoing capital spending for network upgrades and expansion.
Operating income decreased in 2020 and 2019. Our Broadband
operating income margin was 14.8% in 2020, 20.6% in 2019 and 25.7%
in 2018. Our Broadband EBITDA margin was 38.4% in 2020, 42.7% in
2019 and 45.7% in 2018.
Business Wireline Results
----------
Percent Change
2020 vs. 2019 vs.
2020 2019 2018 2019 2018
Operating revenues
Strategic and managed services $15,788 $15,430 $14,649 2.3% 5.3%
Legacy voice and data services 8,183 9,180 10,674 (10.9) (14.0)
Other service and equipment 1,387 1,557 1,406 (10.9) 10.7
Total Operating Revenues 25,358 26,167 26,729 (3.1) (2.1)
Operating expenses
Operations and support 15,534 16,069 16,181 (3.3) (0.7)
Depreciation and amortization 5,226 4,934 4,708 5.9 4.8
Total Operating Expenses 20,760 21,003 20,889 (1.2) 0.5
Operating Income 4,598 5,164 5,840 (11.0) (11.6)
Equity in Net Income (Loss)
of Affiliates - - - - -
Operating Contribution $ 4,598 $ 5,164 $ 5,840 (11.0)% (11.6)%
=================================== ====== ====== ====== ========= ======
Strategic and managed services revenues increased in 2020. Our
strategic services are made up of (1) data services, including our
VPN, dedicated internet ethernet and broadband, (2) voice service,
including VoIP and cloud-based voice solutions, (3) security and
cloud solutions, and (4) managed, professional and outsourcing
services. Revenue increases were primarily attributable to growth
in our security and cloud solutions, dedicated internet and voice
services and the impact of higher demand for connectivity due to
the pandemic.
Legacy voice and data service revenues decreased in 2020,
primarily due to lower demand as customers continue to shift to our
more advanced IP-based offerings or our competitors.
Other service and equipment revenues decreased in 2020,
reflecting higher prior-year licensing of intellectual property
assets. Revenue trends are impacted by the licensing of
intellectual property assets, which vary from period-to-period.
Other service revenues include project-based revenue, which is
nonrecurring in nature, as well as revenues from customer premises
equipment.
Operations and support expenses decreased in 2020, primarily due
to our continued efforts to drive efficiencies in our network
operations through automation and reductions in customer support
expenses through digitization.
Depreciation expense increased in 2020, reflecting increases in
capital spending for network upgrades and expansion.
Operating income decreased in 2020 and 2019. Our Business
Wireline operating income margin was 18.1% in 2020, 19.7% in 2019
and 21.8% in 2018. Our Business Wireline EBITDA margin was 38.7% in
2020, 38.6% in 2019 and 39.5% in 2018.
37
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------------------
WARNERMEDIA SEGMENT
Percent Change
2020 vs. 2019 vs.
2020 2019 2018 2019 2018
Segment Operating Revenues
Turner $12,568 $13,122 $6,979 (4.2)% -%
Home Box Office 6,808 6,749 3,598 0.9 -
Warner Bros. 12,154 14,358 8,703 (15.4) -
Eliminations & Other (1,088) 1,030 1,305 - -
Total Segment Operating Revenues 30,442 35,259 20,585 (13.7) -
Cost of revenues
Turner 5,330 5,970 2,815 (10.7) -
Home Box Office 4,356 3,248 1,669 34.1 -
Warner Bros. 8,236 10,006 6,130 (17.7) -
Selling, general and administrative 5,803 5,368 2,895 8.1 -
Eliminations & Other (2,146) (420) (230) - -
Depreciation and amortization 671 589 311 13.9 -
Total Operating Expenses 22,250 24,761 13,590 (10.1) -
Operating Income 8,192 10,498 6,995 (22.0) -
Equity in Net Income (Loss)
of Affiliates 18 161 25 (88.8) -
Total Segment Operating Contribution $ 8,210 $10,659 $7,020 (23.0)% -%
======================================= ====== ====== ===== ========= === ====
Our WarnerMedia segment includes our Turner, Home Box Office
(HBO) and Warner Bros. business units. The order of presentation
reflects the consistency of revenue streams, rather than overall
magnitude as that is subject to timing and frequency of studio
releases. Historical financial results of the WarnerMedia segment,
(Eliminations & Other) have been recast to include Xandr,
previously a separate reportable segment, and to remove the
Crunchyroll anime business that is classified as held-for-sale.
The WarnerMedia segment does not include results from Time
Warner operations prior to our June 14, 2018 acquisition. For this
reason, 2018 results are not comparable to the other two years
presented for this segment and therefore percent changes comparing
2018 and 2019 are not shown in the tables. Otter Media and HBO
Latin America Group (HBO LAG) are included as equity method
investments prior to our acquiring the remaining interests in each,
which occurred in August 2018 and May 2020, respectively. Both are
included in the segment operating results following the dates of
acquisition. Consistent with our past practice, many of the impacts
of the fair value adjustments from the application of purchase
accounting required under GAAP have not been allocated to the
segment, instead they are reported as acquisition-related items in
the reconciliation to consolidated results.
Operating revenues decreased in 2020, primarily due to lower
theatrical and television product revenues, reflecting the
pandemic-related postponement of theatrical releases and theatrical
and television production delays at Warner Bros. Turner revenues
also decreased due to lower advertising revenues resulting from
cancellation and shifting of sporting events, and/or compressed
seasons. HBO revenues partially offset these decreases, driven by
growth in international revenues and domestic HBO Max retail
subscribers, partially offset by lower licensing revenues.
Operating contribution decreased in 2020 and increased in 2019.
The WarnerMedia segment operating income margin was 26.9% in 2020,
29.8% in 2019 and 34.0% in 2018.
38
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------------------
WarnerMedia Business Unit Discussion
Turner Results
----------
Percent Change
2020 vs. 2019 vs.
2020 2019 2018 2019 2018
Operating revenues
Subscription $7,613 $7,736 $4,207 (1.6)% -%
Advertising 3,941 4,566 2,330 (13.7) -
Content and other 1,014 820 442 23.7 -
Total Operating Revenues 12,568 13,122 6,979 (4.2) -
Operating expenses
Cost of revenues 5,330 5,970 2,815 (10.7) -
Selling, general and administrative 1,624 1,770 979 (8.2) -
Depreciation and amortization 277 235 131 17.9 -
Total Operating Expenses 7,231 7,975 3,925 (9.3) -
Operating Income 5,337 5,147 3,054 3.7 -
Equity in Net Income (Loss)
of Affiliates (2) 52 54 - -
Operating Contribution $5,335 $5,199 $3,108 2.6% -%
======================================== ===== ===== ===== ========= === ====
Operating revenues decreased in 2020 primarily due to lower
advertising revenues resulting from the cancellation of the NCAA
Division I Men's Basketball Tournament in the first quarter of 2020
and the impacts from shifting sporting event schedules and/or
compressed seasons, such as the delay of the NBA season that
historically has started earlier in the fourth quarter. These
revenue declines were partially offset by increased advertising due
to news coverage of general elections and COVID-19 developments.
Operating revenue declines were also caused by lower subscription
revenues at regional sports networks and unfavorable exchange
rates, partially offset by higher content and other revenue,
including internal sales to HBO Max, which are eliminated in
consolidation within the WarnerMedia segment.
Cost of revenues decreased in 2020 primarily due to lower sports
programming costs as a result of the previously mentioned
cancellations and modifications to the timing and/or duration of
various sporting events.
Selling, general and administrative decreased in 2020 driven by
cost-saving initiatives.
Operating income increased in 2020 and 2019. Our Turner
operating income margin was 42.5% in 2020, 39.2% in 2019 and 43.8%
in 2018.
39
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------------------
Home Box Office Results
----------
Percent Change
2020 vs. 2019 vs.
2020 2019 2018 2019 2018
Operating revenues
Subscription $6,090 $5,814 $3,201 4.7% -%
Content and other 718 935 397 (23.2) -
Total Operating Revenues 6,808 6,749 3,598 0.9 -
Operating expenses
Cost of revenues 4,356 3,248 1,669 34.1 -
Selling, general and administrative 1,672 1,064 518 57.1 -
Depreciation and amortization 98 102 56 (3.9) -
Total Operating Expenses 6,126 4,414 2,243 38.8 -
Operating Income 682 2,335 1,355 (70.8) -
Equity in Net Income (Loss)
of Affiliates 16 30 29 (46.7) -
Operating Contribution $ 698 $2,365 $1,384 (70.5)% -%
======================================== ===== ===== ===== ========= === ====
Operating revenues increased in 2020, primarily due to the May
2020 acquisition of HBO LAG and higher domestic HBO Max retail
subscribers, partially offset by decreases in content and other
revenue from lower content licensing. At December 31, 2020, we had
41.5 million U.S. subscribers from HBO and HBO Max, up from 34.6
million at December 31, 2019, including growth from intercompany
relationships with the Communications segment.
Cost of revenues increased in 2020, primarily due to
approximately $1,800 of programming investment related to HBO
Max.
Selling, general and administrative increased in 2020, primarily
due to higher marketing costs associated with HBO Max.
Operating income decreased in 2020 and increased in 2019. Our
HBO operating income margin was 10.0% in 2020, 34.6% in 2019 and
37.7% in 2018.
Warner Bros. Results
----------
Percent Change
2020 vs. 2019 vs.
2020 2019 2018 2019 2018
Operating revenues
Theatrical product $4,389 $5,978 $4,002 (26.6)% -%
Television product 6,171 6,367 3,621 (3.1) -
Games and other 1,594 2,013 1,080 (20.8) -
Total Operating Revenues 12,154 14,358 8,703 (15.4) -
Operating expenses
Cost of revenues 8,236 10,006 6,130 (17.7) -
Selling, general and administrative 1,681 1,810 1,000 (7.1) -
Depreciation and amortization 169 162 96 4.3 -
Total Operating Expenses 10,086 11,978 7,226 (15.8) -
Operating Income 2,068 2,380 1,477 (13.1) -
Equity in Net Income (Loss)
of Affiliates (70) (30) (28) - -
Operating Contribution $1,998 $2,350 $1,449 (15.0)% -%
======================================== ===== ===== ===== ========= === ====
40
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------------------
Operating revenues decreased in 2020, primarily due to
pandemic-related movie theater closures and television and
theatrical production delays.
Theatrical product revenues were lower due to theaters closing
for a significant portion of the year and postponement of
theatrical releases, which also reduced licensing revenues, such as
home entertainment licensing. Additionally, unfavorable comparisons
to the prior-year releases, which included, in 2019, Joker and
carryover revenues from the theatrical release of Aquaman, compared
to the limited-capacity theater and hybrid HBO Max distribution
release of Wonder Woman 1984, in late 2020.
Television product revenues decreased primarily due to lower
initial telecast revenues resulting from television production
delays, including delays in the start of the 2020-2021 broadcast
season, partially offset by increased licensing, including internal
sales to HBO Max, which are eliminated in consolidation within the
WarnerMedia segment.
Games and other revenue declines were primarily due to reduced
studio operations and unfavorable games comparison to the prior
year, which included, in 2019, the release of Mortal Kombat 11.
Cost of revenues decreased in 2020, primarily due to the
production hiatus and lower marketing of theatrical product,
partially offset by incremental production shutdown costs.
Selling, general and administrative decreased in 2020, primarily
due to lower print and advertising expenses from limited theatrical
releases and lower distribution fees.
Operating income decreased in 2020 and increased in 2019. Our
Warner Bros. operating income margin was 17.0% in 2020, 16.6% in
2019 and 17.0% in 2018.
LATIN AMERICA SEGMENT
Percent Change
2020 vs. 2019 vs.
2020 2019 2018 2019 2018
Segment Operating Revenues
Vrio $3,154 $4,094 $ 4,784 (23.0)% (14.4)%
Mexico 2,562 2,869 2,868 (10.7) -
Total Segment Operating Revenues 5,716 6,963 7,652 (17.9) (9.0)
Segment Operating Contribution
Vrio (142) 83 347 - (76.1)
Mexico (587) (718) (1,057) 18.2 32.1
Total Segment Operating Contribution $(729) $(635) $ (710) (14.8)% 10.6%
======================================= ===== ===== ===== ========= ======
Our Latin America operations conduct business in their local
currency and operating results are converted to U.S. dollars using
official exchange rates, subjecting results to foreign currency
fluctuations. In May 2020, we found it necessary to close our
DIRECTV operations in Venezuela due to political instability in the
country and to comply with sanctions of the U.S. government.
Operating revenues decreased in 2020, primarily driven by
foreign exchange rates and overall economic impacts.
Operating contribution decreased in 2020, reflecting foreign
exchange rates and overall economic impacts, and increased in 2019,
due to improvement in Mexico. Our Latin America segment operating
income margin was (13.2)% in 2020, (9.5)% in 2019 and (9.7)% in
2018.
41
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------------------
Latin America Business Unit Discussion
Vrio Results
----------
Percent Change
2020 vs. 2019 vs.
2020 2019 2018 2019 2018
Operating revenues $3,154 $4,094 $4,784 (23.0)% (14.4)%
Operating expenses
Operations and support 2,800 3,378 3,743 (17.1) (9.8)
Depreciation and amortization 520 660 728 (21.2) (9.3)
Total Operating Expenses 3,320 4,038 4,471 (17.8) (9.7)
Operating Income (Loss) (166) 56 313 - (82.1)
Equity in Net Income of Affiliates 24 27 34 (11.1) (20.6)
Operating Contribution $(142) $ 83 $ 347 -% (76.1)%
===================================== ===== ===== ===== ========= ======
The following tables highlight other key measures of performance
for Vrio:
Percent Change
2020 vs. 2019 vs.
(in 000s) 2020 2019 2018 2019 2018
Vrio Video Subscribers 10,942 13,331 13,838 (17.9)% (3.7)%
Percent Change
2020 vs. 2019 vs.
(in 000s) 2020 2019 2018 2019 2018
Vrio Video Net Subscriber
Additions 1 (148) (285) 250 48.1% -%
====== ====== ====== ====== ==== ===== ====
1 2020 excludes the impact of 2.2 million subscriber disconnections resulting
from the closure of our DIRECTV operations in Venezuela.
Operating revenues decreased in 2020, primarily driven by
foreign exchange and overall economic impacts.
Operations and support expenses decreased in 2020, primarily
driven by foreign exchange and overall economic impacts.
Approximately 21% of Vrio expenses are U.S. dollar-based, with the
remainder in the local currency.
Depreciation expense decreased in 2020, primarily due to changes
in foreign exchange rates.
Operating income decreased in 2020 and 2019. Our Vrio operating
income margin was (5.3)% in 2020, 1.4% in 2019 and 6.5% in 2018.
Our Vrio EBITDA margin was 11.2% in 2020, 17.5% in 2019 and 21.8%
in 2018.
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Mexico Results
----------------------------------------------------------------------------------------
Percent Change
2020 vs. 2019 vs.
2020 2019 2018 2019 2018
Operating revenues
Service $1,656 $1,863 $ 1,701 (11.1) % 9.5%
Equipment 906 1,006 1,167 (9.9) (13.8)
Total Operating Revenues 2,562 2,869 2,868 (10.7) -
Operating expenses
Operations and support 2,636 3,085 3,415 (14.6) (9.7)
Depreciation and amortization 513 502 510 2.2 (1.6)
Total Operating Expenses 3,149 3,587 3,925 (12.2) (8.6)
Operating Income (Loss) (587) (718) (1,057) 18.2 32.1
Equity in Net Income (Loss)
of Affiliates - - - - -
Operating Contribution $(587) $(718) $(1,057) 18.2 % 32.1%
================================== ===== ===== ======= ======== ==== ======
The following tables highlight other key measures of performance
for Mexico:
Percent Change
2020 vs. 2019 vs.
(in 000s) 2020 2019 2018 2019 2018
Mexico Wireless Subscribers
1
Postpaid 4,696 5,103 5,805 (8.0)% (12.1)%
Prepaid 13,758 13,584 12,264 1.3 10.8
Reseller 489 472 252 3.6 87.3
Mexico Wireless Subscribers 18,943 19,159 18,321 (1.1)% 4.6%
Percent Change
2020 vs. 2019 vs.
(in 000s) 2020 2019 2018 2019 2018
Mexico Wireless Net Additions
1
Postpaid (407) (608) 307 33.1% -%
Prepaid 174 1,919 2,867 (90.9) (33.1)
Reseller 118 219 48 (46.1) -
Mexico Wireless Net Additions (115) 1,530 3,222 -% (52.5)%
====== ====== ====== ====== ==== ====== ====
1 2020 excludes the impact of 101 subscriber disconnections resulting from conforming
our policy on reporting of fixed wireless resellers.
Service revenues decreased in 2020, primarily due to foreign
exchange rates, as well as lower volumes and store traffic related
to COVID-19.
Equipment revenues decreased in 2020, primarily due to lower
equipment sales volumes related to COVID-19 and changes in foreign
exchange rates.
Operations and support expenses decreased in 2020, primarily due
to lower equipment sales and changes in foreign exchange rates.
Approximately 7% of Mexico expenses are U.S. dollar-based, with the
remainder in the local currency.
Depreciation expense increased in 2020, primarily due to
amortization of spectrum licenses and higher in-service assets.
These increases were partially offset by changes in foreign
exchange rates.
Operating income increased in 2020 and 2019. Our Mexico
operating income margin was (22.9)% in 2020, (25.0)% in 2019 and
(36.9)% in 2018. Our Mexico EBITDA margin was (2.9)% in 2020,
(7.5)% in 2019 and (19.1)% in 2018.
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SUPPLEMENTAL TOTAL ADVERTISING REVENUE INFORMATION
As a supplemental presentation, we are providing a view of total
advertising revenues generated by AT&T. See revenue categories
tables in Note 5 for a reconciliation.
Total Advertising Revenues
----------
Percent Change
2020 vs. 2019 vs.
2020 2019 2018 2019 2018
Operating Revenues
Turner $ 3,941 $ 4,566 $ 2,330 (13.7)% 96.0%
Video 1,718 1,672 1,595 2.8 4.8
Xandr 2,089 2,022 1,740 3.3 16.2
Other 386 382 352 1.0 8.5
Eliminations (1,718) (1,672) (1,595) (2.8) (4.8)
Total Advertising Revenues $ 6,416 $ 6,970 $ 4,422 (7.9)% 57.6%
============================= ===== ===== ===== ========= ======
SUPPLEMENTAL COMMUNICATIONS OPERATING INFORMATION
As a supplemental presentation to our Communications segment
operating results, we are providing a view of our AT&T Business
Solutions results which includes both wireless and wireline
operations. This combined view presents a complete profile of the
entire business customer relationship and underscores the
importance of mobile solutions for our business customers. Results
have been recast to conform to the current period's classification
of consumer and business wireless subscribers. See "Discussion and
Reconciliation of Non-GAAP Measure" for a reconciliation of these
supplemental measures to the most directly comparable financial
measures calculated and presented in accordance with GAAP.
Business Solutions Results
----------
Percent Change
2020 vs. 2019 vs.
2020 2019 2018 2019 2018
Operating revenues
Wireless service $7,732 $7,444 $6,893 3.9 % 8.0%
Strategic and managed services 15,788 15,430 14,649 2.3 5.3
Legacy voice and data services 8,183 9,180 10,674 (10.9) (14.0)
Other service and equipment 1,387 1,557 1,406 (10.9) 10.7
Wireless equipment 2,882 2,754 2,508 4.6 9.8
Total Operating Revenues 35,972 36,365 36,130 (1.1) 0.7
Operating expenses
Operations and support 22,713 22,714 22,586 - 0.6
Depreciation and amortization 6,509 6,148 5,894 5.9 4.3
Total Operating Expenses 29,222 28,862 28,480 1.2 1.3
Operating Income 6,750 7,503 7,650 (10.0) (1.9)
Equity in Net Income (Loss)
of Affiliates - - - - -
Operating Contribution $6,750 $7,503 $7,650 (10.0)% (1.9)%
=================================== ===== ===== ===== ======== === ======
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OPERATING ENVIRONMENT AND TRS OF THE BUSINESS
2021 Revenue Trends We expect revenue growth in our wireless and
broadband businesses as customers demand premium content, instant
connectivity and higher speeds made possible by our fiber network
expansion and wireless network enhancements through 5G
deployment.
In our Communications segment, we expect that our network
quality and First Responder Network Authority (FirstNet) deployment
will continue to contribute to wireless subscriber and service
revenue growth, that 5G handsets will continue to drive wireless
equipment revenue growth, and that applications like video
streaming will also continue to drive greater demand for broadband
services. The reluctance of consumers to travel at levels prior to
the pandemic is expected to continue to contribute to uncertainty
in international roaming wireless service revenues.
In our WarnerMedia segment, we expect our video streaming
platform, HBO Max, and premium content will continue to drive
revenue growth. The pandemic-related partial closure of movie
theaters is expected to continue to pressure revenues and higher
costs are anticipated based on our decision to distribute our 2021
films on HBO Max in the U.S. simultaneous with theaters for 31
days.
Across AT&T, we expect to provide consumers with a broad
variety of video entertainment services, from mobile-centric and
OTT streaming packages, to traditional full-size linear video.
Revenue from business customers is expected to continue to grow for
mobile and IP-based services but decline for legacy wireline
services. Overall, we believe growth in wireless, broadband and
WarnerMedia's premium content should offset pressure from our
linear video and legacy voice and data services.
2021 Expense Trends We expect the spending required to support
growth initiatives, primarily our continued deployment of fiber,
5G, and FirstNet build, as well as continued investment into the
HBO Max platform, to pressure expense trends in 2021. To the extent
5G handset introductions continue in 2021, and as anticipated, the
expenses associated with those device sales are expected to
contribute to higher costs. During 2021, we will also continue to
transition our hardware-based network technology to more efficient
and less expensive software-based technology. These investments
will help prepare us to meet increased customer demand for enhanced
wireless and broadband services, including video streaming,
augmented reality and "smart" technologies. The software benefits
of our 5G wireless technology and new video delivery platforms
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, reinvesting savings into growth areas of the business.
We are restructuring businesses, sunsetting legacy networks,
improving customer service and ordering functions through digital
transformation, sizing our support costs and staffing with current
activity levels, and reassessing overall benefit costs. We expect
continued savings from these initiatives and through our
WarnerMedia merger synergy program. Cost savings and non-strategic
asset sales aligns with our focus on debt reduction.
Market Conditions The U.S. stock market experienced significant
volatility in 2020 due to several factors, including the global
pandemic, and thus general business investment remained modest,
which had impact on our business 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 the labor market has not returned to
pre-pandemic levels of unemployment, our residential customers
continue to be price sensitive in selecting offerings, especially
in the video area, and continue to focus on products that give them
efficient access to video and broadcast services. 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 2021 as we respond to the competitive marketplace,
especially in wireless and video 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
2021. 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 2021 (see "Critical
Accounting Policies and Estimates").
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OPERATING ENVIRONMENT OVERVIEW
AT&T subsidiaries operating within the United States are
subject to federal and state regulatory authorities. AT&T
subsidiaries operating outside the United States are subject to the
jurisdiction of national and supranational regulatory authorities
in the markets where service is provided.
In the Telecommunications Act of 1996 (Telecom Act), Congress
established a national policy framework intended to bring the
benefits of competition and investment in advanced
telecommunications facilities and services to all Americans by
opening all telecommunications markets to competition and reducing
or eliminating regulatory burdens that harm consumer welfare.
Nonetheless, over the ensuing two decades, the Federal
Communications Commission (FCC) and some state regulatory
commissions have maintained or expanded certain regulatory
requirements that were imposed decades ago on our traditional
wireline subsidiaries when they operated as legal monopolies. More
recently, the FCC has pursued a more deregulatory agenda,
eliminating a variety of antiquated and unnecessary regulations and
streamlining its processes in a number of areas. We continue to
support regulatory and legislative measures and efforts, at both
the state and federal levels, to reduce inappropriate regulatory
burdens that inhibit our ability to compete effectively and offer
needed services to our customers, including initiatives to
transition services from traditional networks to all IP-based
networks. At the same time, we also seek to ensure that legacy
regulations are not further extended to broadband or wireless
services, which are subject to vigorous competition.
Communications Segment
Internet The FCC currently classifies fixed and mobile consumer
broadband services as information services, subject to light-touch
regulation. The D.C. Circuit upheld the FCC's current
classification, although it remanded three discrete issues to the
FCC for further consideration. These issues related to the effect
of the FCC's decision to classify broadband services as information
services on public safety, the regulation of pole attachments, and
universal service support for low-income consumers through the
Lifeline program. Because no party sought Supreme Court review of
the D.C. Circuit's decision to uphold the FCC's classification of
broadband as an information service, that decision is final.
In October 2020, the FCC adopted an order addressing the three
issues remanded by the D.C. Circuit for further consideration.
After considering those issues, the FCC concluded they provided no
grounds to depart from its determination that fixed and mobile
consumer broadband services should be classified as information
services. An appeal of the FCC's remand order is pending.
Some states have adopted legislation or issued executive orders
that would reimpose net neutrality rules repealed by the FCC. Suits
have been filed concerning such laws in two states.
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 The industry-wide deployment of 5G technology, which is
needed to satisfy extensive demand for video and internet access,
will involve significant deployment of "small cell" equipment and
therefore increase the need for local permitting processes that
allow for the placement of small cell equipment on reasonable
timelines and terms. Between 2018 and 2019, the FCC streamlined
multiple federal wireless structure review processes with the
potential to delay and impede deployment of infrastructure used to
provide telecommunications and broadband services, including small
cell equipment. Recognizing that state and local regulations have
the same potential, in November 2020 the FCC adopted an order
tightening the limits on state and local authority to deny requests
to use existing structures for wireless facilities. These orders
were appealed to the 9 th Circuit Court of Appeals, where the
appeals remain pending.
In December 2018, we introduced the nation's first commercial
mobile 5G service, and in July 2020, we announced nationwide 5G
coverage. We anticipate the introduction of 5G handsets and devices
will contribute to a renewed interest in equipment upgrades.
As the U.S. wireless industry has matured, we believe future
wireless growth will depend on our ability to offer innovative
services, plans and devices. We will need a network with sufficient
spectrum and capacity and sufficiently broad coverage to support
the growth of these services. We continue to invest significant
capital in expanding our network capacity, as well as to secure and
utilize spectrum that meets our long-term needs.
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Video We provide domestic satellite video service through our
subsidiary DIRECTV, whose satellites are licensed by the FCC. The
Communications Act of 1934 and other related acts give the FCC
broad authority to regulate the U.S. operations of DIRECTV, and
some of WarnerMedia's businesses are also subject to obligations
under the Communications Act and related FCC regulations.
WarnerMedia Segment
We create, own and distribute intellectual property, including
copyrights, trademarks and licenses of intellectual property. To
protect our intellectual property, we rely on a combination of laws
and license agreements. Outside of the U.S., laws and regulations
relating to intellectual property protection and the effective
enforcement of these laws and regulations vary greatly from country
to country. The European Union Commission is pursuing legislative
and regulatory initiatives which could impact WarnerMedia's
activities in the EU. Piracy, particularly of digital content,
continues to threaten WarnerMedia's revenues from products and
services, and we work to limit that threat through a combination of
approaches, including technological and legislative solutions.
Outside the U.S., various laws and regulations, as well as trade
agreements with the U.S., also apply to the distribution or
licensing of feature films for exhibition in movie theaters and on
broadcast and cable networks. For example, in certain countries,
including China, laws and regulations limit the number of foreign
films exhibited in such countries in a calendar year.
EXPECTED GROWTH AREAS
Over the next few years, we expect our growth to come from
wireless, software-based video offerings like HBO Max, 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 2021, our
key initiatives include:
--Continuing expansion of 5G service on our premier wireless
network.
--Generating mobile subscriber growth from FirstNet and our
premier network quality.
--Increasing subscriber base for HBO Max, our platform for
premium content and video offered directly to consumers, as well as
through other distributors.
--Improving fiber penetration and growing broadband
revenues.
--Continuing to develop a competitive advantage through our
corporate cost structure.
--Improving profitability in our Mexico business unit.
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, 2020, we served 202 million wireless
subscribers in North America, with more than 182 million in the
United States. Our LTE technology covers over 440 million people in
North America, and in the United States, we cover all major
metropolitan areas and over 330 million people. We also provide 4G
coverage using another technology (HSPA+), and when combined with
our upgraded backhaul network, we provide enhanced network
capabilities and superior mobile broadband speeds for data and
video services. In December 2018, we introduced the nation's first
commercial mobile 5G service and expanded that deployment
nationwide in July 2020.
Our networks covering both the U.S. and Mexico have enabled our
customers to use wireless services without roaming on other
companies' networks. We believe this seamless access will prove
attractive to customers and provide a significant growth
opportunity. As of the end of 2020, we provided LTE coverage to
over 110 million people in Mexico.
Integration of Data/Broadband and Entertainment 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 high-speed internet and video offerings that allow
customers to integrate their home or business fixed services with
their mobile service. During 2021, we will continue to develop and
provide unique integrated video, mobile and broadband solutions.
The launch of the HBO Max platform has facilitated our customers'
desire to view video anywhere on demand and has encouraged customer
retention.
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REGULATORY DEVELOPMENTS
Set forth below is a summary of the most significant regulatory
proceedings that directly affected our operations during 2020.
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), wireless and satellite television services. AT&T is
engaged in multiple efforts with foreign regulators to open markets
to competition, foster conditions favorable to investment and
increase our scope of services and products.
The General Data Protection Regulation went into effect in
Europe in May of 2018. AT&T processes and handles personal data
of its customers and subscribers, employees of its enterprise
customers and its employees. This regulation created a range of new
compliance obligations and significantly increased financial
penalties for noncompliance.
Federal Regulation We have organized our following discussion by
service impacted.
