TIDM58KN
RNS Number : 3370W
AT & T Inc.
14 April 2023
FORM 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to
Commission File Number: 001-8610
AT&T INC.
Incorporated under the laws of the State of Delaware
I.R.S. Employer Identification Number 43-1301883
208 S. Akard St., Dallas, Texas, 75202
Telephone Number 210-821-4105
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class Trading Symbol(s) on which registered
Common Shares (Par Value $1.00 Per Share) T New York Stock Exchange
Depositary Shares, each representing a 1/1000th
interest in a share of
5.000% Perpetual Preferred Stock, Series
A T PRA New York Stock Exchange
Depositary Shares, each representing a 1/1000th
interest in a share of
4.750% Perpetual Preferred Stock, Series
C T PRC New York Stock Exchange
AT&T Inc. 2.500% Global Notes due March 15,
2023 T 23 New York Stock Exchange
AT&T Inc. 2.750% Global Notes due May 19,
2023 T 23C New York Stock Exchange
AT&T Inc. Floating Rate Global Notes due
September 5, 2023 T 23D New York Stock Exchange
AT&T Inc. 1.050% Global Notes due September
5, 2023 T 23E New York Stock Exchange
AT&T Inc. 1.300% Global Notes due September
5, 2023 T 23A New York Stock Exchange
AT&T Inc. 1.950% Global Notes due September
15, 2023 T 23F New York Stock Exchange
AT&T Inc. 2.400% Global Notes due March 15,
2024 T 24A New York Stock Exchange
AT&T Inc. 3.500% Global Notes due December
17, 2025 T 25 New York Stock Exchange
AT&T Inc. 0.250% Global Notes due March 4,
2026 T 26E New York Stock Exchange
Name of each exchange
Title of each class Trading Symbol(s) on which registered
AT&T Inc. 1.800% Global Notes due September
5, 2026 T 26D New York Stock Exchange
AT&T Inc. 2.900% Global Notes due December
4, 2026 T 26A New York Stock Exchange
AT&T Inc. 1.600% Global Notes due May 19,
2028 T 28C New York Stock Exchange
AT&T Inc. 2.350% Global Notes due September
5, 2029 T 29D New York Stock Exchange
AT&T Inc. 4.375% Global Notes due September
14, 2029 T 29B New York Stock Exchange
AT&T Inc. 2.600% Global Notes due December
17, 2029 T 29A New York Stock Exchange
AT&T Inc. 0.800% Global Notes due March
4, 2030 T 30B New York Stock Exchange
AT&T Inc. 2.050% Global Notes due May 19,
2032 T 32A New York Stock Exchange
AT&T Inc. 3.550% Global Notes due December
17, 2032 T 32 New York Stock Exchange
AT&T Inc. 5.200% Global Notes due November
18, 2033 T 33 New York Stock Exchange
AT&T Inc. 3.375% Global Notes due March
15, 2034 T 34 New York Stock Exchange
AT&T Inc. 2.450% Global Notes due March
15, 2035 T 35 New York Stock Exchange
AT&T Inc. 3.150% Global Notes due September
4, 2036 T 36A New York Stock Exchange
AT&T Inc. 2.600% Global Notes due May 19,
2038 T 38C New York Stock Exchange
AT&T Inc. 1.800% Global Notes due September
14, 2039 T 39B New York Stock Exchange
AT&T Inc. 7.000% Global Notes due April
30, 2040 T 40 New York Stock Exchange
AT&T Inc. 4.250% Global Notes due June 1,
2043 T 43 New York Stock Exchange
AT&T Inc. 4.875% Global Notes due June 1,
2044 T 44 New York Stock Exchange
AT&T Inc. 4.000% Global Notes due June 1,
2049 T 49A New York Stock Exchange
AT&T Inc. 4.250% Global Notes due March
1, 2050 T 50 New York Stock Exchange
AT&T Inc. 3.750% Global Notes due September
1, 2050 T50A New York Stock Exchange
AT&T Inc. 5.350% Global Notes due November
1, 2066 TBB New York Stock Exchange
AT&T Inc. 5.625% Global Notes due August
1, 2067 TBC New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None.
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes No
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the Act. Yes
No
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted
electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T during the preceding 12
months (or for such shorter period that the registrant was required
to submit such files). Yes No
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, a
smaller reporting company, or an emerging growth company. See
definition of "large accelerated filer," "accelerated filer,"
"smaller reporting company," and "emerging growth company" in Rule
12b-2 of the Exchange Act.
Large Accelerated Filer Accelerated Filer
Non-accelerated filer Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange
Act.
Indicate by check mark whether the registrant has filed a report
on and attestation to its management's assessment of the
effectiveness of its internal control over financial reporting
under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b))
by the registered public accounting firm that prepared or issued
its audit report.
If securities are registered pursuant to Section 12(b) of the
Act, indicate by check mark whether the financial statements of the
registrant included in the filing reflect the correction of an
error to previously issued financial statements.
Indicate by check mark whether any of those error corrections
are restatements that required a recovery analysis of
incentive-based compensation received by any of the registrant's
executive officers during the relevant recovery period pursuant to
--240.10D-1(b).
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act).