Internet In February 2015, the FCC released an order classifying
both fixed and mobile consumer broadband internet access services
as telecommunications services, subject to Title II of the
Communications Act. The Order, which represented a departure from
longstanding bipartisan precedent, significantly expanded the FCC's
authority to regulate broadband internet access services, as well
as internet interconnection arrangements. In December 2017, the FCC
reversed its 2015 decision by reclassifying fixed and mobile
consumer broadband services as information services and repealing
most of the rules that were adopted in 2015. In lieu of broad
conduct prohibitions, the order requires internet service providers
to disclose information about their network practices and terms of
service, including whether they block or throttle internet traffic
or offer paid prioritization. On October 1, 2019, the D.C. Circuit
issued a unanimous opinion upholding the FCC's reclassification of
broadband as an information service, and its reliance on
transparency requirements and competitive marketplace dynamics to
safeguard net neutrality. While the court vacated the FCC's express
preemption of any state regulation of net neutrality, it stressed
that its ruling did not prevent the FCC or ISPs from relying on
conflict preemption to invalidate particular state laws that are
inconsistent with the FCC's regulatory objectives and framework.
The court also remanded the matter to the FCC for further
consideration of the impact of reclassifying broadband services as
information services on public safety, the Lifeline program, and
pole attachment regulation. In October 2020, the FCC adopted an
order concluding that those issues did not justify reversing its
decision to reclassify broadband services as information services.
An appeal of the FCC's remand decision is pending.
Following the FCC's 2017 decision to reclassify broadband as
information services, a number of states adopted legislation to
reimpose the very rules the FCC repealed. In some cases, state
legislation imposes requirements that go beyond the FCC's February
2015 order. Additionally, some state governors have issued
executive orders that effectively reimpose the repealed
requirements. Suits have been filed concerning laws in California
and Vermont. Both lawsuits were stayed pursuant to agreements by
those states not to enforce their laws pending final resolution of
all appeals of the FCC's December 2017 order. Because that order is
now final, the California suit has returned to active status.
Nonetheless, enforcement of both the California and Vermont laws
remains stayed pending a ruling by a U.S. District Court in
California on motions for a preliminary injunction against
enforcement of the California law. Argument on those motions is now
scheduled for February 2021. We expect that going forward
additional states may seek to impose net neutrality requirements.
We will continue to support congressional action to codify a set of
standard consumer rules for the internet.
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 9 th Circuit Court of Appeals. 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.
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In 2020, the FCC took several actions to make spectrum available
for 5G services. First, the FCC completed the auction of the 39 GHz
band in large, contiguous blocks of spectrum that will support 5G.
AT&T obtained spectrum in this auction, which also included
spectrum in the 37 GHz and 47 GHz bands (see "Other Business
Matters"). The FCC also made 150 MHz of mid-band CBRS spectrum
available, to be shared with Federal incumbents, who enjoy
priority. Furthermore, the FCC began the auction of 280 MHz of
mid-band spectrum presently used for satellite service (the "C
Band" auction). This auction is expected to conclude by June of
2021. Other mid-band spectrum auctions are planned for later in
2021.
Following enactment in December 2019 of the Pallone-Thune
Telephone Robocall Abuse Criminal Enforcement and Deterrence Act
(TRACED Act) by Congress, the FCC adopted new rules requiring voice
service providers to implement caller ID authentication protocols
(known as STIR/SHAKEN) and adopt robocall mitigation measures.
These measures apply to portions of their networks where
STIR/SHAKEN is not enabled, in addition to other anti-robocall
measures. The new rules contemplate ongoing FCC oversight and
review of efforts related to STIR/SHAKEN implementation. Among
other goals, the FCC has stated its intention to promote the IP
transition through its rules.
In September 2019, the FCC released reformed aspects of its
intercarrier compensation regime related to tandem switching and
transport charges, with the goal of reducing the prevalence of
telephone access arbitrage schemes. In October 2020, the FCC
further reformed aspects of its intercarrier compensation regime by
greatly reducing, and in some cases eliminating, the charges long
distance carriers must pay to originating carriers for toll-free
calls. Appeals of both orders are pending at the D.C. Circuit Court
of Appeals.
ACCOUNTING POLICIES AND STANDARDS
Critical Accounting Policies and Estimates Because of the size
of the financial statement line items they relate to or the extent
of judgment required by our management, some of our accounting
policies and estimates have a more significant impact on our
consolidated financial statements than others. The following
policies are presented in the order in which the topics appear in
our consolidated statements of income.
Pension and Postretirement Benefits Our actuarial estimates of
retiree benefit expense and the associated significant
weighted-average assumptions are discussed in Note 15. Our assumed
weighted-average discount rates for pension and postretirement
benefits of 2.70% and 2.40%, respectively, at December 31, 2020,
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 were all rated at least Aa3 or AA- by one of the
nationally recognized statistical rating organizations, denominated
in U.S. dollars, and neither callable, convertible nor index
linked. For the year ended December 31, 2020, when compared to the
year ended December 31, 2019, we decreased our pension discount
rate by 0.70%, resulting in an increase in our pension plan benefit
obligation of $5,594 and decreased our postretirement discount rate
by 0.80%, resulting in an increase in our postretirement benefit
obligation of $1,311.
Our expected long-term rate of return on pension plan assets is
6.75% for 2021 and 7.00% for 2020. Our expected long-term rate of
return on postretirement plan assets is 4.50% for 2021 and 4.75%
for 2020. 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 2021 combined pension and
postretirement cost to increase $277, which under our accounting
policy would be adjusted to actual returns in the current year as
part of our fourth-quarter remeasurement of our retiree benefit
plans.
We recognize gains and losses on pension and postretirement plan
assets and obligations immediately in "Other income (expense) -
net" in our consolidated statements of income. These gains and
losses are generally measured annually as of December 31, and
accordingly, will normally be recorded during the fourth quarter,
unless an earlier remeasurement is required. Should actual
experience differ from actuarial assumptions, the projected pension
benefit obligation and net pension cost and accumulated
postretirement benefit obligation and postretirement benefit cost
would be affected in future years. See Note 15 for additional
discussions regarding our assumptions.
Depreciation Our depreciation of assets, including use of
composite group depreciation for certain subsidiaries and estimates
of useful lives, is described in Notes 1 and 7.
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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 $3,128 in our 2020
depreciation expense and that a one-year decrease would have
resulted in an increase of approximately $4,353 in our 2020
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 indicated
that the book value may not be recoverable over the remaining life.
Inputs underlying the expected cash flows include, but are not
limited to, subscriber counts, revenues from subscriptions,
advertising and content, revenue per user, capital investment and
acquisition costs per subscriber, production and content costs, and
ongoing operating costs. We based our assumptions on a combination
of our historical results, trends, business plans and marketplace
participant data.
Annual Goodwill Testing
Goodwill is tested on a reporting unit basis by comparing the
estimated fair value of each reporting unit to its book value. If
the fair value exceeds the book value, then no impairment is
measured. We estimate fair values using an income approach (also
known as a discounted cash flow model) and a market multiple
approach. The income approach utilizes our future cash flow
projections with a perpetuity value discounted at an appropriate
weighted average cost of capital. The market multiple approach uses
the multiples of publicly traded companies whose services are
comparable to those offered by the reporting units. As of October
1, 2020, the calculated fair values of the reporting units exceeded
their book values in all circumstances; however, the Turner, HBO
and Entertainment Group (prior to our December reporting unit
change discussed below) fair values exceed their book values by
less than 10% with COVID-19 impacts, industry trends and our
content distribution strategy affecting fair value. For the
reporting units with fair value in excess of 10% of book value, if
either the projected rate of long-term growth of cash flows or
revenues declined by 0.5%, or if the weighted average cost of
capital increased by 0.5%, the fair values would still be higher
than the book value of the goodwill. In the event of a 10% drop in
the fair values of the reporting units, the fair values still would
have exceeded the book values of the reporting units. For the
Turner and HBO reporting units as of October 1, 2020, if the
projected rate of longer-term growth of cash flows or revenues
declined by 1% and more than 2%, respectively, or if the weighted
average cost of capital increased by 0.5%, it would result in
impairment of the goodwill. Carrying values of the reporting units
in the WarnerMedia segment (Turner, HBO and Warner Bros.) decrease
as intangibles identified in the acquisition are amortized.
Domestic Video Business
In December 2020, we changed our management strategy and
reevaluated our domestic video business, allowing us to maximize
value in our domestic video business and further accelerate our
ability to innovate and execute in our fast-growing broadband and
fiber business. The strategy change required us to reassess the
grouping and recoverability of the video business long-lived
assets. In conjunction with the strategy change, we separated the
former Entertainment Group into two business units, Video and
Broadband, which includes legacy telephony operations. These
changes required us to identify a separate Video reporting unit,
which required evaluating assigned goodwill for impairment, while
first assessing any impairment of goodwill at the historical
Entertainment Group level.
The fair value of long-lived assets was determined primarily
using the present value approach of probability-weighted expected
cash flow. We determined that these assets were no longer
recoverable and recognized an impairment to their estimated fair
value. A pre-tax impairment of $7,255 ($4,373 orbital slots, $1,201
customer lists and $1,681 in property, plant and equipment) was
assigned to the long-lived assets of the video business (see Notes
7 and 9). Upon updating the carrying value of the video business,
we were then required to reperform our goodwill impairment testing
of the historical Entertainment Group reporting unit, as of
December 31, 2020, and before separation into the two reporting
units, where we again concluded that no impairment was required,
consistent with the testing as of October 1, 2020. GAAP requires
ongoing fair value assessments for recoverability upon defined
triggering events.
We further concluded that our video business should be
identified as a separate reporting unit within the Communications
segment. The change in reporting unit required the historical
Entertainment Group goodwill to be assigned to the separate Video
and Broadband reporting units, for which we used the relative fair
value allocation methodology. The affected reporting units were
then tested for goodwill impairment. We recorded an impairment of
the entire $8,253 of goodwill allocated to the Video reporting
unit. No goodwill impairment was required in the Broadband
reporting unit. (See Note 9).
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AT&T Inc.
Dollars in millions except per share amounts
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In total, we recorded an impairment charge of $15,508 ($7,255
for long-lived assets and $8,253 of assigned goodwill) in December
2020 results.
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
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 9.25%, based on the optimal long-term
capital structure of a market participant and its associated cost
of debt and equity for the licenses, to calculate the present value
of the projected cash flows. If either the projected rate of
long-term growth of cash flows or revenues declined by 0.5%, or if
the discount rate increased by 0.5%, the fair values of these
wireless licenses would still be higher than the book
value of the licenses. The fair value of these wireless licenses
exceeded their book values by more than 10%.
Other Finite-Lived Intangibles
Customer relationships, licenses in Mexico, certain trade names
in our Latin America business and other finite-lived intangible
assets are reviewed for impairment whenever events or circumstances
indicate that the book value may not be recoverable over their
remaining life. For this analysis, we compare the expected
undiscounted future cash flows attributable to the asset to its
book value. When the asset's book value exceeds undiscounted future
cash flows, an impairment is recorded to reduce the book value of
the asset to its estimated fair value (see Notes 7 and 9).
Vrio Goodwill
In the second quarter of 2020, driven by significant and adverse
economic and political environments in Latin America, including the
impact of the COVID-19 pandemic, we experienced accelerated
subscriber losses and revenue decline in the region, as well as
closure of our operations in Venezuela. When combining these
business trends and higher weighted-average cost of capital
resulting from the increase in country-risk premiums in the region,
we concluded that it was more likely than not that the fair value
of the Vrio reporting unit, estimated using discounted cash flow
and market multiple approaches, is less than its carrying amount.
We recorded a $2,212 goodwill impairment, the entire amount of
goodwill allocated to the Vrio reporting unit, with $105
attributable to noncontrolling interest (see Note 9).
Orbital Slots
During the first quarter of 2020, in conjunction with the
nationwide launch of AT&T TV and our customers' continued shift
from linear to streaming video services, we reassessed the
estimated economic lives and renewal assumptions for our orbital
slot licenses. As a result, we changed the estimated lives of these
licenses from indefinite to finite-lived, effective January 1,
2020, and amortized $1,504 of the orbital slots in 2020. (See Note
1)
Income Taxes Our estimates of income taxes and the significant
items giving rise to the deferred assets and liabilities are shown
in Note 14 and reflect our assessment of actual future taxes to be
paid on items reflected in the financial statements, giving
consideration to both timing and probability of these estimates.
Actual income taxes could vary from these estimates due to future
changes in income tax law or the final review of our tax returns by
federal, state or foreign tax authorities.
We use our judgment to determine whether it is more likely than
not that we will sustain positions that we have taken on tax
returns and, if so, the amount of benefit to initially recognize
within our financial statements. We regularly review our uncertain
tax positions and adjust our unrecognized tax benefits (UTBs) in
light of changes in facts and circumstances, such as changes in tax
law, interactions with taxing authorities and developments in case
law. These adjustments to our UTBs may affect our income tax
expense. Settlement of uncertain tax positions may require use of
our cash.
New Accounting Standards
Beginning with 2020 interim and annual reporting periods, we
adopted the FASB's new accounting guidance related to the
measurement of credit losses on trade receivables, loans, contract
assets and certain other assets not subject fair value measurement
existing at January 1, 2020. We adopted the standard using a
modified retrospective approach as of the beginning of the period
of adoption, which did not require us to adjust the balance for
prior periods, therefore affecting the comparability of our
financial statements. Upon adoption, we recorded an increase to our
allowances for credit losses, primarily for trade and loan
receivables. See Note 1 for discussion of the impact of the
standard.
51
AT&T Inc.
Dollars in millions except per share amounts
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See Note 1 for discussion of the expected impact of new
standards.
OTHER BUSINESS MATTERS
Video Business On February 25, 2021, we signed an agreement to
form a new company named DIRECTV (New DTV) with TPG Capital, which
will be jointly governed by a board with representation from both
AT&T and TPG. Under the agreement, we will contribute our Video
business unit to New DTV for $4,250 of junior preferred units, an
additional distribution preference of $4,200 and a 70% economic
interest in common units. We expect to receive $7,600 in cash from
New DTV at closing. TPG will contribute approximately $1,800 in
cash to New DTV for $1,800 of senior preferred units and a 30%
economic interest in common units. The remaining $5,800 will be
funded by debt taken on by New DTV. As part of this transaction, we
agreed to pay net losses under the NFL SUNDAY TICKET contract up to
a cap of $2,500 over the remaining period of the contract.
The transaction is expected to close in the second half of 2021,
pending customary closing conditions. The total of $7,600 of
proceeds from the transaction are expected to reduce our total and
net debt positions.
In the first quarter of 2021, we expect to apply held-for-sale
accounting treatment to the assets and liabilities of the U.S.
video business, and accordingly will include the assets in "Other
current assets," and the related liabilities in "Accounts payable
and accrued liabilities," on our consolidated balance sheet at
March 31, 2021. The carrying amounts at December 31, 2020 of these
assets and liabilities were approximately $16,150 and $4,900,
respectively.
Spectrum Auction In March 2020, we were the winning bidder of
high-frequency 37/39 GHz licenses in FCC Auction 103 covering an
average of 786 MHz nationwide for approximately $2,400. 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 $2,400 gross bids. We made our final payment of approximately
$950 for the Auction 103 payment in April 2020. The FCC granted the
licenses in June 2020.
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 must provide to
the FCC an initial down payment of $4,681 on March 10, 2021, of
which $550 was paid as an upfront payment prior to the start of the
auction, and to pay a remaining $18,725 on or before March 24,
2021. We estimate that AT&T will be responsible for $955 of
Incentive Payments upon clearing of Phase I spectrum and $2,112
upon clearing of Phase II spectrum. Additionally, we will be
responsible for a portion of compensable relocation costs over the
next several years as the spectrum is being cleared. Satellite
operators have provided the FCC with relocation cost estimates
totaling $3,400. AT&T intends to fund the purchase price using
a combination of cash and short-term investments, funds from
operations and either short-term or long-term debt, depending upon
market conditions.
Labor Contracts As of December 31, 2020, we employed
approximately 231,000 persons. Approximately 37% of our employees
are represented by the Communications Workers of America (CWA), the
International Brotherhood of Electrical Workers (IBEW) or other
unions. After expiration of the collective bargaining agreements,
work stoppages or labor disruptions may occur in the absence of new
contracts or other agreements being reached. There are no
significant contracts expiring in 2021. A contract covering
approximately 14,000 Mobility employees in 36 states and the
District of Columbia that was set to expire in February 2021 was
extended until February 2022. A contract covering approximately
10,000 Mobility employees in nine Southeast states that was set to
expire in February 2022 was extended until February 2023 .
Pension Diversification In 2013, we made a voluntary
contribution of 320 million Series A Cumulative Perpetual Preferred
Membership Interests in AT&T Mobility II LLC (Mobility
preferred interests), the primary holding company for our wireless
business, to the trust used to pay pension benefits under certain
of our qualified pension plans (see Note 17). Since their
contribution, the Mobility preferred interests are plan assets
under ERISA, and have been recognized as such in the plan's
separate financial statements. On September 28, 2020, the trust,
through the independent investment manager/fiduciary, sold 106.7
million of the Mobility preferred interests to unrelated third
parties. The aggregate purchase price was $2,885, which includes
accrued distributions through the date of sale (see Note 15).
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.
52
AT&T Inc.
Dollars in millions except per share amounts
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LIQUIDITY AND CAPITAL RESOURCES
We had $9,740 in cash and cash equivalents available at December
31, 2020. Cash and cash equivalents included cash of $2,842 and
money market funds and other cash equivalents of $6,898.
Approximately $2,205 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.
The Company's liquidity and capital resources were not
materially impacted by COVID-19 and related economic conditions
during 2020. We will continue to monitor impacts of the COVID-19
pandemic on our liquidity and capital resources.
Cash and cash equivalents decreased $2,390 since December 31,
2019. In 2020, cash inflows were primarily provided by cash
receipts from operations, including cash from our sale and transfer
of our receivables to third parties and the issuances of long-term
debt, cumulative preferred stock and cumulative preferred interests
in a subsidiary. These inflows were offset by cash used to meet the
needs of the business, including, but not limited to, payment of
operating expenses, debt repayments, funding capital expenditures
and vendor financing payments, dividends to stockholders, share
repurchases and spectrum acquisitions.
Cash Provided by or Used in Operating Activities
During 2020, cash provided by operating activities was $43,130
compared to $48,668 in 2019, impacted by the timing of working
capital payments.
We actively manage the timing of our supplier payments for
operating items to optimize the use of our cash. Among other
things, we seek to make payments on 90-day or greater terms, while
providing the suppliers with access to bank facilities that permit
earlier payments at their cost. In addition, for payments to a key
supplier, as part of our working capital initiatives, we have
arrangements that allow us to extend payment terms up to 90 days at
an additional cost to us (referred to as supplier financing). The
net impact of supplier financing was to improve cash from operating
activities $432 in 2020 and $909 in 2019. All supplier financing
payments are due within one year.
Cash Used in or Provided by Investing Activities
During 2020, cash used in investing activities totaled $13,548,
and consisted primarily of $15,675 (including interest during
construction) for capital expenditures, final payment of
approximately $950 for wireless spectrum licenses won in Auction
103 and $141 of net cash paid to acquire the remaining interest in
HBO LAG. Investing activities also included cash receipts of $1,928
from the sale of our operations in Puerto Rico, which were used to
redeem the preferred interests secured by the sales proceeds (see
Notes 6 and 17), $1,100 from the sale of our investment in Central
European Media Enterprises, Ltd. (see Note 6) and $400 from
corporate owned life insurance investments.
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 $2,966 in 2020, compared to $3,050 in 2019. Capital
expenditures in 2020 were $15,675, and when including $2,966 cash
paid for vendor financing and excluding $1,063 of FirstNet
reimbursements, gross capital investment was $19,704 ($3,986 lower
than the prior year).
The vast majority of our capital expenditures are spent on our
networks, including product development and related support
systems. In 2020, we placed $4,664 of equipment in service under
vendor financing arrangements (compared to $2,632 in 2019) and
approximately $1,230 of assets related to the FirstNet build
(compared to $1,116 in 2019). Total reimbursements from the
government for FirstNet were $1,626 for 2020 and $1,374 for 2019,
predominately for capital expenditures.
The amount of capital expenditures is influenced by demand for
services and products, capacity needs and network enhancements. In
2021, we expect that our gross capital investment, which includes
capital expenditures and cash paid for vendor financing and
excludes expected FirstNet reimbursement of approximately $1,000,
will be in the $21,000 range (including capital expenditures in the
$18,000 range).
Cash Used in or Provided by Financing Activities
For the year, cash used in financing activities totaled $32,007
and was comprised of issuances and repayments of debt, issuances of
preferred stock, issuances and redemptions of preferred interests
in subsidiaries, payments of dividends and share repurchases.
53
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------------------
During 2020, debt issuances included proceeds of $9,440 in
short-term borrowings (including approximately $3,950 of commercial
paper) and $31,988 of net proceeds from long-term debt. Borrowing
activity included the following issuances:
Issued and redeemed in 2020:
--March draw of $750 on a private financing agreement (repaid in
the second quarter).
--April draw of $5,500 on a term loan credit agreement with
certain commercial banks and Bank of America, N.A., as lead agent
(repaid in the second quarter).
Issued and outstanding in 2020:
--February issuance of $2,995 of 4.000% global notes due
2049.
--March borrowings of $665 from loan programs with export
agencies of foreign governments to support network equipment
purchases in those countries.
--May issuances totaling $12,500 in global notes, comprised of
$2,500 of 2.300% global notes due 2027, $3,000 of 2.750% global
notes due 2031, $2,500 of 3.500% global notes due 2041, $3,000 of
3.650% global notes due 2051 and $1,500 of 3.850% global notes due
2060.
--May issuances totaling EUR3,000 million in global notes
(approximately $3,281 at issuance), comprised of EUR1,750 million
of 1.600% global notes due 2028, EUR750 million of 2.050% global
notes due 2032 and EUR500 million of 2.600% global notes due
2038.
--June issuance of $1,050 of 3.750% global notes due 2050.
--August issuances totaling $11,000 in global notes, comprised
of $2,250 of 1.650% global notes due 2028, $2,500 of 2.250% global
notes due 2032, $2,500 of 3.100% global notes due 2043, $2,250 of
3.300% global notes due 2052 and $1,500 of 3.500% global notes due
2061.
During 2020, repayments of debt included $9,467 of short-term
borrowings (including $3,967 of commercial paper) and $39,964 of
long-term debt. Repayments included:
Notes redeemed at maturity:
--$800 of AT&T floating-rate notes in the first quarter.
--$687 of AT&T floating-rate notes in the second
quarter.
--EUR2,250 million of AT&T floating-rate notes in the third
quarter (approximately $2,637 at maturity).
--EUR1,000 million of 1.875% AT&T global notes in the fourth
quarter ($1,290 at maturity).
--CAD$1,000 million of 3.825% AT&T global notes in the
fourth quarter (approximately $954 at maturity).
Notes redeemed or repurchased prior to maturity:
--$2,619 of 4.600% AT&T global notes with original maturity
in 2045, in the first quarter.
--$2,750 of 2.450% AT&T global notes with original maturity
in 2020, in the second quarter.
--$1,000 of annual put reset securities issued by BellSouth, in
the second quarter.
--$683 of 4.600% AT&T global notes with original maturity in
2021, in the second quarter.
--$1,695 of 2.800% AT&T global notes with original maturity
in 2021, in the second quarter.
--$853 of 4.450% AT&T global notes with original maturity in
2021, in the second quarter.
--$1,172 of 3.875% AT&T global notes with original maturity
in 2021, in the second quarter.
--$1,430 of 5.500% AT&T global notes with original maturity
in 2047, in the second quarter.
--$1,457 of 3.000% AT&T global notes with original maturity
in 2022, in the third quarter.
--$1,250 of 3.200% AT&T global notes with original maturity
in 2022, in the third quarter.
--$1,012 of 3.800% AT&T global notes with original maturity
in 2022, in the third quarter.
--$422 of 4.000% AT&T global notes with original maturity in
2022, in the third quarter.
--$60 of 3.800% DIRECTV senior notes with original maturity in
2022, in the third quarter.
--$63 of 4.000% Warner Media, LLC notes with original maturity
in 2022, in the third quarter.
--$11,384 of AT&T global notes and subsidiary notes that
were tendered for cash in the third quarter. The notes had floating
and fixed interest rates. The fixed rates ranged from 3.400% to
7.850% and original maturities ranging from 2021 to 2025.
--$53 of 3.400% Warner Media, LLC notes with original maturity
in 2022, in the third quarter.
--$177 of 3.400% AT&T global notes with original maturity in
2022, in the third quarter.
--$928 of 3.600% AT&T global notes with original maturity in
2023, in the third quarter.
54
AT&T Inc.
Dollars in millions except per share amounts
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Credit facilities repaid and other redemptions:
--$750 of borrowings under a private financing agreement, in the
first quarter.
--$750 of borrowings under a private financing agreement, in the
second quarter.
--$5,500 under our April 2020 term loan credit agreement with
certain commercial banks and Bank of America, in the second
quarter.
--$1,300 under our term loan credit agreement with Bank of
America, in the second quarter.
--$500 under our term loan credit agreement with Bank of
Communications Co., in the second quarter.
--R$3,381 million of Sky Serviços de Banda Larga Ltda.
floating-rate loan in the third quarter (approximately $1,000 when
issued in April 2018 and $638 at redemption due to strengthening of
the U.S. dollar against Brazilian real).
Debt Exchanges:
--During the third quarter of 2020, we exchanged $17,677 of
AT&T and subsidiary notes, with interest rates ranging from
4.350% to 8.750% and original maturities ranging from 2031 to 2058
for $1,459 of cash and $21,500 of three new series of AT&T
global notes, with interest rates ranging from 3.500% to 3.650% and
maturities ranging from 2053 to 2059.
--During the fourth quarter of 2020, we exchanged $8,280 of
AT&T and subsidiary notes, with interest rates ranging from
2.950% to 7.125% and original maturities ranging from 2026 to 2048
for $8 of cash and $9,678 of two new series of AT&T global
notes, with interest rates of 2.550% and 3.800% and maturities of
2033 and 2057, respectively.
Our weighted average interest rate of our entire long-term debt
portfolio, including the impact of derivatives, was approximately
4.1% as of December 31, 2020 and 4.4% as of December 31, 2019. We
had $155,209 of total notes and debentures outstanding at December
31, 2020, which included Euro, British pound sterling, Canadian
dollar, Mexican peso, Australian dollar, Swiss franc and Brazilian
real denominated debt that totaled approximately $43,399.
At December 31, 2020, we had $3,470 of debt maturing within one
year, consisting entirely of long-term debt issuances. Debt
maturing within one year includes an accreting zero-coupon note
that may be redeemed each May until maturity in 2022. If the
remainder of the zero-coupon note (issued for principal of $500 in
2007 and partially exchanged in the 2017 debt exchange offers) is
held to maturity, the redemption amount will be $592.
During 2020, we paid $2,966 of cash under our vendor financing
program, compared to $3,050 in 2019. Total vendor financing
payables included in our December 31, 2020 consolidated balance
sheet were approximately $3,761, with $3,563 due within one year
(in "Accounts payable and accrued liabilities") and the remainder
predominantly due within two to three years (in "Other noncurrent
liabilities").
Financing activities in 2020 also included $1,979 from the
September issuance of preferred interests in a subsidiary and
$3,869 for the February issuance of Series B and Series C preferred
stock (see Note 17).
We repurchased approximately 142 million shares of common stock
at a cost of $5,278, predominantly in the first quarter, and
completed the share repurchase authorization approved by the Board
of Directors in 2013. In March 2020, we cancelled an accelerated
share repurchase agreement that was planned for the second quarter
and other repurchases to maintain flexibility and focus on
continued investment in serving our customers, taking care of our
employees and enhancing our network, including 5G. At December 31,
2020, we had approximately 178 million shares remaining from our
share repurchase authorizations approved by the Board of Directors
in 2014.
We paid dividends on common shares and preferred shares of
$14,956 in 2020, compared with $14,888 in 2019. Dividends were
higher in 2020, primarily due to dividend payments to preferred
stockholders and the increase in our quarterly dividend on common
stock approved by our Board of Directors in December 2019,
partially offset by fewer shares outstanding.
Dividends on common stock declared by our Board of Directors
totaled $2.08 per share in 2020 and $2.05 per share in 2019. Our
dividend policy considers the expectations and requirements of
stockholders, capital funding requirements of AT&T and
long-term growth opportunities.
Our 2021 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.
55
AT&T Inc.
Dollars in millions except per share amounts
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Credit Facilities
The following summary of our various credit and loan agreements
does not purport to be complete and is qualified in its entirety by
reference to each agreement filed as exhibits to our Annual Report
on Form 10-K.
We use credit facilities as a tool in managing our liquidity
status. In November 2020, we amended one of our $7,500 revolving
credit agreements by extending the termination date. In total, we
have two $7,500 revolving credit agreements, totaling $15,000, with
one terminating on December 11, 2023 and the other terminating on
November 17, 2025. No amounts were outstanding under either
agreement as of December 31, 2020.
In September 2019, we entered into and drew on a $1,300 term
loan credit agreement containing (i) a 1.25 year $400 facility due
in 2020, (ii) a 2.25 year $400 facility due in 2021, and (iii) a
3.25 year $500 facility due in 2022, with Bank of America, N.A., as
agent. These facilities were repaid and terminated in the second
quarter of 2020.
On April 6, 2020, we entered into and drew on a $5,500 Term Loan
Credit Agreement (Term Loan) with 11 commercial banks and Bank of
America, N.A. as lead agent. We repaid and terminated the Term Loan
in May 2020.
On January 29, 2021, we entered into a $14,700 Term Loan Credit
Agreement (Term Loan), with Bank of America, N.A., as agent. The
Term Loan is available for a single draw at any time before May 29,
2021. The proceeds will be used for general corporate purposes,
which may include among other things, financing acquisitions of
additional spectrum. The entire principal amount of the Term Loan
will be due and payable 364 days after the date on which the
borrowing is made. At January 31, 2021, we had approximately $6,100
of commercial paper outstanding.
We also utilize other external financing sources, which include
various credit arrangements supported by government agencies to
support network equipment purchases, as well as a commercial paper
program.
Each of our credit and loan agreements contains covenants that
are customary for an issuer with an investment grade senior debt
credit rating as well as a net debt-to-EBITDA financial ratio
covenant requiring us to maintain, as of the last day of each
fiscal quarter, a ratio of not more than 3.5-to-1. As of December
31, 2020, we were in compliance with the covenants for our credit
facilities.
Collateral Arrangements
During 2019 and 2020, we amended collateral arrangements with
counterparties to require cash collateral posting by AT&T only
when derivative market values exceed certain thresholds. Under
these arrangements, which cover over 90% of our approximate $41,000
derivative portfolio, counterparties are still required to post
collateral. During 2020, we received approximately $800 of cash
collateral, on a net basis. Cash postings under these arrangements
vary with changes in credit ratings and netting agreements. (See
Note 13)
Other
Our total capital consists of debt (long-term debt and debt
maturing within one year) and stockholders' equity. Our capital
structure does not include debt issued by our equity method
investment. At December 31, 2020, our debt ratio was 46.7%,
compared to 44.7% at December 31, 2019 and 47.7% at December 31,
2018. Our net debt ratio was 43.8% at December 31, 2020, compared
to 41.4% at December 31, 2019 and 46.2% at December 31, 2018. The
debt ratio is affected by the same factors that affect total
capital, and reflects our recent debt issuances and repayments and
debt acquired in business combinations.
A significant amount of our cash outflows is related to tax
items, acquisition of spectrum through FCC auctions and benefits
paid for current and former employees:
--Total taxes incurred, collected and remitted by AT&T
during 2020 and 2019, were $21,967 and $24,170. 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 $2,800 in 2020, $1,300 in 2019 and $450 in
2018.
--Total health and welfare benefits provided to certain active
and retired employees and their dependents totaled $3,656 in 2020,
with $1,029 paid from plan assets. Of those benefits, $3,293
related to medical and prescription drug benefits. In addition, in
2020 we prefunded $745 for future benefit payments. During 2020, we
paid $5,124 of pension benefits out of plan assets.
56
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------------------
During 2020, we have received $3,641 from the disposition of
assets, and when combined with working capital monetization
initiatives, which include the sale of receivables, total cash
received from monetization efforts, net of $1,613 of spectrum
acquisitions, was approximately $1,100. We plan to continue to
explore similar opportunities.
CONTRACTUAL OBLIGATIONS, COMMITMENTS AND CONTINGENCIES
Our contractual obligations as of December 31, 2020 are in the
following table:
Payments Due By Period
Less than 1-3 3-5 More than
Contractual Obligations Total 1 Year Years Years 5 Years
Long-term debt obligations 1 $165,654 $ 3,418 $13,730 $14,238 $ 134,268
Interest payments on long-term
debt 123,582 6,627 12,851 11,817 92,287
Purchase obligations 2 70,610 20,274 21,275 11,142 17,919
Operating lease obligations 3 31,123 4,808 8,621 6,464 11,230
FirstNet sustainability payments
4 17,520 120 390 390 16,620
Unrecognized tax benefits 5 10,560 463 - - 10,097
Other finance obligations 6 12,437 4,236 2,232 1,602 4,367
Total Contractual Obligations $431,486 $ 39,946 $59,099 $45,653 $ 286,788
=================================== ======= ======= ====== ====== =======
1 Represents principal or payoff amounts of notes and debentures
at maturity or, for putable debt, the next put opportunity (see
Note 12). Foreign debt includes the impact from hedges, when
applicable.
2 We expect to fund the purchase obligations with cash provided
by operations or through incremental borrowings. The minimum
commitment for certain obligations is based on termination
penalties that could be paid to exit the contracts. If we elect to
exit these contracts, termination fees for all such contracts in
the year of termination could be approximately $259 in 2021, $257
in the aggregate for 2022 and 2023 and $64 in the aggregate for
2024 and 2025 and $1,987 in the aggregate thereafter. Certain
termination fees are excluded from the above table, as the fees
would not be paid every year and the timing of such payments, if
any, is uncertain. (See Note 21)
3 Represents operating lease payments (see Note 8).
4 Represents contractual commitment to make sustainability
payments over the 25-year contract. These sustainability payments
represent our commitment to fund FirstNet's operating expenses and
future reinvestment in the network, which we own and operate.
FirstNet has a statutory requirement to reinvest funds that exceed
the agency's operating expenses, which we anticipate to be $15,000.
(See Note 20)
5 The noncurrent portion of the UTBs is included in the "More
than 5 Years" column, as we cannot reasonably estimate the timing
or amounts of additional cash payments, if any, at this time (see
Note 14).
6 Represents future minimum payments under the Crown Castle and
other arrangements (see Note 19), payables subject to extended
payment terms (see Note 22) and finance lease payments (see Note
8).
Certain items were excluded from this table, as the year of
payment is unknown and could not be reliably estimated since past
trends were not deemed to be an indicator of future payment, we
believe the obligations are immaterial or because the settlement of
the obligation will not require the use of cash. These items
include: deferred income tax liability of $60,472 (see Note 14);
net postemployment benefit obligations of $19,690; expected pension
and postretirement payments (see Note 15); and other noncurrent
liabilities of $11,829.
57
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------------------
DISCUSSION AND RECONCILIATION OF NON-GAAP MEASURE
We believe the following measure is relevant and useful
information to investors as it is used by management as a method of
comparing performance with that of many of our competitors. This
supplemental measure should be considered in addition to, but not
as a substitute of, our consolidated and segment financial
information.
Business Solutions Reconciliation
We provide a supplemental discussion of our Business Solutions
operations that is calculated by combining our Mobility and
Business Wireline business units, and then adjusting to remove
non-business operations. The following table presents a
reconciliation of our supplemental Business Solutions results.
Results have been recast to conform to the current period's
classification.
Year Ended December 31, 2020
Business Adjustments
Mobility Wireline 1 Business Solutions
Operating revenues
Wireless service $ 55,542 $ - $ (47,810) $ 7,732
Strategic and managed services - 15,788 - 15,788
Legacy voice and data services - 8,183 - 8,183
Other service and equipment - 1,387 - 1,387
Wireless equipment 17,022 - (14,140) 2,882
Total Operating Revenues 72,564 25,358 (61,950) 35,972
Operating expenses
Operations and support 42,106 15,534 (34,927) 22,713
EBITDA 30,458 9,824 (27,023) 13,259
Depreciation and amortization 8,086 5,226 (6,803) 6,509
Total Operating Expenses 50,192 20,760 (41,730) 29,222
Operating Income $ 22,372 $ 4,598 $ (20,220) $ 6,750
========= ======= ========== === ===============
1 Non-business wireless reported in the Communications segment under the Mobility
business unit.
Year Ended December 31, 2019
Business Adjustments
Mobility Wireline 1 Business Solutions
Operating revenues
Wireless service $ 55,331 $ - $ (47,887) $ 7,444
Strategic and managed services - 15,430 - 15,430
Legacy voice and data services - 9,180 - 9,180
Other service and equipment - 1,557 - 1,557
Wireless equipment 15,725 - (12,971) 2,754
Total Operating Revenues 71,056 26,167 (60,858) 36,365
Operating expenses
Operations and support 40,681 16,069 (34,036) 22,714
EBITDA 30,375 10,098 (26,822) 13,651
Depreciation and amortization 8,054 4,934 (6,840) 6,148
Total Operating Expenses 48,735 21,003 (40,876) 28,862
Operating Income $ 22,321 $ 5,164 $ (19,982) $ 7,503
========= ======= ========== === ===============
1 Non-business wireless reported in the Communications segment under the Mobility
business unit.
58
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------------------
Year Ended December 31, 2018
Business Adjustments
Mobility Wireline 1 Business Solutions
Operating revenues
Wireless service $ 54,295 $ - $ (47,402) $ 6,893
Strategic and managed services - 14,649 - 14,649
Legacy voice and data services - 10,674 - 10,674
Other service and equipment - 1,406 - 1,406
Wireless equipment 16,226 - (13,718) 2,508
Total Operating Revenues 70,521 26,729 (61,120) 36,130
Operating expenses
Operations and support 40,690 16,181 (34,285) 22,586
EBITDA 29,831 10,548 (26,835) 13,544
Depreciation and amortization 8,263 4,708 (7,077) 5,894
Total Operating Expenses 48,953 20,889 (41,362) 28,480
Operating Income $ 21,568 $ 5,840 $ (19,758) $ 7,650
======== ======= ========== === ===============
1 Non-business wireless reported in the Communications segment under the Mobility
business unit.
59
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------------------
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 12 and 13. In
managing interest expense, we control our mix of fixed and floating
rate debt through term loans, floating rate notes, and interest
rate swaps. We have established interest rate risk limits that we
closely monitor by measuring interest rate sensitivities in our
debt and interest rate derivatives portfolios.
Most of our foreign-denominated long-term debt has been swapped
from fixed-rate or floating-rate foreign currencies to fixed-rate
U.S. dollars at issuance through cross-currency swaps, removing
interest rate risk and foreign currency exchange risk associated
with the underlying interest and principal payments. Likewise,
periodically we enter into interest rate locks to partially hedge
the risk of increases in the benchmark interest rate during the
period leading up to the probable issuance of fixed-rate debt. We
expect gains or losses in our cross-currency swaps and interest
rate locks to offset the losses and gains in the financial
instruments they hedge.
We had no interest rate swaps and no interest rate locks at
December 31, 2020.
Foreign Exchange Risk
We principally use foreign exchange contracts to hedge certain
film production costs denominated in foreign currencies. We are
also exposed to foreign currency exchange risk through our foreign
affiliates and equity investments in foreign companies. We have
designated EUR1,450 million aggregate principal amount of debt as a
hedge of the variability of certain Euro-denominated net
investments of our subsidiaries. The gain or loss on the debt that
is designated as, and is effective as, an economic hedge of the net
investment in a foreign operation is recorded as a currency
translation adjustment within accumulated other comprehensive
income, net on the consolidated balance sheet.
Through cross-currency swaps, most of our foreign-denominated
debt has been swapped from fixed-rate or floating-rate foreign
currencies to fixed-rate U.S. dollars at issuance, removing
interest rate and foreign currency exchange risk associated with
the underlying interest and principal payments. We expect gains or
losses in our cross-currency swaps to offset the gains and losses
in the financial instruments they hedge. We had cross-currency
swaps with a notional value of $40,745 and a fair value of $(93)
outstanding at December 31, 2020.
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 $90 and a fair value of $(3)
outstanding at December 31, 2020.
60
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, 2020.
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, 2020, 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/John J. Stephens
John T. Stankey John J. Stephens
Chief Executive Officer Senior Executive Vice President
and President and Chief Financial Officer
61
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, 2020 and 2019, 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, 2020, 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, 2020 and 2019, and the results of its
operations and its cash flows for each of the three years in the
period ended December 31, 2020, 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, 2020, 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 25, 2021 expressed an unqualified opinion
thereon.
Basis for Opinion
These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion
on the Company's financial statements based on our audits. We are a
public accounting firm registered with the PCAOB and are required
to be independent with respect to the Company in accordance with
the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in accordance with the standards of the
PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial
statements are free of material misstatement, whether due to error
or fraud. Our audits included performing procedures to assess the
risks of material misstatement of the financial statements, whether
due to error or fraud, and performing procedures that respond to
those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial
statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as
well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis
for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters
arising from the current period audit of the financial statements
that were communicated or required to be communicated to the audit
committee and that: (1) relate to accounts or disclosures that are
material to the financial statements and (2) involved our
especially challenging, subjective or complex judgments. The
communication of critical audit matters does not alter in any way
our opinion on the consolidated financial statements, taken as a
whole, and we are not, by communicating the critical audit matters
below, providing separate opinions on the critical audit matters or
on the accounts or disclosures to which they relate.
Discount rates used in determining pension and postretirement
benefit obligations
Description of At December 31, 2020, the Company's pension benefit obligation
the Matter was $62,158 million and exceeded the fair value of defined benefit
pension plan assets of $54,606 million, resulting in an unfunded
benefit obligation of $7,552 million. Additionally, at December
31, 2020, the Company's postretirement benefit obligation was
$13,928 million and exceeded the fair value of postretirement
plan assets of $3,843 million, resulting in an unfunded benefit
obligation of $10,085 million. As explained in Note 15 to the
consolidated financial statements, the Company updates the assumptions
used to measure the defined benefit pension and postretirement
benefit obligations, including discount rates, at December 31
or upon a remeasurement event. The Company determines the discount
rates used to measure the obligations based on the development
of a yield curve using high-quality corporate bonds selected
to yield cash flows that correspond to the expected timing and
amount of the expected future benefit payments. The selected
discount rate has a significant effect on the measurement of
the defined benefit pension and postretirement benefit obligations.
62
AT&T Inc.
Auditing the defined benefit pension and postretirement benefit
obligations was complex due to the need to evaluate the highly
judgmental nature of the actuarial assumptions made by management,
primarily the discount rate, used in the Company's measurement
process. Auditing the discount rates associated with the measurement
of the defined benefit pension and postretirement benefit obligations
was complex because it required an evaluation of the credit quality
of the corporate bonds used to develop the discount rate and
the correlation of those bonds' cash inflows to the timing and
amount of future expected benefit payments.
How We We obtained an understanding, evaluated the design and tested
Addressed the the operating effectiveness of certain controls over management's
Matter in Our review of the determination of the discount rates used in the
Audit defined benefit pension and postretirement benefit obligations
calculations.
To test the determination of the discount rate used in the calculation
of the defined benefit pension and postretirement benefit obligations,
we performed audit procedures that focused on evaluating, with
the assistance of our actuarial specialists, the determination
of the discount rates, among other procedures. For example, we
evaluated the selected yield curve used to determine the discount
rates applied in measuring the defined benefit pension and postretirement
benefit obligations. As part of this assessment, we considered
the credit quality of the corporate bonds that comprise the yield
curve and compared the timing and amount of cash flows at maturity
with the expected amounts and duration of the related benefit
payments. As part of this assessment, we compared the Company's
current projections to historical projected defined benefit pension
and postretirement benefit obligations cash flows and compared
the current-year benefits paid to the prior-year projected cash
flows.
Uncertain tax positions
Description of As discussed in Note 14 to the consolidated financial statements,
the Matter at December 31, 2020, the Company had recorded unrecognized tax
benefits of $12,451 million for uncertain tax positions. Uncertainty
in a tax position may arise as tax laws are subject to interpretation.
The Company uses judgment to (1) determine whether, based on
the technical merits, a tax position is more likely than not
to be sustained and (2) measure the amount of tax benefit that
qualifies for recognition within the financial statements. Changes
in facts and circumstances, such as changes in tax laws, new
regulations issued by taxing authorities and communications with
taxing authorities may affect the amount of uncertain tax positions
and, in turn, income tax expense. Estimated tax benefits related
to uncertain tax positions that are not more likely than not
to be sustained are reported as unrecognized income tax benefits.
Auditing the measurement of uncertain tax positions was challenging
because the measurement is based on interpretations of tax laws
and legal rulings. Each tax position involves unique facts and
circumstances that must be evaluated, and there may be many uncertainties
around initial recognition and de-recognition of tax positions,
including regulatory changes, litigation and examination activity.
How We Addressed We obtained an understanding, evaluated the design and tested
the the operating effectiveness of controls over the Company's accounting
Matter in Our process for uncertain tax positions. This included controls over
Audit identification and measurement of the benefits of the uncertain
tax positions, including management's review of the inputs and
calculations of unrecognized income tax benefits, both initially
and on an ongoing basis.
We involved our tax professionals to assist us in assessing
significant uncertain tax positions, including an evaluation
of the technical merits of individual positions, the determination
of whether a tax position was more-likely-than-not to be sustained,
and the Company's measurement of its uncertain tax positions,
including the computation of interest and penalties, among other
procedures. For significant new positions, we assessed the Company's
filing position, correspondence with the relevant tax authorities
and third-party advice obtained by the Company, as appropriate.
For existing positions, we assessed changes in facts and law,
as well as settlements of similar positions for any impact to
the recognized liability for the positions. We analyzed the Company's
assumptions and data used to determine the amount of tax benefit
to recognize and tested the accuracy of the calculations. We
also evaluated the adequacy of the Company's financial statement
disclosures related to uncertain tax positions included in Note
14.
63
AT&T Inc.
Impairment of goodwill and long-lived assets
Description of For the year ended December 31, 2020, the Company recorded asset
the Matter impairments of $18,880 million, consisting primarily of $10,465
million of goodwill and $7,255 million of long-lived assets.
As discussed in Note 1 to the consolidated financial statements,
reporting unit goodwill is tested at least annually for impairment,
and long-lived assets, including definite-lived intangible assets,
are evaluated 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. Estimating fair
values in connection with these impairment evaluations involves
the utilization of discounted cash flow models, and, in the case
of reporting units, market multiples valuation approaches. As
disclosed in Note 9 to the consolidated financial statements,
the October 1, 2020 estimated fair values of the Turner, HBO,
and Entertainment Group reporting units exceeded their carrying
values by less than 10%. The Company's later separation of the
Entertainment Group reporting unit into the Video and Broadband
reporting units required additional impairment evaluations prior
to and after the separation, pursuant to which the Company recorded
a goodwill impairment charge of $8,253 million, representing
the entire amount of goodwill allocated for the Video reporting
unit. The Company also recorded a $2,212 million goodwill impairment
charge for the Vrio reporting unit, representing the entire amount
of goodwill for that reporting unit. Furthermore, as disclosed
in Notes 7 and 9 to the consolidated financial statements, the
Company identified impairment indicators for its Video asset
group and was required to evaluate its recoverability utilizing
probability-weighted expected cash flows, resulting in the aforementioned
$7,255 million impairment charge.
Auditing management's impairment evaluations for the reporting
unit goodwill and long-lived assets discussed above was complex
because the determination of expected cash flows used in the
evaluation of recoverability and the estimation of fair values
involve subjective management assumptions, such as estimates
of subscriber counts, cash flow probabilities, changes in average
revenue per user, discount rate, capital investment and content
costs. These assumptions are forward-looking and could be affected
by shifts in long-term strategy and the evolving market landscape.
Changes in these assumptions can have a material effect on the
determination of fair value.
How We Addressed We obtained an understanding, evaluated the design and tested
the the operating effectiveness of controls over the Company's impairment
Matter in Our evaluation processes. Our procedures included testing controls
Audit over management's review of the valuation models and the significant
assumptions described above.
Our audit procedures to test management's impairment evaluations
included, among others, assessing the valuation methodologies
and significant assumptions discussed above and the underlying
data used to develop such assumptions. For example, we compared
the significant assumptions to current industry, market and economic
trends, and other guideline companies in the same industry. Where
appropriate, we evaluated whether changes to the Company's business
model, customer base and other factors would affect the significant
assumptions. We also assessed the historical accuracy of management's
estimates and performed independent sensitivity analyses. We
involved our valuation specialists to assist us in performing
our audit procedures to test the estimated fair values of the
Company's reporting units and long-lived assets. Our procedures
to test management's impairment evaluation of its Video asset
group also included challenging the reasonableness of the assigned
probabilities discussed above and the underlying factors considered
by management to develop such probabilities.
/s/ Ernst & Young LLP
We have served as the Company's auditor since 1999.
Dallas, Texas
February 25, 2021
64
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, 2020, 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, 2020, 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 2020 consolidated financial statements of the Company and our
report dated February 25, 2021 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 25, 2021
65
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Statements of Income
2020 2019 2018
Operating Revenues
Service $152,767 $163,499 $152,345
Equipment 18,993 17,694 18,411
Total operating revenues 171,760 181,193 170,756
Operating Expenses
Cost of revenues
Equipment 19,706 18,653 19,786
Broadcast, programming and operations 27,305 31,132 26,727
Other cost of revenues (exclusive of depreciation
and amortization shown separately below) 32,909 34,356 32,906
Selling, general and administrative 38,039 39,422 36,765
Asset impairments and abandonments 18,880 1,458 46
Depreciation and amortization 28,516 28,217 28,430
Total operating expenses 165,355 153,238 144,660
Operating Income 6,405 27,955 26,096
Other Income (Expense)
Interest expense (7,925) (8,422) (7,957)
Equity in net income (loss) of affiliates 95 6 (48)
Other income (expense) - net (1,431) (1,071) 6,782
Total other income (expense) (9,261) (9,487) (1,223)
Income (Loss) Before Income Taxes (2,856) 18,468 24,873
Income tax expense 965 3,493 4,920
Net Income (Loss) (3,821) 14,975 19,953
Less: Net Income Attributable to Noncontrolling
Interest (1,355) (1,072) (583)
Net Income (Loss) Attributable to AT&T $(5,176) $ 13,903 $ 19,370
Less: Preferred Stock Dividends (193) (3) -
Net Income (Loss) Attributable to Common Stock $(5,369) $ 13,900 $ 19,370
Basic Earnings Per Share Attributable to Common
Stock $ (0.75) $ 1.90 $ 2.85
Diluted Earnings Per Share Attributable to Common
Stock $ (0.75) $ 1.89 $ 2.85
========================================================= ======= ======= =======
The accompanying notes are an integral part of the consolidated
financial statements.
66
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------------------
Consolidated Statements of Comprehensive Income
2020 2019 2018
Net income (loss) $(3,821) $14,975 $19,953
Other comprehensive income (loss), net of tax:
Foreign Currency:
Translation adjustment (includes $(59), $(9) and
$(32) attributable to
noncontrolling interest), net of taxes of $(42),
$18 and $(45) (929) 19 (1,062)
Securities:
Net unrealized gains (losses), net of taxes of
$27, $17 and $(1) 78 50 (4)
Reclassification adjustment included in net income,
net of taxes of $(5),
$0 and $0 (15) - -
Derivative Instruments:
Net unrealized gains (losses), net of taxes of
$(212), $(240) and $(156) (811) (900) (597)
Reclassification adjustment included in net income,
net of taxes of $18,
$12 and $6 69 45 13
Defined benefit postretirement plans:
Net prior service credit arising during period,
net of taxes of $735,
$1,134 and $271 2,250 3,457 830
Amortization of net prior service credit included
in net income, net of
taxes of $(601), $(475) and $(431) (1,841) (1,459) (1,322)
Other comprehensive income (loss) (1,199) 1,212 (2,142)
Total comprehensive income (loss) (5,020) 16,187 17,811
Less: Total comprehensive income attributable
to noncontrolling interest (1,296) (1,063) (551)
Total Comprehensive Income (Loss) Attributable
to AT&T $(6,316) $15,124 $17,260
The accompanying notes are an integral part of the consolidated
financial statements.
67
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------------------
Consolidated Balance Sheets
December 31,
2020 2019
Assets
Current Assets
Cash and cash equivalents $ 9,740 $ 12,130
Accounts receivable - net of related allowance for credit
loss of $1,221 and $1,235 20,215 22,636
Prepaid expenses 1,822 1,631
Other current assets 20,231 18,364
Total current assets 52,008 54,761
Noncurrent Inventories and Theatrical Film and Television
Production Costs 14,752 12,434
Property, Plant and Equipment - Net 127,315 130,128
Goodwill 135,259 146,241
Licenses - Net 93,840 97,907
Trademarks and Trade Names - Net 23,297 23,567
Distribution Networks - Net 13,793 15,345
Other Intangible Assets - Net 15,386 20,798
Investments in and Advances to Equity Affiliates 1,780 3,695
Operating Lease Right-Of-Use Assets 24,714 24,039
Other Assets 23,617 22,754
Total Assets $525,761 $551,669
Liabilities and Stockholders' Equity
Current Liabilities
Debt maturing within one year $ 3,470 $ 11,838
Accounts payable and accrued liabilities 49,032 45,956
Advanced billings and customer deposits 6,176 6,124
Accrued taxes 1,019 1,212
Dividends payable 3,741 3,781
Total current liabilities 63,438 68,911
Long-Term Debt 153,775 151,309
Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes 60,472 59,502
Postemployment benefit obligation 18,276 18,788
Operating lease liabilities 22,202 21,804
Other noncurrent liabilities 28,358 29,421
Total deferred credits and other noncurrent liabilities 129,308 129,515
Stockholders' Equity
Preferred stock ($1 par value, 10,000,000 authorized):
Series A (48,000 issued and outstanding at December 31,
2020 and December 31, 2019) - -
Series B (20,000 issued and outstanding at December 31,
2020 and 0 issued and
outstanding at December 31, 2019) - -
Series C (70,000 issued and outstanding at December 31,
2020 and 0 issued and
outstanding at December 31, 2019) - -
Common stock ($1 par value, 14,000,000,000 authorized at
December 31, 2020 and
December 31, 2019: issued 7,620,748,598 at December 31,
2020 and December 31, 2019) 7,621 7,621
Additional paid-in capital 130,175 126,279
Retained earnings 37,457 57,936
Treasury stock (494,826,583 at December 31, 2020
and 366,193,458 at December 31, 2019, at cost) (17,910) (13,085)
Accumulated other comprehensive income 4,330 5,470
Noncontrolling interest 17,567 17,713
Total stockholders' equity 179,240 201,934
Total Liabilities and Stockholders' Equity $525,761 $551,669
The accompanying notes are an integral part of the consolidated
financial statements.
68
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------------------
Consolidated Statements of Cash Flows
2020 2019 2018
Operating Activities
Net income (loss) $(3,821) $ 14,975 $ 19,953
Adjustments to reconcile net income (loss) to
net cash provided by
operating activities:
Depreciation and amortization 28,516 28,217 28,430
Amortization of film and television costs 8,603 9,587 3,772
Undistributed earnings from investments in equity
affiliates 38 295 292
Provision for uncollectible accounts 1,972 2,575 1,791
Deferred income tax expense 1,675 1,806 4,931
Net (gain) loss on investments, net of impairments (742) (1,218) (739)
Pension and postretirement benefit expense (credit) (2,992) (2,002) (1,148)
Actuarial (gain) loss on pension and postretirement
benefits 4,169 5,171 (3,412)
Asset impairments and abandonments 18,880 1,458 46
Changes in operating assets and liabilities:
Receivables 2,216 2,812 (1,580)
Other current assets, inventories and theatrical
film and television
production costs (13,070) (12,852) (6,442)
Accounts payable and other accrued liabilities (1,410) (1,524) 1,602
Equipment installment receivables and related
sales (1,429) 548 (490)
Deferred customer contract acquisition and fulfillment
costs 376 (910) (3,458)
Postretirement claims and contributions (985) (1,008) (936)
Other - net 1,134 738 990
Total adjustments 46,951 33,693 23,649
Net Cash Provided by Operating Activities 43,130 48,668 43,602
Investing Activities
Capital expenditures, including $(123), $(200)
and $(493) of
interest during construction (15,675) (19,635) (21,251)
Acquisitions, net of cash acquired (1,851) (1,809) (43,309)
Dispositions 3,641 4,684 2,148
(Purchases), sales and settlement of securities
and investments, net 497 435 (183)
Advances to and investments in equity affiliates,
net (160) (365) (1,050)
Cash collections of deferred purchase price - - 500
Net Cash Used in Investing Activities (13,548) (16,690) (63,145)
Financing Activities
Net change in short-term borrowings with original
maturities of
three months or less (17) (276) (821)
Issuance of other short-term borrowings 9,440 4,012 4,898
Repayment of other short-term borrowings (9,467) (6,904) (2,098)
Issuance of long-term debt 31,988 17,039 41,875
Repayment of long-term debt (39,964) (27,592) (52,643)
Payment of vendor financing (2,966) (3,050) (560)
Issuance of preferred stock 3,869 1,164 -
Purchase of treasury stock (5,498) (2,417) (609)
Issuance of treasury stock 105 631 745
Issuance of preferred interests in subsidiaries 1,979 7,876 -
Redemption of preferred interest in subsidiary (1,950) - -
Dividends paid (14,956) (14,888) (13,410)
Other - net (4,570) (678) (3,366)
Net Cash Used in Financing Activities (32,007) (25,083) (25,989)
Net (decrease) increase in cash and cash equivalents
and restricted cash (2,425) 6,895 (45,532)
Cash and cash equivalents and restricted cash
beginning of year 12,295 5,400 50,932
Cash and Cash Equivalents and Restricted Cash
End of Year $ 9,870 $ 12,295 $ 5,400
The accompanying notes are an integral part of the consolidated
financial statements.
69
AT&T Inc.
Dollars and shares in millions except per share amounts
-------------------------------------------------------------------------------------------
Consolidated Statements of Changes in Stockholders' Equity
-------------------------------------------------------------------------------------------
2020 2019 2018
Shares Amount Shares Amount Shares Amount
Preferred Stock -
Series
A
Balance at beginning
of
year - $ - - $ - - $ -
Issuance of stock - - - - - -
Balance at end of year - $ - - $ - - $ -
Preferred Stock -
Series
B
Balance at beginning
of
year - $ - - $ - - $ -
Issuance of stock - - - - - -
Balance at end of year - $ - - $ - - $ -
Preferred Stock -
Series
C
Balance at beginning
of
year - $ - - $ - - $ -
Issuance of stock - - - - - -
Balance at end of year - $ - - $ - - $ -
Common Stock
Balance at beginning
of
year 7,621 $ 7,621 7,621 $ 7,621 6,495 $ 6,495
Issuance of stock - - - - 1,126 1,126
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 $126,279 $ 125,525 $ 89,563
Repurchase and
acquisition
of
common stock 67 - -
Issuance of preferred
stock 3,869 1,164 -
Issuance of common
stock - - 35,473
Issuance of treasury
stock (62) (125) (115)
Share-based payments 18 (271) 604
Changes related to
acquisition
of
interests held by
noncontrolling
owners 4 (14) -
Balance at end of year $130,175 $ 126,279 $ 125,525
Retained Earnings
Balance at beginning
of
year $ 57,936 $ 58,753 $ 50,500
Cumulative effect of
accounting
changes and other
adjustments (293) 316 3,000
Adjusted beginning
balance 57,643 59,069 53,500
Net income (loss)
attributable
to AT&T (5,176) 13,903 19,370
Preferred stock
dividends (139) (8) -
Common stock
dividends
($2.08, $2.05,
and $2.01 per
share) (14,871) (15,028) (14,117)
Balance at end of year $ 37,457 $ 57,936 $ 58,753
=== ===
The accompanying notes are an integral part of the consolidated
financial statements.
70
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Dollars and shares in millions except per share amounts
-----------------------------------------------------------------------
Consolidated Statements of Changes in Stockholders' Equity - continued
---------------------------------------------------------------------------------------
2020 2019 2018
Shares Amount Shares Amount Shares Amount
Treasury Stock
Balance at beginning
of
year (366) $ (13,085) (339) $(12,059) (356) $(12,714)
Repurchase and
acquisition
of
common stock (150) (5,631) (67) (2,492) (20) (692)
Issuance of treasury
stock 21 806 40 1,466 37 1,347
Balance at end of
year (495) $ (17,910) (366) $(13,085) (339) $(12,059)
Accumulated Other
Comprehensive
Income
Attributable to AT&T, net
of tax:
Balance at beginning
of
year $ 5,470 $ 4,249 $ 7,017
Cumulative effect
of accounting
changes and other
adjustments - - (658)
Adjusted beginning
balance 5,470 4,249 6,359
Other
comprehensive
income
(loss)
attributable to
AT&T (1,140) 1,221 (2,110)
Balance at end of
year $ 4,330 $ 5,470 $ 4,249
Noncontrolling
Interest:
Balance at beginning
of
year $ 17,713 $ 9,795 $ 1,146
Cumulative effect
of accounting
changes and other
adjustments (7) 29 35
Adjusted beginning
balance 17,706 9,824 1,181
Net income
attributable
to
noncontrolling
interest 1,355 1,072 583
Issuance and
acquisition
of
noncontrolling
owners 1,979 7,881 8,804
Redemption of
noncontrolling
interest (1,950) - -
Distributions (1,464) (1,055) (732)
Acquisition of
interests
held by
noncontrolling
owners - - (9)
Translation
adjustments
attributable to
noncontrolling
interest,
net of taxes (59) (9) (32)
Balance at end of
year $ 17,567 $ 17,713 $ 9,795
Total
Stockholders'
Equity
at
beginning of
year $ 201,934 $ 193,884 $ 142,007
Total
Stockholders'
Equity
at
end of year $ 179,240 $ 201,934 $ 193,884
The accompanying notes are an integral part of the consolidated
financial statements.
71
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, including the results
of Time Warner Inc. (referred to as "Time Warner" or
"WarnerMedia"), which was acquired on June 14, 2018 (see Note 6).
AT&T is a holding company whose subsidiaries and affiliates
operate worldwide in the telecommunications, media and technology
industries.
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 for
periods ended within up to one quarter of our period end. 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 potential impacts
arising from the COVID-19 pandemic and other estimates of probable
losses and expenses, that affect the amounts reported in the
financial statements and accompanying notes. Actual results could
differ from those estimates. Certain prior-period amounts have been
conformed to the current period's presentation. See Note 4 for a
discussion on the recast of our segment results and Note 9 for a
discussion of the separation of our former Entertainment Group into
two reporting units, Video and Broadband.
Accounting Policies and Adopted Accounting Standards
Credit Losses As of January 1, 2020, we adopted, through
modified retrospective application, the Financial Accounting
Standards Board's (FASB) Accounting Standards Update (ASU) No.
2016-13, "Financial Instruments-Credit Losses (Topic 326):
Measurement of Credit Losses on Financial Instruments," or
Accounting Standards Codification (ASC) 326 (ASC 326), which
replaces the incurred loss impairment methodology under prior GAAP
with an expected credit loss model. ASC 326 affects trade
receivables, loans, contract assets, certain beneficial interests,
off-balance-sheet credit exposures not accounted for as insurance
and other financial assets that are not subject to fair value
through net income, as defined by the standard. Under the expected
credit loss model, we are required to consider future economic
trends to estimate expected credit losses over the lifetime of the
asset. Upon adoption on January 1, 2020, we recorded a $293
reduction to "Retained earnings," $395 increase to "Allowances for
credit losses" applicable to our trade and loan receivables, $10
reduction of contract assets, $105 reduction of net deferred income
tax liability and $7 reduction of "Noncontrolling interest." Our
adoption of ASC 326 did not have a material impact on our financial
statements.
Leases As of January 1, 2019, we adopted, with modified
retrospective application, the FASB's ASU No. 2016-02, "Leases
(Topic 842)" (ASC 842), which replaces existing leasing rules with
a comprehensive lease measurement and recognition standard and
expanded disclosure requirements (see Note 8). ASC 842 requires
lessees to recognize most leases on their balance sheets as
liabilities, with corresponding "right-of-use" assets. For income
statement recognition purposes, leases are classified as either a
finance or an operating lease without relying upon bright-line
tests.
The key change upon adoption of the standard was balance sheet
recognition of operating leases, given that the recognition of
lease expense on our income statement is similar to our historical
accounting. Using the modified retrospective transition method of
adoption, we did not adjust the balance sheet for comparative
periods but recorded a cumulative effect adjustment to retained
earnings on January 1, 2019. We elected the package of practical
expedients permitted under the transition guidance within the new
standard, which, among other things, allowed us to carry forward
our historical lease classification. We also elected the practical
expedient related to land easements, allowing us to carry forward
our accounting treatment for land easements on existing agreements
that were not accounted for as leases. We excluded leases with
original terms of one year or less. Additionally, we elected to not
separate lease and non-lease components for certain classes of
assets. Our accounting for finance leases did not change from our
prior accounting for capital leases.
72
AT&T Inc.
Dollars in millions except per share amounts
The adoption of ASC 842 resulted in the recognition of an
operating lease liability of $22,121 and an operating right-of-use
asset of the same amount. Existing prepaid and deferred rent
accruals were recorded as an offset to the right-of-use asset,
resulting in a net asset of $20,960. The cumulative effect of the
adoption to retained earnings was an increase of $316 reflecting
the reclassification of deferred gains related to sale/leaseback
transactions. The standard did not materially impact our income
statements or statements of cash flows, and had no impact on our
debt-covenant compliance under our current agreements.
Deferral of Episodic Television and Film Costs In March 2019,
the FASB issued ASU No. 2019-02, "Entertainment-Films-Other
Assets-Film Costs (Subtopic 926-20) and
Entertainment-Broadcasters-Intangibles-Goodwill and Other (Subtopic
920-350): Improvements to Accounting for Costs of Films and License
Agreements for Program Materials" (ASU 2019-02), which we early
adopted as of January 1, 2019, with prospective application. The
standard eliminates certain revenue-related constraints on
capitalization of inventory costs for episodic television that
existed under prior guidance. In addition, the balance sheet
classification requirements that existed in prior guidance for film
production costs and programming inventory were eliminated. As of
January 1, 2019, we reclassified $2,274 of our programming
inventory costs from "Other current assets" to "Other Assets" in
accordance with the guidance (see Note 11). This change in
accounting did not materially impact our income statement.
Revenue Recognition As of January 1, 2018, we adopted ASU No.
2014-09, "Revenue from Contracts with Customers (Topic 606)," as
modified (ASC 606), using the modified retrospective method, which
does not allow us to adjust prior periods. We applied the rules to
all open contracts existing as of January 1, 2018, recording an
increase of $2,342 to retained earnings for the cumulative effect
of the change, with an offsetting contract asset of $1,737,
deferred contract acquisition costs of $1,454, other asset
reductions of $239, other liability reductions of $212, deferred
income tax liability of $787 and increase to noncontrolling
interest of $35. (See Note 5)
Financial Instruments As of January 1, 2018, we adopted ASU No.
2016-01, "Financial Instruments - Overall (Subtopic 825-10):
Recognition and Measurement of Financial Assets and Financial
Liabilities" (ASU 2016-01), which requires us to prospectively
record changes in the fair value of our equity investments, except
for those accounted for under the equity method, in net income
instead of in accumulated other comprehensive income (accumulated
OCI). As of January 1, 2018, we recorded an increase of $658 in
retained earnings for the cumulative effect of the adoption of ASU
2016-01, with an offset to accumulated OCI.
Income Taxes We record deferred income taxes for temporary
differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the computed tax basis of
those assets and liabilities. We record valuation allowances
against the deferred tax assets (included, together with our
deferred income tax assets, as part of our reportable net deferred
income tax liabilities on our consolidated balance sheets), for
which the realization is uncertain. We review these items regularly
in light of changes in federal and state tax laws and changes in
our business.
The Tax Cuts and Jobs Act (the Act), which was enacted on
December 22, 2017, reduced the U.S. federal corporate income tax
rate from 35% to 21% and required companies to pay a one-time
transition tax on earnings of certain foreign subsidiaries that
were previously tax deferred. We included the estimated impact of
the Act in our financial results at or for the period ended
December 31, 2017, with additional adjustments recorded in 2018, as
allowed by the Securities and Exchange Commission (SEC) in Staff
Accounting Bulletin (SAB) 118. (See Note 14)
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, 2020, we held $2,842 in cash and $6,898 in money market funds
and other cash equivalents. Of our total cash and cash equivalents,
$2,205 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.
73
AT&T Inc.
Dollars in millions except per share amounts
Equipment Inventory Equipment inventories, which primarily
consist of wireless devices and accessories, are included in "Other
current assets" on our consolidated balance sheets. Equipment
inventories are valued at the lower of cost or net realizable value
and were $3,592 at December 31, 2020 and $2,864 at December 31,
2019.
Licensed Programming Inventory Cost Recognition and Impairment
We enter into agreements to license programming exhibition rights
from licensors. A programming inventory asset related to these
rights and a corresponding liability payable to the licensor are
recorded (on a discounted basis if the license agreements are
long-term) when (i) the cost of the programming is reasonably
determined, (ii) the programming material has been accepted in
accordance with the terms of the agreement, (iii) the programming
is available for its first showing or telecast, and (iv) the
license period has commenced. There are variations in the
amortization methods of these rights, depending on whether the
network is advertising-supported (e.g., TNT and TBS) or not
advertising-supported (e.g., HBO and Turner Classic Movies).
For the advertising-supported networks, our general policy is to
amortize each program's costs on a straight-line basis (or per-play
basis, if greater) over its license period. In circumstances where
the initial airing of the program has more value than subsequent
airings, an accelerated method of amortization is used. The
accelerated amortization upon the first airing versus subsequent
airings is determined based on a study of historical and estimated
future advertising sales for similar programming. For rights fees
paid for sports programming arrangements, such rights fees are
amortized using a revenue-forecast model, in which the rights fees
are amortized using the ratio of current period advertising revenue
to total estimated remaining advertising revenue over the term of
the arrangement.
For premium pay television, streaming and over-the-top (OTT)
services that are not advertising-supported, each licensed
program's costs are amortized on a straight-line basis over its
license period or estimated period of use, beginning with the month
of initial exhibition. When we have the right to exhibit feature
theatrical programming in multiple windows over a number of years,
historical audience viewership is used as the basis for determining
the amount of programming amortization attributable to each
window.
Licensed programming inventory is carried at the lower of
unamortized cost or fair value. For networks that generate both
advertising and subscription revenues, the net realizable value of
unamortized programming costs is generally evaluated based on the
network's programming taken as a whole. In assessing whether the
programming inventory for a particular advertising-supported
network is impaired, the net realizable value for all of the
network's programming inventory is determined based on a projection
of the network's profitability. This assessment would occur upon
the occurrence of certain triggering events. Similarly, for premium
pay television, streaming and OTT services that are not
advertising-supported, an evaluation of the fair value of
unamortized programming costs is performed based on services'
licensed programming taken as a whole. Specifically, the fair value
for all premium pay television, streaming and OTT service licensed
programming is determined based on projections of estimated
subscription revenues less certain costs of delivering and
distributing the licensed programming. Changes in management's
intended usage of a specific program, such as a decision to no
longer exhibit that program and forgo the use of the rights
associated with the program license, results in a reassessment of
that program's fair value, which could result in an impairment (see
Note 11).
Film and Television Production Cost Recognition, Participations
and Residuals and Impairments Film and television production costs
on our consolidated balance sheets include the unamortized cost of
completed theatrical films and television episodes, theatrical
films and television series in production and undeveloped film and
television rights. Film and television production costs are stated
at the lower of cost, less accumulated amortization, or fair value.
For films and television programs predominantly monetized
individually, the amount of capitalized film and television
production costs and the amount of participations and residuals to
be recognized as broadcast, programming and operations expenses for
a given film or television series in a particular period are
determined using the film forecast computation method. Under this
method, the amortization of capitalized costs and the accrual of
participations and residuals are based on the proportion of the
film's (or television program's) revenues recognized for such
period to the film's (or television program's) estimated remaining
ultimate revenues (i.e., the total revenue to be received
throughout a film's (or television program's) life cycle).
The process of estimating a film's ultimate revenues requires us
to make a series of judgments related to future revenue-generating
activities associated with a particular film. We estimate the
ultimate revenues, less additional costs to be incurred (including
exploitation and participation costs), in order to determine
whether the value of a film or television series is impaired and
requires an immediate write-off of unrecoverable film and
television production costs. To the extent that the ultimate
revenues are adjusted, the resulting gross margin reported on the
exploitation of that film or television series in a period is also
adjusted. (See Note 11)
74
AT&T Inc.
Dollars in millions except per share amounts
Prior to the theatrical release of a film, our estimates are
based on factors such as the historical performance of similar
films, the star power of the lead actors, the rating and genre of
the film, pre-release market research (including test market
screenings), international distribution plans and the expected
number of theaters in which the film will be released. In the
absence of revenues directly related to the exhibition of owned
film or television programs on our television networks, premium pay
television, streaming or OTT services, we estimate a portion of the
unamortized costs that are representative of the utilization of
that film or television program in that exhibition and expense such
costs as the film or television program is exhibited. The period
over which ultimate revenues are estimated generally does not
exceed ten years from the initial release of a motion picture or
from the date of delivery of the first episode of an episodic
television series. Estimates were updated based on information
available during the film's production and, upon release, the
actual results of each film.
For a film (or television program) predominantly monetized as
part of a film (or television program) group, the amount of
capitalized film and television production costs is amortized using
a reasonably reliable estimate of the portion of unamortized film
costs that is representative of the use of the film. Production
costs are expensed as the film (or television program) is exhibited
or exploited.
Property, Plant and Equipment Property, plant and equipment is
stated at cost, except for assets acquired using acquisition
accounting, which are initially recorded at fair value (see Note
7). The cost of additions and substantial improvements to property,
plant and equipment is capitalized, and includes internal
compensation costs for these projects. The cost of maintenance and
repairs of property, plant and equipment is charged to operating
expenses. Property, plant and equipment costs are depreciated using
straight-line methods over their estimated economic lives. Certain
subsidiaries follow composite group depreciation methodology.
Accordingly, when a portion of their depreciable property, plant
and equipment is retired in the ordinary course of business, the
gross book value is reclassified to accumulated depreciation, and
no gain or loss is recognized on the disposition of these
assets.
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 for a discussion of
an impairment of long-lived assets of the video business and other
network asset abandonments.
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
and orbital slots; distribution networks; film and television
libraries; intellectual properties and franchises; trademarks and
trade names; customer lists; and various other finite-lived
intangible assets (see Note 9).
Goodwill represents the excess of consideration paid over the
fair value of identifiable net assets acquired in business
combinations. Wireless licenses provide us with the exclusive right
to utilize certain radio frequency spectrum to provide wireless
communications services. While wireless licenses are issued for a
fixed period of time (generally ten years), renewals of domestic
wireless licenses have occurred routinely and at nominal cost. We
have determined that there are currently no legal, regulatory,
contractual, competitive, economic or other factors that limit the
useful lives of our FCC wireless licenses.
75
AT&T Inc.
Dollars in millions except per share amounts
During 2019, in conjunction with the renewal process of certain
wireless licenses in Mexico, we reassessed the estimated economic
lives and renewal assumptions for these licenses. As a result, we
have changed the life of these licenses from indefinite to
finite-lived. On January 1, 2019, we began amortizing our wireless
licenses in Mexico over their average remaining economic life of 25
years. This change in accounting does not materially impact our
income statement.
During the first quarter of 2020, in conjunction with the
nationwide launch of AT&T TV and our customers' continued shift
from linear to streaming video services, we reassessed the
estimated economic lives and renewal assumptions for our orbital
slot licenses. As a result, we have changed the estimated lives of
our orbital slot licenses from indefinite to finite-lived,
effective January 1, 2020, and began amortizing these licenses
using the sum-of-months-digits method over their average remaining
economic life of 15 years at January 1, 2020. This change in
accounting increased amortization expense $1,504, or $0.16 per
diluted share available to common stock for 2020.
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. During the first
quarter of 2020, we reassessed and changed the estimated economic
lives of certain trade names in our Latin America business from
indefinite to finite-lived and began amortizing them using the
straight-line method over their average remaining economic life of
15 years. This change had an insignificant impact on our financial
statements.
Goodwill, FCC wireless licenses and other indefinite-lived
intangible assets are not amortized but are tested at least
annually for impairment. The testing is performed on the value as
of October 1 each year, and compares the book values of the assets
to their fair values. Goodwill is tested by comparing the carrying
amount of each reporting unit, deemed to be our principal operating
segments or one level below them, to the fair value using both
discounted cash flow as well as market multiple approaches. FCC
wireless licenses are tested on an aggregate basis, consistent with
our use of the licenses on a national scope, using a discounted
cash flow approach. Prior to 2020, orbital slots were similarly
aggregated for purposes of impairment testing and valued using a
discounted cash flow approach. Trade names are tested by comparing
their book values to their fair values calculated using a
discounted cash flow approach on a presumed royalty rate derived
from the revenues related to each brand name.
Intangible assets that have finite useful lives are amortized
over their estimated useful lives (see Note 9). As of January 1,
2020, on a prospective basis, orbital slots are amortized using the
sum-of-the-months-digits method of amortization over their average
remaining economic life. Customer lists and relationships are
amortized using primarily the sum-of-the-months-digits method of
amortization over the period in which those relationships are
expected to contribute to our future cash flows. Finite-lived
trademarks and trade names and distribution networks are amortized
using the straight-line method over the estimated useful life of
the assets. Film library is amortized using the film forecast
computation method, as previously disclosed. The remaining
finite-lived intangible assets are generally amortized using the
straight-line method. These assets, along with other long-lived
assets, are reviewed for recoverability whenever events or changes
in circumstances indicate that the carrying amount of an asset
group may not be recoverable.
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). Operations in countries with highly
inflationary economies use the U.S. dollar as the functional
currency.
We hedge a portion of the foreign currency exchange risk
involved in certain foreign currency-denominated transactions,
which we explain further in our discussion of our methods of
managing our foreign currency risk (see Note 13).
Pension and Other Postretirement Benefits See Note 15 for a
comprehensive discussion of our pension and postretirement
benefits, including a discussion of the actuarial assumptions, our
policy for recognizing the associated gains and losses and our
method used to estimate service and interest cost components.
76
AT&T Inc.
Dollars in millions except per share amounts
New Accounting Standards
Income Taxes In December 2019, the FASB issued ASU No. 2019-12,
"Income Taxes (Topic 740): Simplifying the Accounting for Income
Taxes" (ASU 2019-12), which is expected to simplify income tax
accounting requirements in areas deemed costly and complex. The
amendments under ASU 2019-12 will be effective as of January 1,
2021, and interim periods within that year, with early adoption
permitted in its entirety as of the beginning of the year of
adoption. At adoption, the guidance allows for modified
retrospective application through a cumulative effect adjustment to
retained earnings. We do not expect ASU 2019-12 to have a material
impact on our financial statements.
Reference Rate Reform In March 2020, the FASB issued ASU No.
2020-04, "Reference Rate Reform (Topic 848): Facilitation of the
Effects of Reference Rate Reform on Financial Reporting" (ASU
2020-04, as amended), which provides optional expedients, and
allows for certain exceptions to existing GAAP, for contract
modifications triggered by the expected market transition of
certain benchmark interest rates to alternative reference rates.
ASU 2020-04 applies to contracts, hedging relationships, certain
derivatives and other arrangements that reference the London
Interbank Offering Rate (LIBOR) or any other rates ending after
December 31, 2022. ASU 2020-04 became effective immediately. We are
evaluating the impact of our adoption of ASU 2020-04, including
optional expedients, to our financial statements.
Convertible Instruments In August 2020, the FASB issued 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), which
eliminated certain separation models regarding cash conversion and
beneficial conversion features to simplify reporting for
convertible instruments as a single liability or equity, with no
separate accounting for embedded conversion features. ASU 2020-06
will be effective for fiscal years beginning after December 31,
2021, under modified retrospective or full retrospective
application, subject to early adoption in 2021. We are evaluating
the impact of our adoption of ASU 2020-06 on our financial
statements.
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, 2020 2019 2018
Numerators
Numerator for basic earnings per share:
Net Income (Loss) $ (3,821) $14,975 $19,953
Less: Net Income Attributable to Noncontrolling
Interest (1,355) (1,072) (583)
Net Income (Loss) Attributable to AT&T (5,176) 13,903 19,370
Less: Preferred Stock Dividends (193) (3) -
Net Income (Loss) Attributable to Common Stock (5,369) 13,900 19,370
Dilutive potential common shares:
Share-based payment 1 23 21 19
Numerator for diluted earnings per share $ (5,346) $13,921 $19,389
Denominators (000,000)
Denominator for basic earnings per share:
Weighted average number of common shares outstanding 7,157 7,319 6,778
Dilutive potential common shares:
Share-based payment (in shares) 1 26 29 28
Denominator for diluted earnings per share 7,183 7,348 6,806
Basic Earnings Per Share Attributable to Common
Stock $ (0.75) $ 1.90 $ 2.85
Diluted Earnings Per Share Attributable to Common
Stock 1 $ (0.75) $ 1.89 $ 2.85
1 For 2020, dilutive potential common shares are not included in the computation
of diluted earnings per share because their effect is antidilutive as a result
of the net loss.
In the first quarter of 2020, we completed an accelerated share
repurchase agreement with a third-party financial institution to
repurchase AT&T common stock (see Note 17). Under the terms of
the agreement, we paid the financial institution $4,000 and
received 104.8 million shares.
77
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.
Net
Unrealized
Net Unrealized Gains
Foreign Gains (Losses) (Losses) Accumulated
Currency on on Defined Benefit Other
Translation Available-for-Sale Cash Flow Postretirement Comprehensive
Adjustment Securities Hedges Plans Income
Balance as of December
31, 2017 $ (2,054) $ 660 $ 1,402 $ 7,009 $ 7,017
Other comprehensive
income
(loss) before
reclassifications (1,030) (4) (597) 830 (801)
Amounts reclassified
from
accumulated OCI - 1 - 1 13 2 (1,322) 3 (1,309)
Net other
comprehensive
income (loss) (1,030) (4) (584) (492) (2,110)
Amounts reclassified
to
retained earnings
4 - (658) - - (658)
Balance as of December
31, 2018 (3,084) (2) 818 6,517 4,249
Other comprehensive
income
(loss) before
reclassifications 28 50 (900) 3,457 2,635
Amounts reclassified
from
accumulated OCI - 1 - 1 45 2 (1,459) 3 (1,414)
Net other
comprehensive
income (loss) 28 50 (855) 1,998 1,221
Balance as of December
31, 2019 (3,056) 48 (37) 8,515 5,470
Other comprehensive
income
(loss) before
reclassifications (870) 78 (811) 2,250 647
Amounts reclassified
from
accumulated OCI - 1 (15) 1 69 2 (1,841) 3 (1,787)
Net other
comprehensive
income (loss) (870) 63 (742) 409 (1,140)
Balance as of December
31, 2020 $ (3,926) $ 111 $ (779) $ 8,924 $ 4,330
1 (Gains) losses are included in "Other income (expense) - net" in the consolidated
statements of income.
2 (Gains) losses are included in "Interest expense" in the consolidated statements
of income (see Note 13).
3 The amortization of prior service credits associated with postretirement benefits
is included in "Other income (expense) - net" in the consolidated statements
of income (see Note 15).
4 With the adoption of ASU 2016-01, the unrealized (gains) losses on our equity
investments are reclassified to retained earnings (see Note 1).
NOTE 4. SEGMENT INFORMATION
Our segments are comprised of strategic business units that
offer products and services to different customer segments over
various technology platforms and/or in different geographies that
are managed accordingly. We analyze our segments based on segment
operating contribution, which consists of operating income,
excluding acquisition-related costs and other significant items (as
discussed below), and equity in net income (loss) of affiliates for
investments managed within each segment. We have three reportable
segments: (1) Communications, (2) WarnerMedia and (3) Latin
America.
We have recast our segment results for all prior periods to
include our prior Xandr segment within our WarnerMedia segment and
to remove the Crunchyroll anime business that is classified as
held-for-sale and removed from the WarnerMedia segment, instead
including it in Corporate and Other.
We also evaluate segment and business unit performance based on
EBITDA and/or EBITDA margin. EBITDA is defined as operating
contribution excluding equity in net income (loss) of affiliates
and depreciation and amortization. We believe EBITDA to be a
relevant and useful measurement to our investors as it is part of
our internal management reporting and planning processes and it is
an important metric that management uses to evaluate operating
performance. EBITDA does not
78
AT&T Inc.
Dollars in millions except per share amounts
give effect to depreciation and amortization expenses incurred
in operating contribution nor is it burdened by cash used for debt
service requirements and thus does not reflect available funds for
distributions, reinvestment or other discretionary uses. EBITDA
margin is EBITDA divided by total revenues.
The Communications segment provides wireless and wireline
telecom, video 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. In December 2020, we changed our management strategy
and reevaluated our domestic video business, allowing us to
maximize value in our domestic video business and further
accelerate our ability to innovate and execute in our fast-growing
broadband and fiber business. In conjunction with the strategy
change, we separated the former Entertainment Group into two
business units, Video and Broadband, which includes legacy
telephony operations. We have recast our results for all prior
periods to split the Entertainment Group into two separate business
units, Video and Broadband, and removed video operations from
Business Wireline, combining all video operations in the Video
business unit. This segment contains the following business
units:
--Mobility provides nationwide wireless service and
equipment.
--Video provides video, including over-the-top (OTT) services
and also sells multiplatform advertising services as video
revenues.
--Broadband provides internet, including broadband fiber, and
legacy telephony voice communication services to residential
customers.
--Business Wireline provides advanced IP-based services, as well
as traditional voice and data services to business customers.
The WarnerMedia segment develops, produces and distributes
feature films, television, gaming and other content in various
physical and digital formats globally. Historical financial results
of Eliminations & Other included in the WarnerMedia segment
have been recast to include Xandr, previously a separate reportable
segment, and to remove the Crunchyroll anime business that was
classified as held-for-sale. This segment contains the
following:
--Turner primarily operates multichannel basic television
networks and digital properties. Turner also sells advertising on
its networks and digital properties.
--Home Box Office consists of premium pay television and HBO Max
domestically and premium pay, basic tier television
internationally, and content licensing and home entertainment.
--Warner Bros. primarily consists of the production,
distribution and licensing of television programming and feature
films, the distribution of home entertainment products and the
production and distribution of games.
--Eliminations & Other includes the Xandr advertising
business, and also removes transactions between the Turner, Home
Box Office and Warner Bros. business units, including internal
sales of content to the HBO Max platform that began in the fourth
quarter of 2019 (see Note 5).
The Latin America segment provides entertainment and wireless
services outside of the U.S. This segment contains the following
business units:
--Vrio provides video services primarily to residential
customers using satellite technology in Latin America and the
Caribbean.
--Mexico provides wireless service and equipment to customers in
Mexico.
Corporate and Other reconciles our segment results to
consolidated operating income and income before income taxes, and
includes:
--Corporate , which consists of: (1) businesses no longer
integral to our operations or which we no longer actively market,
(2) corporate support functions, (3) impacts of corporate-wide
decisions for which the individual operating segments are not being
evaluated, and (4) the reclassification of the amortization of
prior service credits, which we continue to report with segment
operating expenses, to consolidated "Other income (expense) -
net."
--Acquisition-related items, which consists of items associated
with the merger and integration of acquired businesses, including
amortization of intangible assets.
--Certain significant items, which includes (1) employee
separation charges associated with voluntary and/or strategic
offers, (2) losses resulting from asset impairments and
abandonments, and (3) other items for which the segments are not
being evaluated.
--Eliminations and consolidations , which (1) removes
transactions involving dealings between our segments, including
channel distribution between WarnerMedia and Communications, and
(2) includes adjustments for our reporting of the advertising
business.
"Interest expense" and "Other income (expense) - net" are
managed only on a total company basis and are, accordingly,
reflected only in consolidated results.
79
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------
For the year ended December 31, 2020
Equity in
Net
Operations Depreciation Operating Income
and Support and Income (Loss) of Segment
Revenues Expenses EBITDA Amortization (Loss) Affiliates Contribution
Communications
Mobility $ 72,564 $ 42,106 $ 30,458 $ 8,086 $ 22,372 $ - $ 22,372
Video 28,610 24,619 3,991 2,262 1,729 - 1,729
Broadband 12,318 7,582 4,736 2,914 1,822 - 1,822
Business Wireline 25,358 15,534 9,824 5,226 4,598 - 4,598
Total Communications 138,850 89,841 49,009 18,488 30,521 - 30,521
WarnerMedia
Turner 12,568 6,954 5,614 277 5,337 (2) 5,335
Home Box Office 6,808 6,028 780 98 682 16 698
Warner Bros. 12,154 9,917 2,237 169 2,068 (70) 1,998
Eliminations and
other (1,088) (1,320) 232 127 105 74 179
Total WarnerMedia 30,442 21,579 8,863 671 8,192 18 8,210
Latin America
Vrio 3,154 2,800 354 520 (166) 24 (142)
Mexico 2,562 2,636 (74) 513 (587) - (587)
Total Latin America 5,716 5,436 280 1,033 (753) 24 (729)
Segment Total 175,008 116,856 58,152 20,192 37,960 $ 42 $ 38,002
Corporate and Other
Corporate 1 1,932 3,974 (2,042) 300 (2,342)
Acquisition-related
items - 468 (468) 8,012 (8,480)
Certain significant
items - 19,156 (19,156) 14 (19,170)
Eliminations and
consolidations (5,180) (3,615) (1,565) (2) (1,563)
AT&T Inc. $171,760 $ 136,839 $ 34,921 $ 28,516 $ 6,405
1 Includes $2,442 for the reclassification of prior service credit amortization.
80
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------
For the year ended December 31, 2019
Equity in
Net
Income
Operations Depreciation Operating (Loss)
and Support and Income of Segment
Revenues Expenses EBITDA Amortization (Loss) Affiliates Contribution
Communications
Mobility $ 71,056 $ 40,681 $30,375 $ 8,054 $ 22,321 $ - $ 22,321
Video 32,124 27,599 4,525 2,461 2,064 - 2,064
Broadband 13,012 7,451 5,561 2,880 2,681 - 2,681
Business Wireline 26,167 16,069 10,098 4,934 5,164 - 5,164
Total Communications 142,359 91,800 50,559 18,329 32,230 - 32,230
WarnerMedia
Turner 13,122 7,740 5,382 235 5,147 52 5,199
Home Box Office 6,749 4,312 2,437 102 2,335 30 2,365
Warner Bros. 14,358 11,816 2,542 162 2,380 (30) 2,350
Eliminations and other 1,030 304 726 90 636 109 745
Total WarnerMedia 35,259 24,172 11,087 589 10,498 161 10,659
Latin America
Vrio 4,094 3,378 716 660 56 27 83
Mexico 2,869 3,085 (216) 502 (718) - (718)
Total Latin America 6,963 6,463 500 1,162 (662) 27 (635)
Segment Total 184,581 122,435 62,146 20,080 42,066 $ 188 $ 42,254
Corporate and Other
Corporate 1 1,937 3,279 (1,342) 636 (1,978)
Acquisition-related
items (72) 960 (1,032) 7,460 (8,492)
Certain significant
items - 2,082 (2,082) 43 (2,125)
Eliminations and
consolidations (5,253) (3,735) (1,518) (2) (1,516)
AT&T Inc. $181,193 $ 125,021 $56,172 $ 28,217 $ 27,955
1 Includes $1,934 for the reclassification of prior service credit amortization.
81
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------
For the year ended December 31, 2018
Equity in
Net
Income
Operations Depreciation Operating (Loss)
and Support and Income of Segment
Revenues Expenses EBITDA Amortization (Loss) Affiliates Contribution
Communications
Mobility $ 70,521 $ 40,690 $29,831 $ 8,263 $ 21,568 $ - $ 21,568
Video 33,363 29,334 4,029 2,698 1,331 - 1,331
Broadband 13,108 7,116 5,992 2,623 3,369 - 3,369
Business Wireline 26,729 16,181 10,548 4,708 5,840 - 5,840
Total Communications 143,721 93,321 50,400 18,292 32,108 - 32,108
WarnerMedia
Turner 6,979 3,794 3,185 131 3,054 54 3,108
Home Box Office 3,598 2,187 1,411 56 1,355 29 1,384
Warner Bros. 8,703 7,130 1,573 96 1,477 (28) 1,449
Eliminations and other 1,305 168 1,137 28 1,109 (30) 1,079
Total WarnerMedia 20,585 13,279 7,306 311 6,995 25 7,020
Latin America
Vrio 4,784 3,743 1,041 728 313 34 347
Mexico 2,868 3,415 (547) 510 (1,057) - (1,057)
Total Latin America 7,652 7,158 494 1,238 (744) 34 (710)
Segment Total 171,958 113,758 58,200 19,841 38,359 $ 59 $ 38,418
Corporate and Other
Corporate 1 2,246 2,335 (89) 1,633 (1,722)
Acquisition-related
items (49) 1,185 (1,234) 6,931 (8,165)
Certain significant
items - 899 (899) 26 (925)
Eliminations and
consolidations (3,399) (1,947) (1,452) (1) (1,451)
AT&T Inc. $170,756 $ 116,230 $54,526 $ 28,430 $ 26,096
1 Includes $1,753 for the reclassification of prior service credit amortization.
82
AT&T Inc.
Dollars in millions except per share amounts
The following table is a reconciliation of operating income
(loss) to "Income Before Income Taxes" reported in our consolidated
statements of income:
2020 2019 2018
Communications $ 30,521 $32,230 $32,108
WarnerMedia 8,210 10,659 7,020
Latin America (729) (635) (710)
Segment Contribution 38,002 42,254 38,418
Reconciling Items:
Corporate and Other (2,342) (1,978) (1,722)
Merger and integration items (468) (1,032) (1,234)
Amortization of intangibles acquired (8,012) (7,460) (6,931)
Impairments and abandonments (18,880) (1,458) (46)
Gain on spectrum transaction 1 900 - -
Employee separation charges and benefit-related
(gain) loss (1,177) (624) (587)
Other noncash charges (credits), net (13) (43) (111)
Natural disaster items - - (181)
Segment equity in net income of affiliates (42) (188) (59)
Eliminations and consolidations (1,563) (1,516) (1,451)
AT&T Operating Income 6,405 27,955 26,096
Interest Expense 7,925 8,422 7,957
Equity in net income (loss) of affiliates 95 6 (48)
Other income (expense) - net (1,431) (1,071) 6,782
Income (Loss) Before Income Taxes $ (2,856) $18,468 $24,873
1 Included as a reduction of "Selling, general and administrative expenses"
in the consolidated statements of income.
The following table sets forth revenues earned from customers,
and property, plant and equipment located in different geographic
areas:
2020 2019 2018
Net Net
Property, Property, Net Property,
Plant & Plant & Plant &
Revenues Equipment Revenues Equipment Revenues Equipment
United States $155,899 $ 121,208 $161,689 $ 122,567 $154,795 $ 123,457
Europe 5,387 1,152 6,536 1,854 4,073 1,634
Mexico 2,862 3,530 3,198 3,648 3,100 3,467
Brazil 1,807 694 2,797 1,057 2,724 1,213
All other Latin
America 2,679 485 3,219 544 3,055 1,217
Asia/Pacific
Rim 2,322 203 2,793 390 2,214 408
Other 804 43 961 68 795 77
Total $171,760 $ 127,315 $181,193 $ 130,128 $170,756 $ 131,473
83
AT&T Inc.
Dollars in millions except per share amounts
The following tables present intersegment revenues, assets,
investments in equity affiliates and capital expenditures by
segment:
Intersegment Reconciliation
2020 2019 2018
Intersegment revenues
Communications $ 11 $ 26 $ 13
WarnerMedia 3,183 3,318 1,875
Latin America - - -
Total Intersegment Revenues 3,194 3,344 1,888
Consolidations 1,986 1,909 1,511
Eliminations and consolidations $5,180 $5,253 $3,399
At or for the years 2020 2019
ended
December 31,
Investments Investments
in in
Equity Equity
Method Capital Method Capital
Assets Investees Expenditures Assets Investees Expenditures
Communications $ 522,758 $ - $ 14,107 $ 521,252 $ - $ 17,410
WarnerMedia 150,947 1,123 699 143,492 3,011 1,205
Latin America 15,811 590 708 20,606 650 757
Corporate and
eliminations (163,755) 67 161 (133,681) 34 263
Total $ 525,761 $ 1,780 $ 15,675 $ 551,669 $ 3,695 $ 19,635
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 2020, 2019 or 2018.
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, video
entertainment (e.g., AT&T U-verse and DIRECTV), strategic
services (e.g., virtual private network service), and legacy voice
and data (e.g., traditional local and long-distance). These
services represent a series of distinct services that is considered
a separate performance obligation. Service revenue is recognized
when services are provided, based upon either usage (e.g., minutes
of traffic/bytes of data processed) or period of time (e.g.,
monthly service fees).
Some of our services require customer premises equipment that,
when combined and integrated with AT&T's specific network
infrastructure, facilitates the delivery of service to the
customer. In evaluating whether the equipment is a separate
performance obligation, we consider the customer's ability to
benefit from the equipment on its own or together with other
readily available resources and if so, whether the service and
equipment are separately identifiable (i.e., is the service highly
dependent on, or highly interrelated with the equipment). When the
equipment does not meet the criteria to be a separate performance
obligation (e.g., equipment associated with certain video
services), we allocate the total transaction price to the related
service. When equipment is a separate performance obligation, we
record the sale of equipment when title has passed and the products
are accepted by the customer. For devices sold through indirect
channels (e.g., national dealers), revenue is recognized when the
dealer accepts the device, not upon activation.
Our equipment and service revenues are predominantly recognized
on a gross basis, as most of our services do not involve a third
party and we typically control the equipment that is sold to our
customers.
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AT&T Inc.
Dollars in millions except per share amounts
Revenue recognized from fixed term contracts that bundle
services and/or equipment is allocated based on the stand-alone
selling price of all required performance obligations of the
contract (i.e., each item included in the bundle). Promotional
discounts are attributed to each required component of the
arrangement, resulting in recognition over the contract term.
Stand-alone selling prices are determined by assessing prices paid
for service-only contracts (e.g., arrangements where customers
bring their own devices) and stand-alone device pricing.
We offer the majority of our customers the option to purchase
certain wireless devices in installments over a specified period of
time, and, in many cases, they may be eligible to trade in the
original equipment for a new device and have the remaining unpaid
balance paid or settled. For customers that elect these equipment
installment payment programs, at the point of sale, we recognize
revenue for the entire amount of revenue allocated to the customer
receivable net of fair value of the trade-in right guarantee. The
difference between the revenue recognized and the consideration
received is recorded as a note receivable when the devices are not
discounted and our right to consideration is unconditional. When
installment sales include promotional discounts (e.g., "buy one get
one free"), the difference between revenue recognized and
consideration received is recorded as a contract asset to be
amortized over the contract term.
Less commonly, we offer certain customers highly discounted
devices when they enter into a minimum service agreement term. For
these contracts, we recognize equipment revenue at the point of
sale based on a stand-alone selling price allocation. The
difference between the revenue recognized and the cash received is
recorded as a contract asset that will amortize over the contract
term.
Our contracts allow for customers to frequently modify their
arrangement, without incurring penalties in many cases. When a
contract is modified, we evaluate the change in scope or price of
the contract to determine if the modification should be treated as
a new contract or if it should be considered a change of the
existing contract. We generally do not have significant impacts
from contract modifications.
Revenues from transactions between us and our customers are
recorded net of revenue-based regulatory fees and taxes. Cash
incentives given to customers are recorded as a reduction of
revenue. Nonrefundable, upfront service activation and setup fees
associated with service arrangements are deferred and recognized
over the associated service contract period or customer
relationship life.
Subscription Revenue
Subscription revenues from cable networks and premium pay and
basic-tier television services are recognized over the license
period as programming is provided to affiliates or digital
distributors based on negotiated contractual programming rates.
When a distribution contract with an affiliate has expired and a
new distribution contract has not been executed, revenues are based
on estimated rates, giving consideration to factors including the
previous contractual rates, inflation, current payments by the
affiliate and the status of the negotiations on a new contract.
When the new distribution contract terms are finalized, an
adjustment to revenue is recorded, if necessary, to reflect the new
terms.
Subscription revenues from end-user subscribers are recognized
when services are provided, based upon either usage or period of
time. Subscription revenues from streaming services are recognized
as programming services are provided to customers.
Content Revenue
Feature films typically are produced or acquired for initial
exhibition in theaters, followed by distribution, generally
commencing within three years of such initial exhibition. Revenues
from film rentals by theaters are recognized as the films are
exhibited.
Television programs and series are initially produced for
broadcast and may be subsequently licensed or sold in physical
format and/or electronic delivery. Revenues from the distribution
of television programming through broadcast networks, cable
networks, first-run syndication and streaming services are
recognized when the programs or series are available to the
licensee. In certain circumstances, pursuant to the terms of the
applicable contractual arrangements, the availability dates granted
to customers may precede the date in which the customer can be
billed for these sales.
Revenues from sales of feature films and television programming
in physical format are recognized at the later of the delivery date
or the date when made widely available for sale or rental by
retailers based on gross sales less a provision for estimated
returns, rebates and pricing allowances. Revenues from the
licensing of television programs and series for electronic
sell-through or video-on-demand are recognized when the product has
been purchased by and made available to the consumer to either
download or stream.
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AT&T Inc.
Dollars in millions except per share amounts
Upfront or guaranteed payments for the licensing of intellectual
property are recognized as revenue at either the inception of the
license term if the intellectual property has significant
standalone functionality or over the corresponding license term if
the licensee's ability to derive utility is dependent on our
continued support of the intellectual property throughout the
license term.
Revenues from the sales of console games are recognized at the
later of the delivery date or the date that the product is made
widely available for sale or rental by retailers based on gross
sales less a provision for estimated returns, rebates and pricing
allowances.
Advertising Revenue
Advertising revenues are recognized, net of agency commissions,
in the period that the advertisements are aired. If there is a
targeted audience guarantee, revenues are recognized for the actual
audience delivery and revenues are deferred for any shortfall until
the guaranteed audience delivery is met, typically by providing
additional advertisements. Advertising revenues from digital
properties are recognized as impressions are delivered or the
services are performed.
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AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------
Revenue Categories
The following tables set forth reported revenue by category and
by business unit. Intercompany transactions between segments and
the dual reporting of certain advertising revenues are included in
"Eliminations and consolidations."Intercompany transactions between
Turner, Home Box Office and Warner Bros., including internal sales
to HBO Max that began in the fourth quarter of 2019, are included
in "Eliminations and Other."
For the year ended December 31, 2020
Service Revenues
Legacy
Advanced Voice
Wireless Data & Data Subscription Content Advertising Other Equipment Total
Communications
Mobility $ 55,251 $ - $ - $ - $ - $ 291 $ - $ 17,022 $ 72,564
Video - - - 26,747 - 1,718 - 145 28,610
Broadband - 8,534 2,213 - - - 1,564 7 12,318
Business
Wireline - 13,330 8,183 - - - 3,075 770 25,358
WarnerMedia
Turner - - - 7,613 759 3,941 255 - 12,568
Home Box Office - - - 6,090 692 - 26 - 6,808
Warner Bros. - - - 50 11,632 6 466 - 12,154
Eliminations
and
Other 1 - - - 12 (3,264) 2,178 (14) - (1,088)
Latin America
Vrio - - - 3,154 - - - - 3,154
Mexico 1,656 - - - - - - 906 2,562
Corporate and
Other 528 46 554 - - - 661 143 1,932
Eliminations and
consolidations
2 - - - (3,110) - (1,718) (352) - (5,180)
Total Operating
Revenues $ 57,435 $ 21,910 $10,950 $ 40,556 $ 9,819 $ 6,416 $5,681 $ 18,993 $171,760
1 Eliminations and other of $3,264 include Warner Bros. content sales of approximately
$2,250 with HBO Max, $600 with HBO linear and $300 with Turner.
2 Eliminations and consolidations of $3,110 include approximately $1,500 and
$950 of Turner and HBO linear channel distribution arrangements with the Video
business unit, respectively. HBO customer subscriptions were approximately $290
with Video and $180 with Broadband.
87
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------
For the year ended December 31, 2019
Service Revenues
Legacy
Advanced Voice
Wireless Data & Data Subscription Content Advertising Other Equipment Total
Communications
Mobility $ 55,039 $ - $ - $ - $ - $ 292 $ - $ 15,725 $ 71,056
Video - - - 30,451 - 1,672 - 1 32,124
Broadband - 8,403 2,573 - - - 2,029 7 13,012
Business
Wireline - 12,916 9,180 - - - 3,286 785 26,167
WarnerMedia
Turner - - - 7,736 481 4,566 339 - 13,122
Home Box Office - - - 5,814 925 - 10 - 6,749
Warner Bros. - - - 88 13,532 41 697 - 14,358
Eliminations
and
Other 1 - - - 13 (1,058) 2,071 4 - 1,030
Latin America
Vrio - - - 4,094 - - - - 4,094
Mexico 1,863 - - - - - - 1,006 2,869
Corporate and
Other 628 59 565 - - - 443 170 1,865
Eliminations and
consolidations
2 - - - (3,249) - (1,672) (332) - (5,253)
Total Operating
Revenues $ 57,530 $ 21,378 $12,318 $ 44,947 $13,880 $ 6,970 $6,476 $ 17,694 $181,193
1 Eliminations and other of $1,058 include Warner Bros. content sales of approximately
$500 with HBO linear and $350 with Turner.
2 Eliminations and consolidations of $3,249 include approximately $1,740 and $1,320
of Turner and HBO linear channel distribution arrangements with the Video business
unit, respectively.
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AT&T Inc.
Dollars in millions except per share amounts
--------------------------------------------------------------------------------------------------------------------------------
For the year ended December 31, 2018
Service Revenues
Legacy
Advanced Voice
Wireless Data & Data Subscription Content Advertising Other Equipment Total
Communications
Mobility $ 54,063 $ - $ - $ - $ - $ 232 $ - $ 16,226 $ 70,521
Video - - - 31,768 - 1,595 - - 33,363
Broadband - 7,956 3,042 - - - 2,101 9 13,108
Business Wireline - 12,234 10,674 - - - 2,998 823 26,729
WarnerMedia
Turner - - - 4,207 295 2,330 147 - 6,979
Home Box Office - - - 3,201 391 - 6 - 3,598
Warner Bros. - - - 47 8,216 53 387 - 8,703
Eliminations and
Other 1 - - - 6 (518) 1,807 10 - 1,305
Latin America
Vrio - - - 4,784 - - - - 4,784
Mexico 1,701 - - - - - - 1,167 2,868
Corporate and
Other 718 160 288 - - - 845 186 2,197
Eliminations and
consolidations
2 - - - (1,843) - (1,595) 39 - (3,399)
Total Operating
Revenues $ 56,482 $ 20,350 $14,004 $ 42,170 $ 8,384 $ 4,422 $6,533 $ 18,411 $ 170,756
1 Eliminations and other of $518 include Warner Bros. content sales of approximately
$225 with HBO linear and $225 with Turner.
2 Eliminations and consolidations of $1,843 include approximately $1,000 and
$700 of Turner and HBO linear channel distribution arrangements with the Video
business unit, respectively.
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AT&T Inc.
Dollars in millions except per share amounts
Deferred Customer Contract Acquisition and Fulfillment Costs
Costs to acquire and fulfill customer contracts, including
commissions on service activations, for our wireless, business
wireline and video services, are deferred and amortized over the
contract period or expected customer relationship life, which
typically ranges from three years to five years. For contracts with
an estimated amortization period of less than one year, we expense
incremental costs immediately.
The following table presents the deferred customer contract
acquisition and fulfillment costs included on our consolidated
balance sheets at December 31:
Consolidated Balance Sheets 2020 2019
Deferred Acquisition Costs
Other current assets $3,087 $ 2,462
Other Assets 3,198 2,991
Total deferred customer contract acquisition costs $6,285 $ 5,453
Deferred Fulfillment Costs
Other current assets $4,118 $ 4,519
Other Assets 5,634 6,439
Total deferred customer contract fulfillment costs $9,752 $10,958
The following table presents amortization of deferred customer
contract acquisition and fulfillment costs, which are recorded in
other cost of revenues in our consolidated statements of income,
for the year ended December 31:
Consolidated Statements of Income 2020 2019
Deferred acquisition cost amortization $2,755 $2,174
Deferred fulfillment cost amortization 5,110 4,947
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 equipment 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.
When consideration is received in advance of the delivery of
goods or services, a contract liability is recorded for deferred
revenue. Reductions in the contract liability will be recorded as
revenue 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 2020 2019
Contract assets $3,501 $2,472
Contract liabilities 6,879 6,999
Our beginning of period contract liabilities recorded as
customer contract revenue during 2020 was $5,579.
Our consolidated balance sheets at December 31, 2020 and 2019
included approximately $2,054 and $1,611, respectively, for the
current portion of our contract assets in "Other current assets"
and $6,071 and $5,939, respectively, for the current portion of our
contract liabilities in "Advanced billings and customer
deposits."
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 nonrecurring 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, video and
residential internet agreements.
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AT&T Inc.
Dollars in millions except per share amounts
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, 2020, the aggregate amount of the transaction
price allocated to remaining performance obligations was $42,072,
of which we expect to recognize approximately 60% by the end of
2021, with the remaining balance recognized thereafter.
NOTE 6. ACQUISITIONS, DISPOSITIONS AND OTHER ADJUSTMENTS
Acquisitions
HBO Latin America Group (HBO LAG) In May 2020, we acquired the
remaining interest in HBO LAG for $141, net of cash acquired. At
acquisition, we remeasured the fair value of the total business,
which exceeded the carrying amount of our equity method investment
and resulted in a pre-tax gain of $68. We consolidated that
business upon close and recorded those assets at fair value,
including $640 of trade names, $271 of distribution networks and
$346 of goodwill that is reported in the WarnerMedia segment. These
estimates are preliminary in nature and subject to adjustments,
which will be finalized within one year from the date of
acquisition.
Time Warner In June 2018, we completed our acquisition of Time
Warner, a leader in media and entertainment whose major businesses
encompass an array of some of the most respected media brands. For
accounting purposes, the transaction was valued at $79,358. Our
consolidated balance sheets include the assets and liabilities of
Time Warner, which were measured at fair value.
For the 200-day period ended December 31, 2018, our consolidated
statement of income included $18,209 of revenues and $1,400 of
operating income, which included $3,296 of intangible amortization,
from Time Warner and its affiliates. The following unaudited pro
forma consolidated results of operations assume that the
acquisition of Time Warner was completed as of January 1, 2017.
(Unaudited)
Year Ended
December 31,
2018 2017
Total operating revenues $183,651 $188,769
Net Income Attributable to AT&T 20,814 31,380
Basic Earnings Per Share Attributable to Common Stock $ 2.86 $ 4.30
Diluted Earnings Per Share Attributable to Common Stock $ 2.85 $ 4.26
Pro forma data may not be indicative of the results that would
have been obtained had these events occurred at the beginning of
the periods presented, nor is it intended to be a projection of
future results.
Otter Media On August 7, 2018, we acquired the remaining
interest in Otter Media Holdings (Otter Media) for $157 in cash and
the conversion to equity of the $1,480 advance made in the first
quarter of 2018. At acquisition, we remeasured the fair value of
the total business, which exceeded the carrying amount of our
equity method investment and resulted in a pre-tax gain of $395. We
consolidated that business upon close and recorded those assets at
fair value, including $1,239 of goodwill that is reported in the
WarnerMedia segment.
AppNexus On August 15, 2018, we purchased AppNexus for $1,432
and recorded $1,220 of goodwill that is reported in the WarnerMedia
segment. Our investment allows us to create a marketplace for TV
and digital video advertising.
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AT&T Inc.
Dollars in millions except per share amounts
Spectrum Auctions In June 2020, we completed the acquisition of
$2,379 of 37/39 GHz spectrum in a Federal Communications Commission
(FCC) auction. Prior to the auction, we exchanged the 39 GHz
licenses with a book value of approximately $300 that were
previously acquired through FiberTower Corporation for vouchers to
be applied against the winning bids and recorded a $900 gain in the
first quarter of 2020. These vouchers yielded a value of
approximately $1,200, which was applied toward our gross bids. In
the second quarter of 2020, we made the final cash payment of $949,
bringing the total cash payment to $1,186.
In December 2019, we acquired $982 of 24 GHz spectrum in an FCC
auction.
Dispositions
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 and
recorded a pre-tax gain of $39. Upon close, we received relief from
a debt guarantee originally covering approximately $1,100 that was
reduced to $600 at the time of the sale.
Operations in Puerto Rico On October 31, 2020, we completed the
sale of our previously held-for-sale wireless and wireline
operations in Puerto Rico and the U.S. Virgin Islands for
approximately $1,950 and recorded a pre-tax loss of $82. Upon sale
we removed held-for-sale assets ("Other current assets") and
held-for-sale liabilities ("Accounts payable and accrued
liabilities") that primarily consisted of FCC licenses
(approximately $1,100), allocated goodwill (approximately $250),
net property, plant and equipment (approximately $850) and net tax
liabilities (approximately $500), previously reported on our
consolidated balance sheets. The proceeds were used to redeem
$1,950 of cumulative preferred interests in a subsidiary that held
notes secured by the proceeds of this sale.
Hudson Yards In June 2019, we sold our ownership in Hudson Yards
North Tower Holdings LLC under a sale-leaseback arrangement for
cash proceeds of $2,081 and recorded a loss of approximately $100
resulting from transaction costs (primarily real estate transfer
taxes).
Hulu In April 2019, we sold our ownership in Hulu for cash
proceeds of $1,430 and recorded a pre-tax gain of $740.
Data Colocation Operations On December 31, 2018, we sold certain
data centers to Brookfield Infrastructure Partners for $1,100 and
recorded a pre-tax gain of $432. The sale included assets;
primarily consisting of property, plant and equipment, of $298; and
goodwill of $215.
NOTE 7. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is summarized as follows at
December 31:
Lives (years) 2020 2019
Land - $ 2,571 $ 2,651
Buildings and improvements 2-44 39,418 38,924
Central office equipment 1 3-10 95,981 96,061
Cable, wiring and conduit 15-50 75,409 72,042
Satellites 14-17 908 2,489
Other equipment 3-20 90,883 94,951
Software 3-7 18,482 22,244
Under construction - 4,099 4,176
327,751 333,538
Accumulated depreciation and amortization 200,436 203,410
Property, plant and equipment - net $127,315 $130,128
1 Includes certain network software.
Our depreciation expense was $20,277 in 2020, $20,285 in 2019
and $20,083 in 2018. Depreciation expense included amortization of
software totaling $3,483 in 2020, $3,313 in 2019 and $3,092 in
2018.
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AT&T Inc.
Dollars in millions except per share amounts
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
video business. Based on this evaluation, we determined that these
assets were not fully recoverable and recognized pre-tax impairment
charges totaling $7,255, of which $1,681 relates to property, plant
and equipment, including satellites. The reduced carrying amounts
of the impaired assets became their new cost basis.
In 2019, we recorded a noncash pre-tax charge of $1,290 to
abandon copper assets that we no longer expect will be utilized to
support future network activity. The abandonment was considered
outside the ordinary course of business.
NOTE 8. LEASES
We have operating and finance leases for certain facilities and
equipment used in our operations. Our leases generally have
remaining lease terms of up to 15 years. Some of our real estate
operating leases contain renewal options that may be exercised, and
some of our leases include options to terminate the leases within
one year.
We have recognized a right-of-use asset for both operating and
finance leases, and a corresponding lease liability that represents
the present value of our obligation to make payments over the lease
term. The present value of the lease payments is calculated using
the incremental borrowing rate for operating and finance leases,
which was determined using a portfolio approach based on the rate
of interest that we would have to pay to borrow an amount equal to
the lease payments on a collateralized basis over a similar term.
We use the unsecured borrowing rate and risk-adjust that rate to
approximate a collateralized rate in the currency of the lease,
which will be updated on a quarterly basis for measurement of new
lease liabilities.
The components of lease expense were as follows:
2020 2019
Operating lease cost $5,896 $5,684
Finance lease cost:
Amortization of right-of-use assets $ 287 $ 271
Interest on lease obligation 156 169
Total finance lease cost $ 443 $ 440
The following table provides supplemental cash flows information
related to leases:
2020 2019
Cash Flows from Operating Activities
Cash paid for amounts included in lease obligations:
Operating cash flows from operating leases $4,852 $4,583
Supplemental Lease Cash Flow Disclosures
Operating lease right-of-use assets obtained in exchange
for new operating lease obligations $5,270 $7,818
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AT&T Inc.
Dollars in millions except per share amounts
The following tables set forth supplemental balance sheet
information related to leases at December 31:
2020 2019
Operating Leases
Operating lease right-of-use assets $ 24,714 $ 24,039
Accounts payable and accrued liabilities $ 3,537 3,451
Operating lease obligation 22,202 21,804
Total operating lease obligation $ 25,739 $ 25,255
Finance Leases
Property, plant and equipment, at cost $ 3,586 $ 3,534
Accumulated depreciation and amortization (1,361) (1,296)
Property, plant and equipment, net $ 2,225 $ 2,238
Current portion of long-term debt $ 189 $ 162
Long-term debt 1,847 1,872
Total finance lease obligation $ 2,036 $ 2,034
2020 2019
Weighted-Average Remaining Lease Term (years)
Operating leases 8.5 8.4
Finance leases 9.9 10.3
Weighted-Average Discount Rate
Operating leases 4.1% 4.2 %
Finance leases 8.1% 8.4 %
The following table provides the expected future minimum
maturities of lease obligations:
Operating Finance
Leases Leases
2021 $ 4,808 $ 350
2022 4,527 333
2023 4,094 300
2024 3,560 276
2025 2,904 272
Thereafter 11,230 1,609
Total lease payments 31,123 3,140
Less: imputed interest (5,384) (1,104)
Total $ 25,739 $ 2,036
94
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------
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, 2020,
the calculated fair values of the reporting units exceeded their
book values in all circumstances; however, the Turner, HBO and
Entertainment Group (prior to the reporting unit change) fair
values exceeded their book values by less than 10%, with COVID-19
impacts, industry trends and our content distribution strategy
affecting fair value.
In December 2020, we changed our management strategy and
reevaluated our domestic video business, allowing us to maximize
value in our domestic video business and further accelerate our
ability to innovate and execute in our fast-growing broadband and
fiber business. The strategy change required us to reassess the
grouping and recoverability of the video business long-lived
assets. In conjunction with the strategy change, we separated the
former Entertainment Group reporting unit into two reporting units,
Video and Broadband, which includes legacy telephony operations.
Our recoverability assessment resulted in $7,255 of long-lived
asset impairment in the video business, including $4,373 for
orbital slots and $1,201 for customer lists. The change in
reporting unit required the historical Entertainment Group goodwill
to be assigned to the separate Video and Broadband reporting units,
for which we used the relative fair value allocation methodology.
The affected reporting units were then tested for goodwill
impairment. We recorded an impairment of the entire $8,253 of
goodwill allocated to the Video reporting unit. No goodwill
impairment was required in the Broadband reporting unit.
In the second quarter of 2020, driven by significant and adverse
economic and political environments in Latin America, including the
impact of COVID-19, we experienced accelerated subscriber losses
and revenue decline in the region, as well as closure of our
operations in Venezuela. When combining these business trends and
higher weighted-average cost of capital resulting from the increase
in country-risk premiums in the region, we concluded that it was
more likely than not that the fair value of the Vrio reporting
unit, estimated using discounted cash flow and market multiple
approaches, was less than its carrying amount. We recorded a $2,212
goodwill impairment in the Vrio reporting unit, with $105
attributable to noncontrolling interest.
Other changes to our goodwill in 2020 resulted from foreign
currency translation, the held-for-sale treatment of our
Crunchyroll anime business and our acquisition of the remaining
interest in HBO LAG (see Note 6). In 2020, the prior Xandr segment
was combined with our WarnerMedia segment.
Changes to our goodwill in 2019 primarily resulted from the
held-for-sale treatment of wireless and wireline operations in
Puerto Rico and the U.S. Virgin Islands (see Note 6) and final
valuations related to our acquisitions of Time Warner and Otter
Media, as well as changes from foreign currency translation.
At December 31, 2020, our Communications segment has four
reporting units: Mobility, Video, Broadband and Business Wireline.
Our WarnerMedia segment has four reporting units: Turner, Home Box
Office, Warner Bros. and Xandr. Our Latin America segment has two
reporting units: Vrio and Mexico.
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AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------
The following table sets forth the changes in the carrying
amounts of goodwill by operating segment:
2020 2019
Balance Dispositions, Balance Balance Dispositions, Balance
at currency at at currency at
Jan. exchange Dec. Jan. exchange Dec.
1 Acquisitions Impairments and other 31 1 Acquisitions and other 31
Communications $100,234 $ - $ (8,253) $ (5) $ 91,976 $100,551 $ - $ (317) $100,234
WarnerMedia 42,345 415 - (313) 42,447 42,101 66 178 42,345
Latin America 3,662 - (2,212) (614) 836 3,718 - (56) 3,662
Total $146,241 $ 415 $ (10,465) $ (932) $135,259 $146,370 $ 66 $ (195) $146,241
We review amortized intangible assets for impairment whenever
events or circumstances indicate that the carrying amount may not
be recoverable over the remaining life of the asset or asset group,
including the video business previously discussed. In 2020, we
changed the estimated lives of our orbital slot licenses from
indefinite to finite-lived and began amortizing them over their
average remaining economic life of 15 years (see Note 1).
96
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------
Our other intangible assets at December 31 are summarized as
follows:
2020 2019
Gross Currency Gross Currency
Other Intangible Weighted-Average Carrying Accumulated Translation Carrying Accumulated Translation
Assets Life Amount Amortization Adjustment Amount Amortization Adjustment
Amortized
intangible
assets:
Wireless
licenses
1 24.6 years $ 2,979 $ 271 $ (421) $ 2,981 $ 156 $ (243)
Orbital slots
2 15.0 years 5,825 - - - - -
Trademarks and
trade names 37.1 years 20,016 1,518 (442) 18,359 853 (6)
Distribution
network 10.0 years 18,414 4,621 - 18,138 2,793 -
Released
television
and film
content 17.5 years 10,940 6,240 - 10,941 4,974 -
Customer lists
and
relationships 9.3 years 4,100 1,645 (460) 20,304 14,773 (281)
Other 21.3 years 11,311 2,615 (5) 11,427 1,843 (3)
Total 22.3 years $ 73,585 $ 16,910 $ (1,328) $ 82,150 $ 25,392 $ (533)
1 Includes $1,561 of wireless license renewals in Mexico in 2019.
2 Changed from indefinite-lived January 1, 2020.
Indefinite-lived intangible assets not subject to amortization,
net of currency translation adjustment:
Licenses:
Wireless licenses $ 85,728 $ 83,623
Orbital slots 1 - 11,702
Trade names 5,241 6,067
Total $ 90,969 $ 101,392
1 Changed to amortized January 1, 2020.
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 $8,239
for the year ended December 31, 2020, $7,932 for the year ended
December 31, 2019 and $8,347 for the year ended December 31, 2018.
Amortization expense is estimated to be $5,987 in 2021, $5,363 in
2022, $4,846 in 2023, $4,302 in 2024 and $4,046 in 2025.
97
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.
In May 2020, we acquired the remaining interest in HBO LAG and
fully consolidated that entity. In October 2020, we sold our
ownership interest in CME. (See Note 6)
In 2019, we sold our investments in Hudson Yards and Hulu. (See
Note 6)
In 2018, we acquired Time Warner, which included various equity
method investments. The difference between the fair values and the
proportional carrying amounts of those investments' net assets
primarily related to investments in CME (sold in 2020) and HBO LAG
(consolidated in 2020). (See Note 6)
Our investments in equity affiliates at December 31, 2020
primarily include our interests in SKY Mexico and The CW
Network.
SKY Mexico We hold a 41.3% interest in SKY Mexico, which is a
leading pay-TV provider in Mexico.
The CW Network (The CW) We hold a 50.0% interest in The CW,
which is an advertising supported broadcasting and licensing joint
venture between Warner Bros. and CBS Corporation.
The following table is a reconciliation of our investments in
equity affiliates as presented on our consolidated balance
sheets:
2020 2019
Beginning of year $ 3,695 $ 6,245
Additional investments 178 448
Acquisition of remaining interest in HBO LAG (1,141) -
Disposition of CME (749) -
Disposition of Hudson Yards - (1,681)
Disposition of Hulu - (689)
Disposition of Game Show Network - (288)
Equity in net income (loss) of affiliates 95 6
Dividends and distributions received (133) (301)
Currency translation adjustments (10) (10)
Impairments (146) -
Other adjustments (9) (35)
End of year $ 1,780 $ 3,695
NOTE 11. INVENTORIES AND THEATRICAL FILM AND TELEVISION
PRODUCTION COSTS
Film and television production costs are stated at the lower of
cost, less accumulated amortization, or fair value and include the
unamortized cost of completed theatrical films and television
episodes, theatrical films and television series in production and
undeveloped film and television rights. The amount of capitalized
film and television production costs recognized as broadcast,
programming and operations expenses for a given period is
determined using the film forecast computation method. As of
January 1, 2019, we reclassified $2,274 of our programming
inventory costs from "Other current assets" to "Other Assets" in
connection with the adoption of ASU 2019-2 (see Note 1).
In the fourth quarter of 2020, we recognized an impairment of
$524 based on a change in these estimates for various film titles.
This change in estimates was driven by the continued shutdown of
theaters during the pandemic, including the resurgence of an
outbreak in the fourth quarter and the impact of our decision to
release our 2021 movies in theaters and on HBO Max at the same
time.
98
AT&T Inc.
Dollars in millions except per share amounts
The following table summarizes inventories and theatrical film
and television production costs as of December 31:
2020 2019
Inventories:
Programming costs, less amortization 1 $ 6,010 $ 4,151
Other inventory, primarily DVD and Blu-ray Discs 103 96
Total inventories 6,113 4,247
Less: current portion of inventory (103) (96)
Total noncurrent inventories 6,010 4,151
Theatrical film production costs: 2
Released, less amortization 487 392
Completed and not released 616 437
In production 1,130 1,475
Development and pre-production 190 171
Television production costs: 2
Released, less amortization 2,495 2,199
Completed and not released 1,381 1,344
In production 2,353 2,208
Development and pre-production 90 57
Total theatrical film and television production costs 8,742 8,283
Total noncurrent inventories and theatrical film and television
production costs $14,752 $12,434
1 Includes the costs of certain programming rights, primarily
sports, for which payments have been made prior to the related
rights being received.
2 Does not include $4,699 and $5,967 of acquired film and
television library intangible assets as of December 31, 2020, and
2019, respectively, which are included in "Other Intangible Assets
- Net" on our consolidated balance sheets.
Approximately 90% of unamortized film costs for released
theatrical and television content are expected to be amortized
within three years from December 31, 2020. In addition,
approximately $3,111 of the total $5,171 film costs of released and
completed and not released theatrical and television product are
expected to be amortized during 2021.
NOTE 12. DEBT
Long-term debt of AT&T and its subsidiaries, including
interest rates and maturities, is summarized as follows at December
31:
2020 2019
Notes and debentures
Interest Rates Maturities 1
0.98% -2.99% 2020 -2039 $ 25,549 $ 17,404
3.00% -4.99% 2020 -2050 110,317 102,595
5.00% -6.99% 2020 -2095 24,259 34,513
7.00% -9.15% 2020 -2097 5,006 5,050
Credit agreement borrowings 300 4,969
Fair value of interest rate swaps recorded
in debt 20 26
165,451 164,557
Unamortized (discount) premium - net (9,710) (2,996)
Unamortized issuance costs (532) (452)
Total notes and debentures 155,209 161,109
Finance lease obligations 2,036 2,034
Total long-term debt, including current
maturities 157,245 163,143
Current maturities of long-term debt (3,470) (11,834)
Total long-term debt $153,775 $151,309
1 Maturities assume putable debt is redeemed by the holders at the
next opportunity.
99
AT&T Inc.
Dollars in millions except per share amounts
We had outstanding Euro, British pound sterling, Canadian
dollar, Mexican peso, Australian dollar, Swiss franc and Brazilian
real denominated debt of approximately $43,399 and $42,485 at
December 31, 2020 and 2019, respectively.
The weighted-average interest rate of our entire long-term debt
portfolio, including the impact of derivatives, was approximately
4.1% as of December 31, 2020 and 4.4% as of December 31, 2019.
Current maturities of long-term debt include an accreting
zero-coupon note that may be redeemed each May, until maturity in
2022. If the zero-coupon note (issued for principal of $500 in 2007
and partially exchanged in the 2017 debt exchange offers) is held
to maturity, the redemption amount will be $592.
Debt maturing within one year consisted of the following at
December 31:
2020 2019
Current maturities of long-term debt $3,470 $11,834
Bank borrowings 1 - 4
Total $3,470 $11,838
======
1 Outstanding balance of short-term credit facility of a foreign
subsidiary.
Financing Activities
During 2020, we received net proceeds of $31,988 on the issuance
of $32,241 in long-term debt in various markets, with an average
weighted maturity of approximately 20 years and a weighted average
interest rate of 3.2%. We repaid $39,758 in borrowings of various
notes with a weighted average coupon of 3.2%.
Tender Offers and Debt Exchanges
In August 2020, we repurchased $11,384 of AT&T global notes
and subsidiary notes due 2021 to 2025 through cash tender
offers.
In September 2020, we exchanged $17,677 of AT&T and
subsidiary notes, with interest rates ranging from 4.350% to 8.750%
and original maturities ranging from 2031 to 2058 for $1,459 of
cash and $21,500 of three new series of AT&T Inc. global notes,
with interest rates ranging from 3.500% to 3.650% and maturities
ranging from 2053 to 2059.
In December 2020, we also exchanged $8,280 of AT&T and
subsidiary notes, with interest rates ranging from 2.950% to 7.125%
and original maturities ranging from 2026 to 2048 for $8 of cash
and $9,678 of two new series of AT&T global notes, with
interest rates of 2.550% and 3.800% and maturities of 2033 and
2057, respectively.
As of December 31, 2020 and 2019, 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, 2020, and the corresponding weighted-average interest
rate scheduled for repayment are as follows:
2021 2022 2023 2024 2025 Thereafter
Debt repayments 1 $3,418 $5,951 $7,779 $7,849 $6,389 $134,268
Weighted-average
interest
rate 3.8% 3.3% 3.4% 3.3% 3.9% 4.2%
1 Debt repayments represent maturity value and assume putable
debt is redeemed at the next opportunity. Foreign debt includes the
impact from hedges, when applicable.
Credit Facilities
General
In September 2019, we entered into and drew on a $1,300 term
loan credit agreement containing (i) a 1.25 year $400 facility due
in 2020, (ii) a 2.25 year $400 facility due in 2021, and (iii) a
3.25 year $500 facility due in 2022, with Bank of America, N.A., as
agent. These facilities were repaid and terminated in the second
quarter of 2020.
In April 2020, we entered into and drew on a $5,500 Term Loan
Credit Agreement (Term Loan) with 11 commercial banks and Bank of
America, N.A. as lead agent. We repaid and terminated the Term Loan
in May 2020.
100
AT&T Inc.
Dollars in millions except per share amounts
On January 29, 2021, we entered into a $14,700 Term Loan Credit
Agreement (Term Loan), with Bank of America, N.A., as agent. The
Term Loan is available for a single draw at any time before May 29,
2021. The proceeds will be used for general corporate purposes,
which may include among other things, financing acquisitions of
additional spectrum. The entire principal amount of the Term Loan
will be due and payable 364 days after the date on which the
borrowing is made. At January 31, 2021, we had approximately $6,100
of commercial paper outstanding.
Revolving Credit Agreements
In November 2020, we amended one of our $7,500 revolving credit
agreements by extending the termination date. In total, we have two
$7,500 revolving credit agreements, totaling $15,000, with one
terminating on December 11, 2023 and the other terminating on
November 17, 2025. No amounts were outstanding under either
agreement as of December 31, 2020.
Each of the credit agreements contains covenants that are
customary for an issuer with an investment grade senior debt credit
rating, as well as a net debt-to-EBITDA (earnings before interest,
taxes, depreciation and amortization, and other modifications
described in each agreement) financial ratio covenant requiring
AT&T to maintain, as of the last day of each fiscal quarter, a
ratio of not more than 3.5-to-1. The events of default are
customary for agreements of this type and such events would result
in the acceleration of, or would permit the lenders to accelerate,
as applicable, required payments and would increase each
agreement's relevant Applicable Margin by 2.00% per annum.
The obligations of the lenders under two revolving credit
agreements to provide advances will terminate on December 11, 2023,
and November 17, 2025, unless the commitments are terminated in
whole prior to that date. All advances must be repaid no later than
the date on which lenders are no longer obligated to make any
advances under the applicable credit agreement.
Each of the credit agreements provides that we and lenders
representing more than 50% of the facility amount may agree to
extend their commitments under such Credit Agreement for two
one-year periods beyond the initial termination date. We have the
right to terminate, in whole or in part, amounts committed by the
lenders under each of the credit agreements in excess of any
outstanding advances; however, any such terminated commitments may
not be reinstated.
Advances under these agreements would bear interest, at our
option, either:
--at a variable annual rate equal to: (1) the highest of (but
not less than zero) (a) the rate of interest announced publicly by
Citibank in New York, New York, from time to time, as Citibank's
base rate, (b) 0.5% per annum above the federal funds rate, and (c)
the London interbank offered rate (or the successor thereto)
("LIBOR") applicable to dollars for a period of one month plus
1.00%, plus (2) an applicable margin, as set forth in the
applicable Credit Agreement (the "Applicable Margin for Base
Advances"); or
--at a rate equal to: (i) LIBOR (adjusted upwards to reflect any
bank reserve costs) for a period of one, two, three or six months,
as applicable, plus (ii) an applicable margin, as set forth in the
applicable Credit Agreement (the "Applicable Margin for Eurodollar
Rate Advances").
We pay a facility fee of 0.070%, 0.080%, 0.100% or 0.125% per
annum of the amount of the lender commitments, depending on
AT&T's credit rating.
NOTE 13. FAIR VALUE MEASUREMENTS AND DISCLOSURE
The Fair Value Measurement and Disclosure framework in ASC 820,
"Fair Value Measurement," provides a three-tiered fair value
hierarchy based on the reliability of the inputs used to determine
fair value. Level 1 refers to fair values determined based on
quoted prices in active markets for identical assets. Level 2
refers to fair values estimated using significant other observable
inputs and Level 3 includes fair values estimated using significant
unobservable inputs.
The level of an asset or liability within the fair value
hierarchy is based on the lowest level of any input that is
significant to the fair value measurement. Our valuation techniques
maximize the use of observable inputs and minimize the use of
unobservable inputs.
The valuation methodologies described above may produce a fair
value calculation that may not be indicative of future net
realizable value or reflective of future fair values. We believe
our valuation methods are appropriate and consistent with other
market participants. The use of different methodologies or
assumptions to determine the fair value of certain financial
instruments could result in a different fair value measurement at
the reporting date. There have been no changes in the methodologies
used since December 31, 2019.
101
AT&T Inc.
Dollars in millions except per share amounts
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, 2020 December 31, 2019
Carrying Fair Carrying Fair
Amount Value Amount Value
Notes and debentures 1 $ 155,209 $187,224 $ 161,109 $182,124
Bank borrowings - - 4 4
Investment securities 2 3,249 3,249 3,723 3,723
1 Includes credit agreement borrowings.
2 Excludes investments accounted for under the equity
method.
The carrying amount of debt with an original maturity of less
than one year approximates fair value. The fair value measurements
used for notes and debentures are considered Level 2 and are
determined using various methods, including quoted prices for
identical or similar securities in both active and inactive
markets.
Following is the fair value leveling for investment securities
that are measured at fair value and derivatives as of December 31,
2020, and December 31, 2019. Derivatives designated as hedging
instruments are reflected as "Other assets," "Other noncurrent
liabilities," "Other current assets" and "Accounts payable and
accrued liabilities" on our consolidated balance sheets.
December 31, 2020
Level 1 Level 2 Level 3 Total
Equity Securities
Domestic equities $ 1,010 $ - $ - $ 1,010
International equities 180 - - 180
Fixed income equities 236 - - 236
Available-for-Sale Debt Securities - 1,479 - 1,479
Asset Derivatives
Cross-currency swaps - 1,721 - 1,721
Foreign exchange contracts - 6 - 6
Liability Derivatives
Cross-currency swaps - (1,814) - (1,814)
Foreign exchange contracts - (9) - (9)
December 31, 2019
Level 1 Level 2 Level 3 Total
Equity Securities
Domestic equities $ 844 $ - $ - $ 844
International equities 183 - - 183
Fixed income equities 229 - - 229
Available-for-Sale Debt Securities - 1,444 - 1,444
Asset Derivatives
Interest rate swaps - 2 - 2
Cross-currency swaps - 172 - 172
Interest rate locks - 11 - 11
Foreign exchange contracts - 89 - 89
Liability Derivatives
Cross-currency swaps - (3,187) - (3,187)
Interest rate locks - (95) - (95)
102
AT&T Inc.
Dollars in millions except per share amounts
Investment Securities
Our investment securities include both equity and debt
securities that are measured at fair value, as well as equity
securities without readily determinable fair values. A substantial
portion of the fair values of our investment securities is
estimated based on quoted market prices. Investments in equity
securities not traded on a national securities exchange are valued
at cost, less any impairment, and adjusted for changes resulting
from observable, orderly transactions for identical or similar
securities. Investments in debt securities not traded on a national
securities exchange are valued using pricing models, quoted prices
of securities with similar characteristics or discounted cash
flows.
The components comprising total gains and losses in the period
on equity securities are as follows:
For the years ended December 31, 2020 2019 2018
Total gains (losses) recognized on equity securities $171 $301 $(130)
Gains (losses) recognized on equity securities
sold (25) 100 (10)
Unrealized gains (losses) recognized on equity
securities held at end of period $196 $201 $(120)
=====
At December 31, 2020, available-for-sale debt securities
totaling $1,479 have maturities as follows - less than one year:
$29; one to three years: $159; three to five years: $179; five or
more years: $1,112.
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
"Other current assets" and our investment securities are recorded
in "Other Assets" on the consolidated balance sheets.
Derivative Financial Instruments
We enter into derivative transactions to manage certain market
risks, primarily interest rate risk and foreign currency exchange
risk. This includes the use of interest rate swaps, interest rate
locks, foreign exchange forward contracts and combined interest
rate foreign exchange contracts (cross-currency swaps). We do not
use derivatives for trading or speculative purposes. We record
derivatives on our consolidated balance sheets at fair value that
is derived from observable market data, including yield curves and
foreign exchange rates (all of our derivatives are Level 2). Cash
flows associated with derivative instruments are presented in the
same category on the consolidated statements of cash flows as the
item being hedged.
Fair Value Hedging Periodically, we enter into and designate
fixed-to-floating interest rate swaps as fair value hedges. The
purpose of these swaps is to manage interest rate risk by managing
our mix of fixed-rate and floating-rate debt. These swaps involve
the receipt of fixed-rate amounts for floating interest rate
payments over the life of the swaps without exchange of the
underlying principal amount.
We also designate some of our foreign exchange contracts as fair
value hedges. The purpose of these contracts is to hedge currency
risk associated with foreign-currency-denominated operating assets
and liabilities.
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. Unrealized gains on derivatives
designated as fair value hedges are recorded at fair market value
as assets, and unrealized losses are recorded at fair market value
as liabilities. 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 year ended December 31, 2020 and 2019, no ineffectiveness was
measured on fair value hedges.
Cash Flow Hedging We designate our cross-currency swaps as cash
flow hedges. We have entered into multiple cross-currency swaps to
hedge our exposure to variability in expected future cash flows
that are attributable to foreign currency risk generated from our
foreign-denominated debt. These agreements include initial and
final exchanges of principal from fixed foreign currency
denominated amounts to fixed U.S. dollar denominated amounts, to be
exchanged at a specified rate that is usually determined by the
market spot rate upon issuance. They also include an interest rate
swap of a fixed or floating foreign currency-denominated interest
rate to a fixed U.S. dollar denominated interest rate.
We also designate some of our foreign exchange contracts as cash
flow hedges. The purpose of these contracts is to hedge certain
forecasted film production costs and film tax incentives
denominated in foreign currencies.
103
AT&T Inc.
Dollars in millions except per share amounts
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 $92 from accumulated OCI to "Interest
expense" due to the amortization of net losses on historical
interest rate locks.
We settled all interest rate locks in May 2020 in conjunction
with the issuance of fixed rate debt obligations that the interest
rate locks were hedging and paid $731 that was largely offset by
the return of collateral at the time of settlement. Cash flows from
the interest rate lock settlements and return of collateral were
reported as financing activities in our statement of cash flows,
consistent with our accounting policy for these instruments.
Net Investment Hedging We have designated EUR1,450 million
aggregate principal amount of debt as a hedge of the variability of
some of the Euro-denominated net investments of our subsidiaries.
The gain or loss on the debt that is designated as, and is
effective as, an economic hedge of the net investment in a foreign
operation is recorded as a currency translation adjustment within
accumulated OCI, net on the consolidated balance sheets. Net losses
on net investment hedges recognized in accumulated OCI for 2020
were $147.
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, 2020, we had posted collateral
of $53 (a deposit asset) and held collateral of $694 (a receipt
liability). Under the agreements, if AT&T's credit rating had
been downgraded one rating level by Fitch Ratings, before the final
collateral exchange in December, we would have been required to
post additional collateral of $33. If AT&T's credit rating had
been downgraded four 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 $676. If DIRECTV Holdings LLC's
credit rating had been downgraded below BBB- by S&P, we would
have been required to post additional collateral of $134. At
December 31, 2019, we had posted collateral of $204 (a deposit
asset) and held collateral of $44 (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:
2020 2019
Interest rate swaps $ - $ 853
Cross-currency swaps 40,745 42,325
Interest rate locks - 3,500
Foreign exchange contracts 90 269
Total $40,835 $46,947
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, 2020 2019 2018
Interest rate swaps (Interest expense):
Gain (Loss) on interest rate swaps $(6) $ 58 $(12)
Gain (Loss) on long-term debt 6 (58) 12
104
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, 2020 2019 2018
Cross-currency swaps:
Gain (Loss) recognized in accumulated OCI $(378) $(1,066) $(825)
Foreign exchange contracts:
Gain (Loss) recognized in accumulated OCI 3 10 51
Other income (expense) - net reclassified from
accumulated OCI into income (3) 6 39
Interest rate locks:
Gain (Loss) recognized in accumulated OCI (648) (84) -
Interest income (expense) reclassified from
accumulated OCI into income (84) (63) (58)
Nonrecurring Fair Value Measurements
In addition to assets and liabilities that are recorded at fair
value on a recurring basis, impairment indicators may subject
goodwill, long-lived assets and film costs to nonrecurring fair
value measurements. The implied fair values of the video and Vrio
businesses were estimated using both the discounted cash flow as
well as market multiple approaches. The fair values of long-lived
assets in the video business were determined using a present value
approach of probability-weighted expected cash flows. The fair
values of film productions were estimated using a discounted cash
flow approach. The inputs to all of these approaches are considered
Level 3.
Goodwill amounts related to the Video and Vrio reporting units
were fully impaired. At December 31, 2020, nonrecurring fair value
measurements in our Video business unit totaled $9,744 and were
comprised of $5,873 for orbital slots, $1,613 for customer lists
and $2,258 for property, plant and equipment (see Notes 7 and 9).
Nonrecurring fair value measurements for film costs within our
Warner Bros. business unit totaled $844 (see Note 11). There were
no nonrecurring fair value measurements at December 31, 2019.
NOTE 14. INCOME TAXES
Significant components of our deferred tax liabilities (assets)
are as follows at December 31:
2020 2019
Depreciation and amortization $46,952 $44,896
Licenses and nonamortizable intangibles 13,930 17,355
Employee benefits (5,279) (5,143)
Deferred fulfillment costs 2,691 3,050
Net operating loss and other carryforwards (7,355) (7,301)
Other - net 4,562 1,536
Subtotal 55,501 54,393
Deferred tax assets valuation allowance 4,773 4,941
Net deferred tax liabilities $60,274 $59,334
Noncurrent deferred tax liabilities $60,472 $59,502
Less: Noncurrent deferred tax assets (198) (168)
Net deferred tax liabilities $60,274 $59,334
At December 31, 2020, we had combined net operating and capital
loss carryforwards (tax effected) for federal income tax purposes
of $585, state of $916 and foreign of $2,763, expiring through
2040. Additionally, we had federal credit carryforwards of $1,080
and state credit carryforwards of $2,011, expiring primarily
through 2040.
105
AT&T Inc.
Dollars in millions except per share amounts
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, 2020 and 2019 related primarily to state
and foreign net operating losses and state credit
carryforwards.
The Company considers 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. The Company considers other
types of unremitted foreign earnings to be indefinitely reinvested.
U.S. income and foreign withholding taxes have not been recorded on
temporary differences related to investments in certain foreign
subsidiaries as such differences are considered indefinitely
reinvested. Determination of the amount of unrecognized deferred
tax liability is not practicable.
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 2020 and 2019 is as follows:
Federal, State and Foreign Tax 2020 2019
Balance at beginning of year $10,979 $10,358
Increases for tax positions related to the current year 1,580 903
Increases for tax positions related to prior years 112 1,106
Decreases for tax positions related to prior years (994) (1,283)
Lapse of statute of limitations (24) (32)
Settlements (1,646) (283)
Current year acquisitions - 205
Foreign currency effects (6) 5
Balance at end of year 10,001 10,979
Accrued interest and penalties 2,450 2,708
Gross unrecognized income tax benefits 12,451 13,687
Less: Deferred federal and state income tax benefits (878) (886)
Less: Tax attributable to timing items included above (3,588) (4,320)
Total UTB that, if recognized, would impact the
effective income tax rate as of the end of the year $ 7,985 $ 8,481
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 $702
at December 31, 2020 and $2,584 at December 31, 2019.
Accrued interest and penalties included in UTBs were $2,450 as
of December 31, 2020, and $2,708 as of December 31, 2019. We record
interest and penalties related to federal, state and foreign UTBs
in income tax expense. The net interest and penalty expense
included in income tax expense was $149 for 2020, $267 for 2019 and
$1,290 for 2018.
We file income tax returns in the U.S. federal jurisdiction and
various state, local and foreign jurisdictions. As a large
taxpayer, our income tax returns are regularly audited by the
Internal Revenue Service (IRS) and other taxing authorities.
The IRS has completed field examinations of our tax returns
through 2012. All audit periods prior to 2005 are closed for
federal examination purposes and we have effectively resolved all
outstanding audit issues for years through 2010 with the IRS
Appeals Division. Those years will be closed as the final paperwork
is processed in the coming months.
106
AT&T Inc.
Dollars in millions except per share amounts
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.
The components of income tax (benefit) expense are as
follows:
2020 2019 2018
Federal:
Current $(687) $ 584 $3,258
Deferred 1,039 1,656 277
352 2,240 3,535
State and local:
Current (6) 603 513
Deferred 263 144 473
257 747 986
Foreign:
Current 413 605 539
Deferred (57) (99) (140)
356 506 399
Total $ 965 $3,493 $4,920
"Income Before Income Taxes" in the Consolidated Statements of
Income included the following components for the years ended
December 31:
2020 2019 2018
U.S. income (loss) before income taxes $ (452) $18,301 $25,379
Foreign income (loss) before income taxes (2,404) 167 (506)
Total $(2,856) $18,468 $24,873
A reconciliation of income tax expense (benefit) and the amount
computed by applying the statutory federal income tax rate of 21%
to income from continuing operations before income taxes is as
follows:
2020 2019 2018
Taxes computed at federal statutory rate $(600) $3,878 $5,223
Increases (decreases) in income taxes resulting
from:
State and local income taxes - net of federal
income tax benefit 193 611 738
Enactment date and measurement period adjustments
from the Act - - (718)
Tax on foreign investments (141) (115) (466)
Noncontrolling interest (285) (230) (121)
Permanent items and R&D credit (239) (285) (189)
Audit resolutions (112) (156) 544
Divestitures 107 - -
Goodwill impairment 1 2,120 - -
Other - net (78) (210) (91)
Total $ 965 $3,493 $4,920
Effective Tax Rate (33.8)% 18.9% 19.8%
1 Goodwill impairments are not deductible for tax purposes.
107
AT&T Inc.
Dollars in millions except per share amounts
NOTE 15. PENSION AND POSTRETIREMENT BENEFITS
We offer noncontributory pension programs covering the majority
of domestic nonmanagement employees in our Communications business.
Nonmanagement employees' pension benefits are generally calculated
using one of two formulas: a flat dollar amount applied to years of
service according to job classification or a cash balance plan with
negotiated annual pension band credits as well as interest credits.
Most employees can elect to receive their pension benefits in
either a lump sum payment or an annuity.
Pension programs covering U.S. management employees are closed
to new entrants. These programs continue to provide benefits to
participants that were generally hired before January 1, 2015, who
receive benefits under either cash balance pension programs that
include annual or monthly credits based on salary as well as
interest credits, or a traditional pension formula (i.e., a stated
percentage of employees' adjusted career income).
We also provide a variety of medical, dental and life insurance
benefits to certain retired employees under various plans and
accrue actuarially determined postretirement benefit costs as
active employees earn these benefits.
WarnerMedia and certain of its subsidiaries have both funded and
unfunded defined benefit pension plans, the substantial majority of
which are noncontributory plans covering domestic employees.
WarnerMedia also sponsors unfunded domestic postretirement benefit
plans covering certain retirees and their dependents. At
acquisition, the plans were already closed to new entrants and
frozen for new accruals.
During the fourth quarter of 2020, we committed to, and
reflected in our results, plan changes impacting retiree life and
death coverage and health and medical subsidy benefits. Changes
were also communicated that impact future pension accruals for
certain management employees. These plan changes align our benefit
plans to, or above market level.
In 2019, for certain management participants in our pension plan
who terminated employment before April 1, 2019, we offered the
option of more favorable 2018 interest rates and mortality basis
for determining lump-sum distributions. We recorded special
termination benefits of $81 associated with this offer in "Other
income (expense) - net." We also offered certain terminated vested
pension plan participants the opportunity to receive their benefit
as a lump sum.
During the fourth quarter of 2019, we committed to plan changes
impacting the cost of postretirement health and welfare benefits,
which were reflected in our results. Future retirees will not
receive health retirement subsidies toward post-Medicare coverage
but have access to a new cost-efficient comprehensive plan.
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.
108
AT&T Inc.
Dollars in millions except per share amounts
The following table presents the change in the projected benefit
obligation for the years ended December 31:
Pension Benefits Postretirement Benefits
2020 2019 2020 2019
Benefit obligation at beginning
of
year $ 59,873 $55,439 $ 16,041 $ 19,378
Service cost - benefits earned
during
the period 1,029 1,019 53 71
Interest cost on projected
benefit
obligation 1,687 1,960 416 675
Amendments (340) - (2,655) (4,590)
Actuarial (gain) loss 5,054 7,734 1,423 2,050
Special termination benefits - 81 - -
Benefits paid (5,124) (6,356) (1,370) (1,543)
Curtailment (1) - - -
Plan transfers (20) (4) 20 -
Benefit obligation at end of year $ 62,158 $59,873 $ 13,928 $ 16,041
======= ====== ==========
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
2020 2019 2020 2019
Fair value of plan assets at
beginning
of year $ 53,530 $ 51,681 $ 4,145 $ 4,277
Actual return on plan assets 6,199 8,207 302 609
Benefits paid 1 (5,124) (6,356) (1,029) (941)
Contributions 2 2 425 200
Plan transfers (1) (4) - -
Fair value of plan assets at
end of
year 54,606 53,530 3,843 4,145
Unfunded status at end of year
2 $ (7,552) $(6,343) $ (10,085) $ (11,896)
1 At our discretion, certain postretirement benefits may be paid from our cash
accounts, which does not reduce Voluntary Employee Benefit Association (VEBA)
assets. Future benefit payments may be made from VEBA trusts and thus reduce
those asset balances.
2 Funded status is not indicative of our ability to pay ongoing pension benefits
or of our obligation to fund retirement trusts. Required pension funding is
determined in accordance with the Employee Retirement Income Security Act of
1974, as amended (ERISA) and applicable regulations.
Amounts recognized on our consolidated balance sheets at
December 31 are listed below:
Pension Benefits Postretirement Benefits
2020 2019 2020 2019
Current portion of employee
benefit
obligation 1 $ - $ - $ (1,213) $ (1,365)
Employee benefit obligation 2 (7,552) (6,343) (8,872) (10,531)
Net amount recognized $ (7,552) $ (6,343) $ (10,085) $ (11,896)
1 Included in "Accounts payable and accrued liabilities."
2 Included in "Postemployment benefit obligation," combined with international
pension obligations and other postemployment obligations of $553 and $1,299
at December 31, 2020, respectively.
The accumulated benefit obligation for our pension plans
represents the actuarial present value of benefits based on
employee service and compensation as of a certain date and does not
include an assumption about future compensation levels. The
accumulated benefit obligation for our pension plans was $60,848 at
December 31, 2020, and $58,150 at December 31, 2019.
109
AT&T Inc.
Dollars in millions except per share amounts
Net Periodic Benefit Cost and Other Amounts Recognized in Other
Comprehensive Income
Periodic Benefit Costs
The service cost component of net periodic pension cost
(benefit) 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 $711, $2,762 and $(4,251) for the years
ended December 31, 2020, 2019 and 2018.
The following table presents the components of net periodic
benefit cost (credit):
Pension Benefits 1 Postretirement Benefits
2020 2019 2018 2020 2019 2018
Service cost -
benefits earned
during the
period $ 1,029 $ 1,019 $ 1,116 $ 53 $ 71 $ 109
Interest cost on
projected
benefit
obligation 1,687 1,960 2,092 416 675 778
Expected return on
assets (3,557) (3,561) (3,190) (178) (227) (304)
Amortization of
prior service
credit (113) (113) (115) (2,329) (1,820) (1,635)
Actuarial (gain)
loss 2,404 3,088 (812) 1,299 1,670 (2,290)
Net pension and
postretirement
cost (credit) $ 1,450 $ 2,393 $ (909) $ (739) $ 369 $(3,342)
1 Net periodic pension cost (credit) excludes immediate cost recognized due
to special events: curtailment gain of ($1) in 2020 and special termination
benefits of $81 in 2019.
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
2020 2019 2018 2020 2019 2018
Balance at
beginning of year $ 361 $ 447 $ 571 $ 8,171 $ 6,086 $ 6,456
Prior service
(cost) credit 250 - (37) 2,001 3,457 864
Amortization of
prior service
credit (86) (86) (87) (1,756) (1,372) (1,234)
Total recognized
in other
comprehensive
(income) loss 164 (86) (124) 245 2,085 (370)
Balance at end of
year $ 525 $ 361 $ 447 $ 8,416 $ 8,171 $ 6,086
===
110
AT&T Inc.
Dollars in millions except per share amounts
Assumptions
In determining the projected benefit obligation and the net
pension and postretirement benefit cost, we used the following
significant weighted-average assumptions:
Pension Benefits Postretirement Benefits
2020 2019 2018 2020 2019 2018
Weighted-average
discount
rate for
determining
benefit obligation
at
December 31 2.70% 3.40% 4.50% 2.40% 3.20% 4.40%
Discount rate in
effect
for determining
service cost 1, 2 3.60% 4.10% 4.20% 3.50% 4.40% 4.30%
Discount rate in
effect
for determining
interest
cost 1,2 2.90% 3.50% 3.80% 2.70% 3.70% 3.60%
Weighted-average
interest
credit rate for
cash balance
pension programs 3 3.10% 3.30% 3.70% -% -% -%
Long-term rate of
return
on plan assets 7.00% 7.00% 7.00% 4.75% 5.75% 5.75%
Composite rate of
compensation
increase for
determining
benefit
obligation 3.00% 3.00% 3.00% 3.00% 3.00% 3.00%
Composite rate of
compensation
increase for
determining
net cost
(benefit) 3.00% 3.00% 3.00% 3.00% 3.00% 3.00%
===
1 Weighted-average discount rate for pension benefits in effect from January
1, 2019 through March 31, 2019 was 4.60% for service cost and 4.20% for interest
cost, from April 1, 2019 through June 30, 2019 was 4.30% for service cost and
3.70% for interest cost, from July 1, 2019 through September 30, 2019 was 3.90%
for service cost and 3.20% for interest cost, and, from October 1, 2019 through
December 31, 2019 was 3.50% for service cost and 3.00% for interest cost.
2 Weighted-average discount rate for postretirement benefits in effect from
January 1, 2019 through October 1, 2019 was 4.70% for service cost and 4.00%
for interest cost, and, from October 2, 2019 through December 31, 2019 was 3.40%
for service cost and 2.70% for interest cost.
3 Weighted-average interest crediting rates for cash balance pension programs
relate only to the cash balance portion of total pension benefits. A 0.50% increase
in the weighted-average interest crediting rate would increase the pension benefit
obligation by $130.
We recognize gains and losses on pension and postretirement plan
assets and obligations immediately in "Other income (expense) -
net" in our consolidated statements of income. These gains and
losses are generally measured annually as of December 31 and
accordingly, will normally be recorded during the fourth quarter,
unless an earlier remeasurement is required. Should actual
experience differ from actuarial assumptions, the projected pension
benefit obligation and net pension cost and accumulated
postretirement benefit obligation and postretirement benefit cost
would be affected in future years.
Discount Rate Our assumed weighted-average discount rate for
pension and postretirement benefits of 2.70% and 2.40%
respectively, at December 31, 2020, reflects the hypothetical rate
at which the projected benefit obligation could be effectively
settled or paid out to participants. We determined our discount
rate based on a range of factors, including a yield curve composed
of the rates of return on several hundred high-quality, fixed
income corporate bonds available at the measurement date and
corresponding to the related expected durations of future cash
outflows. These bonds were all rated at least Aa3 or AA- by one of
the nationally recognized statistical rating organizations,
denominated in U.S. dollars, and neither callable, convertible nor
index linked. For the year ended December 31, 2020, when compared
to the year ended December 31, 2019, we decreased our pension
discount rate by 0.70%, resulting in an increase in our pension
plan benefit obligation of $5,594 and decreased our postretirement
discount rate by 0.80%, resulting in an increase in our
postretirement benefit obligation of $1,311. For the year ended
December 31, 2019, we decreased our pension discount rate by 1.10%,
resulting in an increase in our pension plan benefit obligation of
$8,018 and decreased our postretirement discount rates by 1.20%,
resulting in an increase in our postretirement benefit obligation
of $2,399.
111
AT&T Inc.
Dollars in millions except per share amounts
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 2021, our expected
long-term rate of return is 6.75% on pension plan assets and 4.50%
on postretirement plan assets. Our expected long-term rates of
return on plan assets were adjusted downward by 0.25% for 2021,
with pension reducing from 7.00% to 6.75% and postretirement from
4.75% to 4.50%. This update to our asset return assumptions was due
to economic forecasts, a change in the asset mix, and holding more
fixed income securities in the pension plan and more cash and
short-term securities in our VEBA trusts. 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 2021 combined pension and
postretirement cost to increase $277. 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 2020 and 2019
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 historical experience, expectations of healthcare industry
inflation and recent prescription drug cost experience, our 2021
assumed annual healthcare prescription drug cost trend and medical
cost trend for eligible participants will remain at 4.00% annual
and ultimate rate. For 2020, our assumed annual healthcare
prescription drug cost trend and medical cost trend for eligible
participants was decreased from an annual and ultimate trend rate
of 4.50% to an annual and ultimate trend rate of 4.00%. This change
in assumption decreased our obligation by $102 at December 31,
2019. In addition to the healthcare cost trend, we assumed an
annual 2.50% growth in administrative expenses and an annual 3.00%
growth in dental claims.
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 2021.
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 $425 in December 2020 and $200 in
December 2019 to our postretirement plan.
112
AT&T Inc.
Dollars in millions except per share amounts
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.
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 2020 2019 Target 2020 2019
Equity securities:
Domestic 16 % -26 % 19 % 17 % 14 % -24 % 19 % 20 %
International 10 % -20 % 15 12 9 % -19 % 14 12
Fixed income
securities 37 % -47 % 35 35 40 % -50 % 45 52
Real assets 8 % -18 % 8 9 -% - 6 % 1 1
Private equity 5 % -15 % 9 8 -% - 6 % 1 2
Preferred interest 6% -16 % 10 17 -% - -% - -
Other -% - 5 % 4 2 15 % -25 % 20 13
Total 100 % 100 % 100 % 100 %
The pension trust holds a preferred equity interest valued at
$5,771 in AT&T Mobility II LLC (Mobility II), the primary
holding company for our wireless business (see Note 17). During
2020, the trust sold a portion of this preferred interest valued at
$2,885 to third party investors. The preferred equity interest was
valued at $8,806 as of December 31, 2019.
At December 31, 2020, AT&T securities represented 11% of
assets held by our pension trust, including the preferred interest
in Mobility II, and 1% of assets (primarily common stock) held by
our VEBA trusts included in these financial statements.
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 interest in Mobility II is valued using an income
approach by an independent fiduciary.
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.
113
AT&T Inc.
Dollars in millions except per share amounts
Non-interest bearing cash and overdrafts are valued at cost,
which approximates fair value.
Fair Value Measurements
See Note 13 for a discussion of the fair value hierarchy that
prioritizes the inputs to valuation techniques used to measure fair
value.
The following tables set forth by level, within the fair value
hierarchy, the pension and postretirement assets and liabilities at
fair value as of December 31, 2020:
Pension Assets and Liabilities at Fair Value as of December 31, 2020
Level 1 Level 2 Level 3 Total
Non-interest bearing cash $ 173 $ - $ - $ 173
Interest bearing cash 7 - - 7
Foreign currency contracts - 3 - 3
Equity securities:
Domestic equities 9,784 - 11 9,795
International equities 4,821 11 12 4,844
Preferred interest - - 5,771 5,771
Fixed income securities:
Corporate bonds and other investments - 11,043 52 11,095
Government and municipal bonds - 6,039 - 6,039
Mortgage-backed securities - 442 1 443
Real estate and real assets - - 2,544 2,544
Securities lending collateral 621 1,435 - 2,056
Receivable for variation margin 23 - - 23
Assets at fair value 15,429 18,973 8,391 42,793
Investments sold short and other
liabilities
at fair value (450) (8) (1) (459)
Total plan net assets at fair value $ 14,979 $18,965 $ 8,390 $42,334
Assets held at net asset value practical
expedient
Private equity funds 5,154
Real estate funds 1,694
Commingled funds 7,706
Total assets held at net asset value
practical expedient 14,554
Other assets (liabilities) 1 (2,282)
Total Plan Net Assets $54,606
1 Other assets (liabilities) include amounts receivable, accounts payable and
net adjustment for securities lending payable.
114
AT&T Inc.
Dollars in millions except per share amounts
Postretirement Assets and Liabilities at Fair Value as of December 31, 2020
Level 1 Level 2 Level 3 Total
Interest bearing cash $ 497 $ 302 $ - $ 799
Equity securities:
Domestic equities 363 - - 363
International equities 282 - - 282
Fixed income securities:
Corporate bonds and other investments 5 307 3 315
Government and municipal bonds 6 132 1 139
Mortgage-backed securities - 94 - 94
Securities lending collateral - 28 - 28
Assets at fair value 1,153 863 4 2,020
Securities lending payable and other
liabilities (1) (29) - (30)
Total plan net assets at fair value $ 1,152 $ 834 $ 4 $ 1,990
Assets held at net asset value practical
expedient
Commingled funds 1,843
Private equity 24
Real estate funds 22
Total assets held at net asset value
practical expedient 1,889
Other assets (liabilities) 1 (36)
Total Plan Net Assets $ 3,843
1 Other assets (liabilities) include amounts receivable and accounts payable.
The tables below set forth a summary of changes in the fair
value of the Level 3 pension and postretirement assets for the year
ended December 31, 2020:
Fixed Income Real Estate
Pension Assets Equities Funds and Real Assets Total
Balance at beginning of year $ 8,816 $ 6 $ 2,817 $ 11,639
Realized gains (losses) (150) - 255 105
Unrealized gains (losses) 3 - (178) (175)
Transfers in 4 51 36 91
Transfers out - (3) - (3)
Purchases 9,114 1 223 9,338
Sales (11,994) (2) (609) (12,605)
Balance at end of year $ 5,793 $ 53 $ 2,544 $ 8,390
===
Fixed Income Real Estate
Postretirement Assets Equities Funds and Real Assets Total
Balance at beginning of year $ - $ 32 $ - $ 32
Transfers in - 3 - 3
Transfers out - (11) - (11)
Sales - (20) - (20)
Balance at end of year $ - $ 4 $ - $ 4
115
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, 2019:
Pension Assets and Liabilities at Fair Value as of December 31, 2019
Level 1 Level 2 Level 3 Total
Non-interest bearing cash $ 85 $ - $ - $ 85
Interest bearing cash 529 - - 529
Foreign currency contracts - 5 - 5
Equity securities:
Domestic equities 8,068 - 4 8,072
International equities 3,929 11 6 3,946
Preferred interest - - 8,806 8,806
Fixed income securities:
Corporate bonds and other investments - 10,469 4 10,473
Government and municipal bonds 49 6,123 - 6,172
Mortgage-backed securities - 522 2 524
Real estate and real assets - - 2,817 2,817
Securities lending collateral 103 1,658 - 1,761
Receivable for variation margin 5 - - 5
Assets at fair value 12,768 18,788 11,639 43,195
Investments sold short and other
liabilities
at fair value (513) (2) - (515)
Total plan net assets at fair value $ 12,255 $18,786 $11,639 $42,680
Assets held at net asset value practical
expedient
Private equity funds 4,544
Real estate funds 2,062
Commingled funds 5,710
Total assets held at net asset value
practical expedient 12,316
Other assets (liabilities) 1 (1,466)
Total Plan Net Assets $53,530
1 Other assets (liabilities) include amounts receivable, accounts payable and
net adjustment for securities lending payable.
116
AT&T Inc.
Dollars in millions except per share amounts
Postretirement Assets and Liabilities at Fair Value as of December 31, 2019
Level 1 Level 2 Level 3 Total
Interest bearing cash $ 248 $ 301 $ - $ 549
Equity securities:
Domestic equities 438 - - 438
International equities 265 - - 265
Fixed income securities:
Corporate bonds and other investments 7 492 31 530
Government and municipal bonds 6 182 1 189
Mortgage-backed securities - 294 - 294
Securities lending collateral - 36 - 36
Assets at fair value 964 1,305 32 2,301
Securities lending payable and other
liabilities - (36) - (36)
Total plan net assets at fair value $ 964 $ 1,269 $ 32 $ 2,265
Assets held at net asset value practical
expedient
Private equity funds 66
Real estate funds 27
Commingled funds 1,797
Total assets held at net asset value
practical expedient 1,890
Other assets (liabilities) 1 (10)
Total Plan Net Assets $ 4,145
1 Other assets (liabilities) include amounts receivable and accounts payable.
The tables below set forth a summary of changes in the fair
value of the Level 3 pension and postretirement assets for the year
ended December 31, 2019:
Fixed Income Real Estate
Pension Assets Equities Funds and Real Assets Total
Balance at beginning of year $ 8,750 $ 4 $ 2,579 $11,333
Realized gains (losses) - - 64 64
Unrealized gains (losses) 58 - 45 103
Transfers in 8 5 134 147
Transfers out - (6) - (6)
Purchases - 7 228 235
Sales - (4) (233) (237)
Balance at end of year $ 8,816 $ 6 $ 2,817 $11,639
===
Fixed Income Real Estate
Postretirement Assets Equities Funds and Real Assets Total
Balance at beginning of year $ 1 $ 12 $ - $ 13
Transfers in - 28 - 28
Transfers out - (1) - (1)
Sales (1) (7) - (8)
Balance at end of year $ - $ 32 $ - $ 32
117
AT&T Inc.
Dollars in millions except per share amounts
Estimated Future Benefit Payments
Expected benefit payments are estimated using the same
assumptions used in determining our benefit obligation at December
31, 2020. Because benefit payments will depend on future employment
and compensation levels; average years employed; average life
spans; and payment elections, among other factors, changes in any
of these assumptions could significantly affect these expected
amounts. The following table provides expected benefit payments
under our pension and postretirement plans:
Postretirement
Pension Benefits Benefits
2021 $ 5,391 $ 1,392
2022 4,597 1,231
2023 4,428 1,159
2024 4,323 879
2025 4,234 832
Years 2026 - 2030 19,646 3,651
==================
Supplemental Retirement Plans
We also provide certain senior- and middle-management employees
with nonqualified, unfunded supplemental retirement and savings
plans. While these plans are unfunded, we have assets in a
designated non-bankruptcy remote trust that are independently
managed and used to provide for certain of these benefits. These
plans include supplemental pension benefits as well as
compensation-deferral plans, some of which include a corresponding
match by us based on a percentage of the compensation deferral. For
our supplemental retirement plans, the projected benefit obligation
was $2,687 and the net supplemental retirement pension cost was
$330 at and for the year ended December 31, 2020. The projected
benefit obligation was $2,605 and the net supplemental retirement
pension credit was $438 at and for the year ended December 31,
2019.
We use the same significant assumptions for the composite rate
of compensation increase in determining our projected benefit
obligation and the net pension and postemployment benefit cost. Our
discount rates of 2.30% at December 31, 2020 and 3.20% at December
31, 2019 were calculated using the same methodologies used in
calculating the discount rate for our qualified pension and
postretirement benefit plans.
Deferred compensation expense was $183 in 2020, $199 in 2019 and
$128 in 2018.
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 $814, $793 and $724 for
the years ended December 31, 2020, 2019 and 2018.
NOTE 16. SHARE-BASED PAYMENTS
Under our various plans, senior and other management employees
and nonemployee directors have received nonvested stock and stock
units. In conjunction with the acquisition of Time Warner,
restricted stock units issued under Time Warner plans were
converted to AT&T share units that will be distributed in the
form of AT&T common stock and cash. The shares will vest over a
period of one to four years in accordance with the terms of those
plans. In addition, outstanding Time Warner stock options were
converted to AT&T stock options that vested within one year. We
do not intend to issue any additional grants under the Time Warner
Inc. plans. Future grants to eligible employees will be issued
under AT&T plans.
118
AT&T Inc.
Dollars in millions except per share amounts
We grant performance stock units, which are nonvested stock
units, based upon our stock price at the date of grant and award
them in the form of AT&T common stock and cash at the end of a
three-year period, subject to the achievement of certain
performance goals. We treat the cash settled portion of these
awards as a liability. We grant forfeitable restricted stock and
stock units, which are valued at the market price of our common
stock at the date of grant and predominantly vest over a four- or
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, 2020, we were authorized to issue up to approximately 183
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:
2020 2019 2018
Performance stock units $348 $544 $301
Restricted stock and stock units 290 273 153
Other nonvested stock units - 7 4
Stock options - (5) 5
Total $638 $819 $463
Income tax benefit $157 $202 $114
A summary of the status of our nonvested stock units as of
December 31, 2020, and changes during the year then ended is
presented as follows (shares in millions):
Weighted-Average
Shares Grant-
Nonvested Stock Units Date Fair Value
Nonvested at January 1, 2020 42 $ 33.80
Granted 23 36.90
Vested (18) 35.87
Forfeited (4) 34.48
Nonvested at December 31, 2020 43 $ 34.50
As of December 31, 2020, there was $709 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 2.09 years. The total fair value of
shares vested during the year was $647 for 2020, compared to $798
for 2019 and $766 for 2018.
It is our intent to satisfy share option exercises using our
treasury stock. Cash received from stock option exercises was $65
for 2020, $446 for 2019 and $361 for 2018.
119
AT&T Inc.
Dollars in millions except per share amounts
NOTE 17. STOCKHOLDERS' EQUITY
Authorized Shares We have authorized 14 billion common shares of
AT&T stock and 10 million preferred shares of AT&T stock,
each with a par value of $1.00 per share. Cumulative perpetual
preferred shares consist of the following:
--Series A: 48 thousand shares outstanding at December 31, 2020
and December 31, 2019, with a $25,000 per share liquidation
preference and a dividend rate of 5.000%.
--Series B: 20 thousand shares outstanding at December 31, 2020
and zero outstanding at December 31, 2019, with a EUR100,000 per
share liquidation preference, and an initial rate of 2.875%,
subject to reset after May 1, 2025.
--Series C: 70 thousand shares outstanding at December 31, 2020
and zero outstanding at December 31, 2019, 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 authorizations 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 an additional 300 million shares, with approximately
178 million outstanding at December 31, 2020.
To implement these authorizations, we used open market
repurchases, relying on Rule 10b5-1 of the Securities Exchange Act
of 1934, where feasible. We also used accelerated share repurchase
agreements with large financial institutions to repurchase our
stock. During 2020, we repurchased approximately 142 million shares
totaling $5,278 under the March 2013 and March 2014
authorizations.
Dividend Declarations In December 2020, AT&T declared a
quarterly preferred dividend of $36 and a quarterly common dividend
of $0.52 per share of common stock. In December 2019, AT&T
declared a quarterly preferred dividend of $8 and an increase in
its quarterly common dividend to $0.52 per share of common
stock.
Preferred Interests Issued by Subsidiaries We have issued
cumulative perpetual preferred membership interests in certain
subsidiaries. The preferred interests are entitled to cash
distributions, subject to declaration. The preferred interests are
included in "Noncontrolling interest" on the consolidated balance
sheets.
Mobility II
We previously issued 320 million Series A Cumulative Perpetual
Preferred Membership Interests in Mobility II (Mobility preferred
interests), representing all currently outstanding Mobility
preferred equity interests, which pay cash distributions of $560
per annum, subject to declaration. So long as the distributions are
declared and paid, the terms of the Mobility preferred equity
interests will not impose any limitations on cash movements between
affiliates, or our ability to declare a dividend on or repurchase
AT&T shares.
A holder of the Mobility preferred interests may put the
interests to Mobility II. Mobility II may redeem the interests upon
a change in control of Mobility II or on or after September 9,
2022. When either options arise due to a passage of time, that
option may be exercised only during certain periods.
The price at which a put option or a redemption option can be
exercised is the greater of (1) the market value of the interests
as of the last date of the quarter preceding the date of the
exercise of a put or redemption option and (2) the sum of (a)
twenty-five dollars ($8,000 in the aggregate) plus (b) any accrued
and unpaid distributions. The redemption price may be paid with
cash, AT&T common stock, or a combination of cash and AT&T
common stock, at Mobility II's sole election. In no event shall
Mobility II be required to deliver more than 250 million shares of
AT&T common stock to settle put and redemption options. We have
the intent and ability to settle the Mobility preferred equity
interests with cash.
120
AT&T Inc.
Dollars in millions except per share amounts
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 cash
movements between affiliates, or our ability to declare a dividend
on or repurchase AT&T shares. We can call the Telco preferred
interests at the issue price beginning seven years from the
issuance date.
The holders of the Telco preferred interests have the option to
require redemption upon the occurrence of certain contingent
events, such as the failure of Telco LLC to pay the preferred
distribution for two or more periods or to meet certain other
requirements, including a minimum credit rating. If notice is
given, all other holders of equal or more subordinate classes of
members equity are entitled to receive the same form of
consideration payable to the holders of the preferred interests,
resulting in a deemed liquidation for accounting purposes.
PR Holdings
In 2019, we issued $1,950 nonconvertible cumulative preferred
interests in a subsidiary (PR Holdings) that held notes secured by
the proceeds from our agreement to sell wireless and wireline
operations in Puerto Rico and the U.S. Virgin Islands. These
preferred interests were redeemed on November 6, 2020. (See Note
6)
The membership interests in PR Holdings consisted of (1) common
interests, which were held by consolidated subsidiaries of
AT&T, and (2) preferred interests (PR preferred interests). The
PR preferred interests paid an initial preferred distribution at an
annual rate of 4.75%. Distributions were paid quarterly, subject to
declaration.
NOTE 18. SALES OF RECEIVABLES
We have agreements with various third-party financial
institutions pertaining to the sales of certain types of our
accounts receivable. The most significant of these programs are
discussed in detail below and generally consist of (1) receivables
arising from equipment installment plans, which are sold for cash
and a deferred purchase price, and (2) revolving service and trade
receivables. Under these programs, we transfer receivables to
purchasers in exchange for cash and additional consideration upon
settlement of the receivables, where applicable. Under the terms of
our agreements for these programs, we continue to bill and collect
the payments from our customers on behalf of the financial
institutions.
121
AT&T Inc.
Dollars in millions except per share amounts
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.
Our equipment installment and revolving receivables programs are
discussed in detail below. The following table sets forth a summary
of the receivables and accounts being serviced at December 31:
2020 2019
Equipment Equipment
Installment Revolving Installment Revolving
Gross receivables: $ 5,565 $ 3,909 $ 4,576 $ 3,324
Balance sheet classification
Accounts receivable
Notes receivable 2,716 - 2,467 -
Trade receivables 554 3,715 477 2,809
Other Assets
Noncurrent notes and trade
receivables 2,295 194 1,632 515
Outstanding portfolio of
receivables
derecognized from
our consolidated balance
sheets 7,827 5,300 9,713 4,300
Cash proceeds received, net of
remittances
1 5,646 5,300 7,211 4,300
============== ==============
1 Represents amounts to which financial institutions remain
entitled, excluding the deferred purchase price.
Equipment Installment Receivables Program
We offer our customers the option to purchase certain wireless
devices in installments over a specified period of time and, in
many cases, once certain conditions are met, they may be eligible
to trade in the original equipment for a new device and have the
remaining unpaid balance paid or settled.
We maintain a program under which we transfer a portion of these
receivables through our bankruptcy-remote subsidiary in exchange
for cash and additional consideration upon settlement of the
receivables, referred to as the deferred purchase price. In the
event a customer trades in a device prior to the end of the
installment contract period, we agree to make a payment to the
financial institutions equal to any outstanding remaining
installment receivable balance. Accordingly, we record a guarantee
obligation for this estimated amount at the time the receivables
are transferred.
The following table sets forth a summary of equipment
installment receivables sold under this program:
2020 2019 2018
Gross receivables sold $7,270 $9,921 $9,391
Net receivables sold 1 7,026 9,483 8,871
Cash proceeds received 6,089 8,189 7,488
Deferred purchase price recorded 1,021 1,451 1,578
Guarantee obligation recorded 157 341 361
1 Receivables net of allowance, imputed interest and equipment
trade-in right guarantees.
The deferred purchase price and guarantee obligation are
initially recorded at estimated fair value and subsequently
adjusted for changes in present value of expected cash flows. The
estimation of their fair values is based on remaining installment
payments expected to be collected and the expected timing and value
of device trade-ins. The estimated value of the device trade-ins
considers prices offered to us by independent third parties that
contemplate changes in value after the launch of a device model.
The fair value measurements used for the deferred purchase price
and the guarantee obligation are considered Level 3 under the Fair
Value Measurement and Disclosure framework (see Note 13).
122
AT&T Inc.
Dollars in millions except per share amounts
The following table presents the previously transferred
equipment installment receivables, which we repurchased in exchange
for the associated deferred purchase price:
2020 2019 2018
Fair value of repurchased receivables $1,271 $1,418 $1,480
Carrying value of deferred purchase price 1,235 1,350 1,393
Gain on repurchases 1 $ 36 $ 68 $ 87
1 These gains are included in "Selling, general and
administrative" in the consolidated statements of income.
At December 31, 2020 and December 31, 2019, our deferred
purchase price receivable was $1,991 and $2,336, respectively, of
which $1,476 and $1,569 are included in "Other current assets" on
our consolidated balance sheets, with the remainder in "Other
Assets." The guarantee obligation at December 31, 2020 and December
31, 2019 was $228 and $384, respectively, of which $161 and $148
are included in "Accounts payable and accrued liabilities" on our
consolidated balance sheets, with the remainder in "Other
noncurrent liabilities." Our maximum exposure to loss as a result
of selling these equipment installment receivables is limited to
the total amount of our deferred purchase price and guarantee
obligation.
Revolving Receivables Program
In 2019, we entered into a one-year revolving agreement to
transfer up to $4,300 of certain receivables through our
bankruptcy-remote subsidiaries to various financial institutions on
a recurring basis in exchange for cash equal to the gross
receivables transferred. In 2020, we expanded the program limit to
$5,300 and we extended the agreement by one year. As customers pay
their balances, we transfer additional receivables into the
program, resulting in our gross receivables sold exceeding net cash
flow impacts (e.g., collect and reinvest). The transferred
receivables are fully guaranteed by our bankruptcy-remote
subsidiaries, which hold additional receivables in the amount of
$3,909 that are pledged as collateral under this agreement. The
transfers are recorded at fair value of the proceeds received and
obligations assumed less derecognized receivables. The obligation
is subsequently adjusted for changes in estimated expected credit
losses and interest rates. Our maximum exposure to loss related to
these receivables transferred is limited to the amount
outstanding.
The fair value measurement used for the obligation is considered
Level 3 under the Fair Value Measurement and Disclosure framework
(see Note 13).
The following table sets forth a summary of receivables
sold:
2020 2019 2018
Gross receivables sold/cash proceeds received
1 $15,888 $11,989 $ -
Collections reinvested under revolving agreement 14,888 7,689 -
Net cash proceeds received (remitted) $ 1,000 $ 4,300 $ -
Net receivables sold 2 $15,760 $11,604 $ -
Obligations recorded (reversed) 271 530 -
1 Includes initial sale of receivables of $1,000 and $4,300 for
2020 and 2019, respectively.
2 Receivables net of allowance, return and incentive reserves
and imputed interest.
NOTE 19. TOWER TRANSACTION
In December 2013, we closed our transaction with Crown Castle
International Corp. (Crown Castle) in which Crown Castle gained the
exclusive rights to lease and operate 9,048 wireless towers and
purchased 627 of our wireless towers for $4,827 in cash. The leases
have various terms with an average length of approximately 28
years. As the leases expire, Crown Castle will have fixed price
purchase options for these towers totaling approximately $4,200,
based on their estimated fair market values at the end of the lease
terms. We sublease space on the towers from Crown Castle for an
initial term of ten years at current market rates, subject to
optional renewals in the future.
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
123
AT&T Inc.
Dollars in millions except per share amounts
and retained by Crown Castle from operation of the tower sites,
and reduced by our contractual payments. We continue to include the
tower assets in "Property, Plant and Equipment - Net" on our
consolidated balance sheets and depreciate them accordingly. At
December 31, 2020 and 2019, the tower assets had a balance of $764
and $804, respectively. Our depreciation expense for these assets
was $39 for each of 2020, 2019 and 2018.
Payments made to Crown Castle under this arrangement were $248
for 2020. At December 31, 2020, the future minimum payments under
the sublease arrangement are $253 for 2021, $258 for 2022, $264 for
2023, $269 for 2024, $274 for 2025 and $856 thereafter.
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 2020, we submitted $120 in sustainability payments, with
future payments under the agreement of $120 for 2021; $195 for
2022, 2023, 2024 and 2025; and $16,620 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 to be 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,
2020, we have collected approximately $5,000 for the completion of
certain tasks and anticipate collecting the remainder of the $6,500
as we achieve milestones set out by FirstNet over the next two
years. We also expect to receive approximately $200 over the next
few years from FirstNet for reinvestment above the original
success-based payments.
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 $20,274 in 2021, $21,275 in total for
2022 and 2023, $11,142 in total for 2024 and 2025 and $17,919 in
total for years thereafter.
See Note 13 for a discussion of collateral and credit-risk
contingencies.
124
AT&T Inc.
Dollars in millions except per share amounts
NOTE 22. ADDITIONAL FINANCIAL INFORMATION
December 31,
Consolidated Balance Sheets 2020 2019
Accounts payable and accrued liabilities:
Accounts payable $31,836 $29,640
Accrued payroll and commissions 2,988 3,126
Current portion of employee benefit obligation 1,415 1,528
Accrued participations and residuals 2,708 2,852
Accrued interest 2,454 2,498
Other 7,631 6,312
Total accounts payable and accrued liabilities $49,032 $45,956
Consolidated Statements of Income 2020 2019 2018
Advertising expense $5,253 $6,121 $5,100
Interest expense incurred $8,048 $8,622 $8,450
Capitalized interest (123) (200) (493)
Total interest expense $7,925 $8,422 $7,957
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 2020 2019 2018 2017
Cash and cash equivalents $9,740 $12,130 $5,204 $50,498
Restricted cash in Other current assets 9 69 61 6
Restricted cash in Other Assets 121 96 135 428
Cash and cash equivalents and restricted
cash $9,870 $12,295 $5,400 $50,932
The following table summarizes cash paid during the periods for
interest and income taxes:
Consolidated Statements of Cash Flows 2020 2019 2018
Cash paid (received) during the year for:
Interest $8,237 $8,693 $8,818
Income taxes, net of refunds 993 1,421 (354)
Spectrum acquisitions 1,613 1,576 521
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 $4,664 of vendor
financing commitments related to capital investments in 2020,
$2,632 in 2019 and $2,162 in 2018.
125
AT&T Inc.
Dollars in millions except per share amounts
Labor Contracts As of January 31, 2021, we employed
approximately 230,000 persons. Approximately 37% of our employees
are represented by the Communications Workers of America (CWA), the
International Brotherhood of Electrical Workers (IBEW) or other
unions. After expiration of the agreements, work stoppages or labor
disruptions may occur in the absence of new contracts or other
agreements being reached. There are no significant contracts
expiring in 2021. A contract covering approximately 14,000 Mobility
employees in 36 states and the District of Columbia that was set to
expire in February 2021 was extended until February 2022. A
contract covering approximately 10,000 Mobility employees in nine
Southeast states that was set to expire in February 2022 was
extended until February 2023.
NOTE 23. SUBSEQUENT EVENTS (UNAUDITED)
Video Business On February 25, 2021, we signed an agreement to
form a new company named DIRECTV (New DTV) with TPG Capital, which
will be jointly governed by a board with representation from both
AT&T and TPG. Under the agreement, we will contribute our Video
business unit to New DTV for $4,250 of junior preferred units, an
additional distribution preference of $4,200 and a 70% economic
interest in common units. We expect to receive $7,600 in cash from
New DTV at closing. TPG will contribute approximately $1,800 in
cash to New DTV for $1,800 of senior preferred units and a 30%
economic interest in common units. The remaining $5,800 will be
funded by debt taken on by New DTV. As part of this transaction, we
agreed to pay net losses under the NFL SUNDAY TICKET contract up to
a cap of $2,500 over the remaining period of the contract.
The transaction is expected to close in the second half of 2021,
pending customary closing conditions. The total of $7,600 of
proceeds from the transaction are expected to reduce our total and
net debt positions.
In the first quarter of 2021, we expect to apply held-for-sale
accounting treatment to the assets and liabilities of the U.S.
video business, and accordingly will include the assets in "Other
current assets," and the related liabilities in "Accounts payable
and accrued liabilities," on our consolidated balance sheet at
March 31, 2021. The carrying amounts at December 31, 2020 of these
assets and liabilities were approximately $16,150 and $4,900,
respectively.
Spectrum Auction On February 24, 2021, the FCC announced that
AT&T was the winning bidder for 1,621 C-Band licenses,
comprised of a total of 80 MHz nationwide, including 40 MHz in
Phase I. We must provide to the FCC an initial down payment of
$4,681 on March 10, 2021, of which $550 was paid as an upfront
payment prior to the start of the auction, and to pay a remaining
$18,725 on or before March 24, 2021. We estimate that AT&T will
be responsible for $955 of Incentive Payments upon clearing of
Phase I spectrum and $2,112 upon clearing of Phase II spectrum.
Additionally, we will be responsible for a portion of compensable
relocation costs over the next several years as the spectrum is
being cleared. Satellite operators have provided the FCC with
relocation cost estimates totaling $3,400. AT&T intends to fund
the purchase price using a combination of cash and short-term
investments, funds from operations and either short-term or
long-term debt, depending upon market conditions.
126
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, 2020. 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, 2020.
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. Due to the COVID-19
pandemic, most of our corporate employees are working remotely. We
continue to monitor and assess the impact of the COVID-19 situation
on our internal control over financial reporting to address any
potential impact on its design and operating effectiveness.
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, 2020. 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, 2020, 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 2020 but was not
reported.
127
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 2021 definitive
proxy statement (Proxy Statement) under the heading "Management
Proposal Item No. 1. Election of Directors."
Information required by Item 405 of Regulation S-K is
incorporated herein by reference pursuant to General Instruction
G(3) from the registrant's Proxy Statement under the heading
"Delinquent Section 16(a) Reports."
The registrant has a separately-designated standing audit
committee established in accordance with Section 3(a)(58)(A) of the
Securities Exchange Act of 1934. The members of the committee are
Messrs. Di Piazza, Jr., Luczo and McCallister, and Ms. Taylor. The
additional information required by Item 407(d)(5) of Regulation S-K
is incorporated herein by reference pursuant to General Instruction
G(3) from the registrant's Proxy Statement under the heading "Audit
Committee."
The registrant has adopted a code of ethics entitled "Code of
Ethics" that applies to the registrant's principal executive
officer, principal financial officer, principal accounting officer,
or controller or persons performing similar functions. The
additional information required by Item 406 of Regulation S-K is
provided in this report under the heading "General" under Part I,
Item 1. Business.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this Item is incorporated herein by
reference pursuant to General Instruction G(3) from the
registrant's Proxy Statement under the headings "Director
Compensation," "CEO Pay Ratio," and the pages beginning with the
heading "Compensation Discussion and Analysis" and ending with, and
including, the pages under the heading "Potential Payments upon
Change in Control."
Information required by Item 407(e)(5) of Regulation S-K is
included in the registrant's Proxy Statement under the heading
"Compensation Committee Report" and is incorporated herein by
reference pursuant to General Instruction G(3) and shall be deemed
furnished in this Annual Report on Form 10-K and will not be deemed
incorporated by reference into any filing under the Securities Act
of 1933 or the Securities Exchange Act of 1934.
128
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,
2020, concerning shares of AT&T common stock authorized for
issuance under AT&T's existing equity compensation plans.
Equity Compensation Plan Information
Number of securities
remaining available
Number of securities Weighted average for future issuance
to be issued upon exercise price under equity compensation
exercise of of outstanding plans (excluding securities
outstanding options, options, warrants reflected in column
warrants and rights and rights (a))
Plan Category (a) (b) (c)
Equity compensation plans
approved by security holders 62,588,998 (1) $ 29.14 163,041,595 (2)
Equity compensation plans
not approved by security
holders - - -
Total 62,588,998 (3) $ 29.14 163,041,595 (2)
(1) Includes the issuance of stock in connection with the
following stockholder approved plans: (a) 673,612 stock options
under the Stock Purchase and Deferral Plan (SPDP), (b) 507,631
phantom stock units under the Stock Savings Plan (SSP), 13,777,944
phantom stock units under the SPDP, 1,670,691 restricted stock
units under the 2011 Incentive Plan, 1,559,312 restricted stock
units under the 2016 Incentive Plan and 2,467,052 restricted stock
units under the 2018 Incentive Plan, (c) 0 target number of
stock-settled performance shares under the 2011 Incentive Plan,
20,370,670 target number of stock-settled performance shares under
the 2016 Incentive Plan, and 18,470,269 target number of
stock-settled performance shares under the 2018 Incentive Plan. At
payout, the target number of performance shares may be reduced to
zero or increased by up to 150%. Each phantom stock unit and
performance share is settleable in stock on a 1-to-1 basis. The
weighted-average exercise price in the table does not include
outstanding performance shares or phantom stock units.
The SSP was approved by stockholders in 1994 and then was
amended by the Board of Directors in 2000 to increase the number of
shares available for purchase under the plan (including shares from
the Company match and reinvested dividend equivalents). Stockholder
approval was not required for the amendment. To the extent
applicable, the amount shown for approved plans in column (a), in
addition to the above amounts, includes 3,091,816 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 31,596,279 shares that may be issued under the
SPDP, 128,769,042 shares that may be issued under the 2018
Incentive Plan, and up to 2,676,274 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, 2020, there were 5,398,646
shares of AT&T common stock subject to the converted options,
having a weighted-average exercise price of $18.16. Also, does not
include 1,437,871 outstanding phantom stock units that were issued
by companies acquired by AT&T that are convertible into stock
on a 1-to-1 basis, along with an estimated 111,160 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.
129
AT&T Inc.
Dollars in millions except per share amounts
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENCE
Information required by Item 404 of Regulation S-K is included
in the registrant's Proxy Statement under the heading "Related
Person Transactions," which is incorporated herein by reference
pursuant to General Instruction G(3). Information required by Item
407(a) of Regulation S-K is included in the registrant's Proxy
Statement under the heading "Director Independence," which is
incorporated herein by reference pursuant to General Instruction
G(3).
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information required by this Item is included in the
registrant's Proxy Statement under the heading "Principal
Accountant Fees and Services," which is incorporated herein by
reference pursuant to General Instruction G(3).
Part IV
ITEM 15. EXHIBITS and FINANCIAL STATEMENT SCHEDULES
(a)Documents filed as a part of the report:
Page
(1) Report of Independent Registered Public Accounting Firm 62
Financial Statements covered by Report of Independent Registered
Public Accounting Firm:
Consolidated Statements of Income 66
Consolidated Statements of Comprehensive Income 67
Consolidated Balance Sheets 68
Consolidated Statements of Cash Flows 69
Consolidated Statements of Changes in Stockholders' Equity 70
Notes to Consolidated Financial Statements 72
(2) Financial Statement Schedules:
II - Valuation and Qualifying Accounts 134
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.
(3) Exhibits:
Exhibits identified in parentheses below, on file with the SEC, are incorporated
herein by reference as exhibits hereto. Unless otherwise indicated, all exhibits
so incorporated are from File No. 1-8610.
Exhibit Number
3-a Restated Certificate of Incorporation, filed with the Secretary
of State of Delaware on December 13, 2013 ( Exhibit 3.1 to Form
8-K filed on December 16, 2013 )
3-b Bylaws ( Exhibit 3 .1 to Form 8-K filed on Ju ne 26 , 20 20
)
3-c Certificate of Designations with respect to Series A Preferred
Stock ( Exhibit 3.1 to Form 8-K filed on December 12, 2019 )
3-d Certificate of Designations with respect to Series B Preferred
Stock ( Exhibit 3.1 to Form 8-K filed on February 18, 2020 )
3-e Certificate of Designations with respect to Series C Preferred
Stock ( Exhibit 3. 2 to Form 8-K filed on February 18, 2020
)
4-a No instrument which defines the rights of holders of long-term
debt of the registrant and all of its consolidated subsidiaries
is filed herewith pursuant to Regulation S-K, Item 601(b)(4)(iii)(A),
except for the instruments referred to in 4-b, 4-c, 4-d, 4-e,
4-f below. Pursuant to this regulation, the registrant hereby
agrees to furnish a copy of any such instrument not filed herewith
to the SEC upon request.
4-b Guaranty of certain obligations of Pacific Bell Telephone Co.
and Southwestern Bell Telephone Co. ( Exhibit 4-c to Form 10-K
for the period ending December 31, 2011 )
130
AT&T Inc.
Dollars in millions except per share amounts
4-c Guaranty of certain obligations of Ameritech Capital Funding Corp.,
Indiana Bell Telephone Co. Inc., Michigan Bell Telephone Co.,
Pacific Bell Telephone Co., Southwestern Bell Telephone Company,
Illinois Bell Telephone Company, The Ohio Bell Telephone Company,
The Southern New England Telephone Company, Southern New England
Telecommunications Corporation, and Wisconsin Bell, Inc. ( Exhibit
4-d to Form 10-K for the period ending December 31, 2011 )
4-d Guarantee of certain obligations of AT&T Corp. ( Exhibit 4-e to
Form 10-K for the period ending December 31, 2011 )
4-e Indenture, dated as of May 15, 2013, between AT&T Inc. and The
Bank of New York Mellon Trust Company, N.A., as Trustee ( Exhibit
4.1 to Form 8-K filed on May 15, 2013 )
4-f Indenture dated as of November 1, 1994 between SBC Communications
Inc. and The Bank of New York, as Trustee ( Exhibit 4-h to Form
10-K for the period ending December 31, 2013 )
4-g Deposit Agreement, dated December 12, 2019, among the AT&T Inc.,
Computershare Inc. and Computershare Trust Company, N.A., collectively,
as depositary, and the holders from time to time of the depository
receipts described therein ( Exhibit 4.3 to Form 8-K filed December
12, 2019 )
4-h Deposit Agreement, dated February 18, 2020, among the Company,
Computershare Inc. and Computershare Trust Company, N.A., collectively,
as depositary, and the holders from time to time of the depositary
receipts described therein ( Exhibit 4.3 to Fo rm 8-K filed F
ebruary 18, 2020 )
4-i Description of AT&T's Securities Registered Under Section 12
of the Exchange Act
10-a 2018 Incentive Plan (Exhibit 10-a to Form 10-K for the period
ending December 31, 2017 ) *
10-b 2016 Incentive Plan ( Exhibit 10-a to Form 10-Q for the period
ending March 31, 2016 ) *
10-b(i) Resolution Regarding John Stankey ( Exhibit
10-b to Form
10-Q for the period ending September 30,
2017 )*
10-b(ii) Resolution Regarding John Stephens ( Exhibit
10-c to
Form 10-Q for the period ending September
30, 2017 )*
10-c 2011 Incentive Plan ( Exhibit 10-a to Form 10-Q for the period
ending September 30, 201 5 )*
10-d Short Term Incentive Plan ( Exhibit 10.1 to Form 8-K filed on
February 2, 2018 )*
10-e Supplemental Life Insurance Plan ( Exhibit 10 .1 to Form 8-K filed
o n June 26, 2020 )*
10-f Supplemental Retirement Income Plan ( Exhibit 10-e to Form 10-K
for the period ending December 31, 2013 )*
10-g 2005 Supplemental Employee Retirement Plan ( Exhibit 10-g to Form
10-K for the period ending December 31, 2019 )*
10-h Salary and Incentive Award Deferral Plan ( Exhibit 10-k to Form
10-K for the period ending December 31, 2011 )*
10-i Stock Savings Plan ( Exhibit 10-l to Form 10-K for the period
ending December 31, 2011 )*
10-j Stock Purchase and Deferral Plan effective January 1, 2020 ( Exhibit
10-j(i) to Form 10-K for the period ending December 31, 2019 )*
10-k Cash Deferral Plan effective January 1, 2020 ( Exhibit 10-k(i)
to Form 10-K for the period ending December 31, 2019 )*
10-l Master Trust Agreement for AT&T Inc. Deferred Compensation Plans
and Other Executive Benefit Plans and subsequent amendments dated
August 1, 1995 and November 1, 1999 ( Exhibit 10-dd to Form 10-K
for the period ending December 31, 2009 )*
10-m Officer Disability Plan ( Exhibit 10-i to Form 10-Q for the period
ending June 30, 2009 )*
10-n AT&T Inc. Health Plan (Exhibit 10. 3 to Form 10-Q for the p eriod
ending Septem ber 30, 2020) *
10-o Pension Benefit Makeup Plan No.1 ( Exhibit 10-n to Form 10-K for
the period ending December 31, 2016 )*
10-p AT&T Inc. Equity Retention and Hedging Policy ( Exhibit 10.2 to
Form 8-K filed on December 16, 2011 )
10-q Administrative Plan (Exhibit 10-q to Form 10-K for the period
ending December 31, 2019 *
10-r AT&T Inc. Non-Employee Director Stock and Deferral Plan ( Exhibit
10-r to Form 10-K for the period ending December 31, 2018 )*
10-s AT&T Inc. Non-Employee Director Stock Purchase Plan ( Exhibit
10-t to Form 10-K for the period ending December 31, 2013 )*
10-t AT&T Inc. Board of Directors Communications Concession Program
( Exhibit 10-aa to Form 10-K for the period ending December 31,
2012 )
131
AT&T Inc.
Dollars in millions except per share amounts
10-u Form of Indemnity Agreement, effective July 1, 1986, between
Southwestern Bell Corporation (now AT&T Inc.) and its directors
and officers. ( Exhibit 10-bb to Form 10-K for the period ending
December 31, 2011 )*
10-v AT&T Executive Physical Program ( Exhibit 10-ff to Form 10-K
for the period ending December 31, 2016 )*
10-w Attorney Fee Payment Agreement for John Stankey ( Exhibit 10.1
to Form 8-K filed on July 3, 2018 )*
10-x Agreement between Jason Kilar and WarnerMedia LLC (Exhibit 10.2
to Form 10-Q for the period ending June 30, 2020) *
10-y $7,500,000,000 Amended and Restated Credit Agreement, dated as
of November 17, 2020, among AT&T Inc., certain lenders named
therein and Citibank, N.A., as agent. ( Exhibit 10.1 to Form
8-K filed on November 18 , 20 20 )
10-z $7,500,000,000 Five Year Credit Agreement, dated as of December
11, 2018, among AT&T Inc., certain lenders named therein and
Citibank, N.A., as agent ( Exhibit 10.2 to Form 8-K filed on
December 13, 2018 )
10-aa Amendment No. 1 to the $7,500,000,000 Five Year Credit
Agreement,
dated December 11, 2018, among AT&T, certain lenders named
therein
and Citibank, N.A., as agent. ( Exhibit 10.2 to Form 8-K filed
on November 18, 2020 )
10-bb Amended and Restated Contribution Agreement ( Exhibit 10-ee to
Form 10-K for the period ending December 31, 2018 )
10-cc Fifth Amended and Restated Limited Liability Company Agreement
of Mobility II LLC ( Exhibit 10- 1 to Form 10- Q for the period
ending September 30, 2020 )
10-dd First Amendment to the Fourth Amended and Restated Limited
Liability
Company Agreement of Mobility II LLC ( Exhibit 10-gg to Form
10-K for the period ending December 31, 2018 )
10-ee Second Amendment to the Fourth Amended and Restated Limited
Liability
Company Agreement of Mobility II LLC ( Exhibit 10-hh to Form
10-K for the period ending December 31, 2018 )
10-ff Amended and Restated Registration Rights Agreement by and among
AT&T Inc. and The SBC Master Pension Trust and Brock Fiduciary
Services LLC ( Exhibit 10-ii to Form 10-K for the period ending
December 31, 2018 )
10-gg First Amendment to Amended and Restated Registration Rights
Agreement
by and among AT&T Inc. and The SBC Master Pension Trust and
Brock
Fiduciary Services LLC ( Exhibit 10.2 to Form 10-Q for the
period
ending September 30, 2020 )
10-hh Second Amended and Restated Limited Liability Company Agreement
of NCWPCS MPL Holdings, LLC ( Exhibit 10.1 to Form 8-K filed
on December 12, 2019 )
10-ii AT&T Inc. Change in Control Severance Plan (Exhibit 10.1 to
Form 8-K filed on June 30, 2014)*
10-jj Agreement of Contribution and Subscription, dated February 25,
2021 (Exhibit 10.1 to Form 8-K filed on February 2 5 , 2021)
21 Subsidiaries of AT&T Inc.
23 Consent of Ernst & Young LLP
24 Powers of Attorney
31 Rule 13a-14(a)/15d-14(a) Certifications
31.1 Certification of Principal Executive Officer
31.2 Certification of Principal Financial Officer
32 Section 1350 Certification
99 Supplemental Interim Financial Information
101 The consolidated financial statements from the Company's Form
10-K for the year ended December 31, 2020, as filed with the
SEC on February 25, 2021, formatted in Inline XBRL: (i)
Consolidated
Statements of Cash Flows, (ii) Consolidated Statements of
Operations,
(iii) Consolidated Statements of Comprehensive Income, (iv)
Consolidated
Balance Sheets, and (v) Notes to Consolidated Financial
Statements,
tagged as blocks of text and including detailed tags.
104 Cover Page Interactive Data File (formatted as Inline XBRL and
contained in Exhibit 101)
*Management contracts and compensatory plans and arrangements
required to be filed as exhibits pursuant to Item 15(b) of this
report.
132
AT&T Inc.
Dollars in millions except per share amounts
We will furnish to stockholders upon request, and without
charge, a copy of the Annual Report to Stockholders and the Proxy
Statement, portions of which are incorporated by reference in the
Form 10-K. We will furnish any other exhibit at cost.
ITEM 16. FORM 10-K SUMMARY
None.
133
AT&T Inc.
Dollars in millions except per share amounts
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Allowance for Credit Loss
COL. A COL. B COL. C COL. D COL. E
Additions
(1) (2) (3)
Charged to Balance at
Balance at Costs and Charged to End
Beginning Expenses Other Acquisitions Deductions of Period
of Period (a) Accounts (b) (c) (d) (e)
Year 2020 $ 1,235 1,972 405 - 2,023 $ 1,589
Year 2019 $ 907 2,575 - - 2,247 $ 1,235
Year 2018 $ 663 1,791 - 179 1,726 $ 907
(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)Acquisition of Time Warner in 2018.
(d)Amounts written off as uncollectible, or related to divested
entities.
(e)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 Charged to Charged to Balance at
Beginning Costs and Other Acquisitions Deductions End
of Period Expenses Accounts (a) (b) (c) of Period
Year 2020 $ 4,941 (168) - - - $ 4,773
Year 2019 $ 4,588 (18) 371 - - $ 4,941
Year 2018 $ 4,640 (210) (53) 211 - $ 4,588
(a) Includes current year reclassifications from other balance
sheet accounts.
(b)Acquisition of Time Warner in 2018.
(c)Reductions to valuation allowances related to deferred tax
assets.
134
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 25th day of February, 2021.
AT&T INC.
/s/ John J. Stephens
John J. Stephens
Senior Executive Vice
President
and Chief Financial
Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the date
indicated.
Principal Executive Officer:
John T. Stankey*
Chief Executive Officer
and President
Principal Financial and Accounting Officer:
John J. Stephens
Senior Executive Vice President
and Chief Financial Officer
/s/ John J. Stephens
John J. Stephens, as attorney-in-fact
and on his own behalf
as Principal
Financial Officer and
Principal
Accounting Officer
February 25, 2021
Directors:
John T. Stankey* Stephen J. Luczo*
Samuel A. Di Piazza, Jr.* Michael B. McCallister*
Richard W. Fisher* Beth E. Mooney*
Scott T. Ford* Matthew K. Rose*
Glenn H. Hutchins* Cynthia B. Taylor*
William E. Kennard* Geoffrey Y. Yang*
Debra L. Lee*
* by power of attorney
135
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March 09, 2021 02:00 ET (07:00 GMT)
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