Yes No
Based on the closing price of $20.96 per share on June 30, 2022,
the aggregate market value of our voting and non-voting common
stock held by non-affiliates was $149 billion.
At February 8, 2023, common shares outstanding were
7,129,870,323.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of AT&T Inc.'s Notice of 2022 Annual Meeting
and Proxy Statement dated on or about April 3, 2023 to be filed
within the period permitted under General Instruction G(3) (Part
III).
TABLE OF CONTENTS
Item Page
PART I
1. Business 1
1A. Risk Factors 8
2. Properties 15
3. Legal Proceedings 15
4. Mine Safety Disclosures 15
Information about our Executive Officers 16
PART II
Market for Registrant's Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity
5. Securities 17
6. Item 6. [Reserved] 18
Management's Discussion and Analysis of Financial Condition and
7. Results of Operations 18
7A. Quantitative and Qualitative Disclosures about Market Risk 38
8. Financial Statements and Supplementary Data 43
Changes in and Disagreements with Accountants on Accounting and
9. Financial Disclosure 98
9A. Controls and Procedures 98
9B. Other Information 98
PART III
10. Directors, Executive Officers and Corporate Governance 99
11. Executive Compensation 99
Security Ownership of Certain Beneficial Owners and Management
12. and Related Stockholder Matters 100
13. Certain Relationships and Related Transactions, and Director Independence 101
14. Principal Accountant Fees and Services 101
PART IV
15. Exhibits and Financial Statement Schedules 101
16. Form 10-K Summary 104
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------------------
PART I
ITEM 1. BUSINESS
GENERAL
AT&T Inc. ("AT&T," "we" or the "Company") is a holding
company incorporated under the laws of the State of Delaware in
1983 and has its principal executive offices at 208 S. Akard St.,
Dallas, Texas, 75202 (telephone number 210-821-4105). We maintain
an internet website at www.att.com. (This website address is for
information only and is not intended to be an active link or to
incorporate any website information into this document.) We file
electronically with the Securities and Exchange Commission (SEC)
required reports on Form 8-K, Form 10-Q and Form 10-K; proxy
materials; registration statements on Forms S-3 and S-8, as
necessary; and other forms or reports as required. The SEC
maintains a website (www.sec.gov) that contains reports, proxy and
information statements, and other information regarding issuers
that file electronically with the SEC. We make available, free of
charge, on our website our annual report on Form 10-K, our
quarterly reports on Form 10-Q, current reports on Form 8-K and all
amendments to those reports as soon as reasonably practicable after
such reports are electronically filed with, or furnished to, the
SEC. We also make available on that website, and in print, if any
stockholder or other person so requests, our "Code of Ethics"
applicable to all employees and Directors, our "Corporate
Governance Guidelines," and the charters for all committees of our
Board of Directors, including Audit, Human Resources and Corporate
Governance and Nominating. Any changes to our Code of Ethics or
waiver of our Code of Ethics for senior financial officers,
executive officers or Directors will be posted on that website.
A reference to a "Note" refers to the Notes to Consolidated
Financial Statements in Item 8.
History
AT&T, formerly known as SBC Communications Inc. (SBC), was
formed as one of several regional holding companies created to hold
AT&T Corp.'s (ATTC) local telephone companies. On January 1,
1984, we were spun-off from ATTC pursuant to an anti-trust consent
decree, becoming an independent publicly traded telecommunications
services provider.
Following our formation, we expanded our communications
footprint and operations and invested in entertainment businesses,
most significantly:
--Our subsidiaries merged with incumbent local exchange carriers
(ILEC) Pacific Telesis Group in 1997 and Ameritech Corporation in
1999.
--In 2005, we merged one of our subsidiaries with ATTC, creating
one of the world's leading telecommunications providers. In
connection with the merger, we changed the name of our company from
"SBC Communications Inc." to "AT&T Inc."
--In 2006, we acquired ILEC BellSouth Corporation (BellSouth),
which included BellSouth's 40 percent economic interest in AT&T
Mobility LLC (AT&T Mobility), formerly Cingular Wireless LLC,
resulting in 100 percent ownership of AT&T Mobility.
--In 2014, we completed the acquisition of wireless provider
Leap Wireless International, Inc.
--In 2015, we acquired wireless properties in Mexico and
acquired DIRECTV, a leading provider of digital television
entertainment services in both the United States (included in our
Video business) and Latin America (referred to as Vrio).
-- From 2018 through April 2022, we acquired and held various
investments in entertainment businesses, namely Time Warner Inc.,
which comprised a substantial portion of our WarnerMedia
segment.
--In July 2021, we closed our transaction with TPG Capital (TPG)
to form a new company named DIRECTV Entertainment Holdings, LLC
(DIRECTV). With the close of the transaction (DIRECTV Transaction),
we separated our Video business, comprised of our U.S. video
operations, and began accounting for our investment in DIRECTV
under the equity method.
--In April 2022, we completed the separation of our WarnerMedia
business in a Reverse Morris Trust transaction
(WarnerMedia/Discovery Transaction). Upon its separation and
distribution, the WarnerMedia business met the criteria for
discontinued operations, as did other dispositions that were part
of a single plan, including Vrio, Xandr and Playdemic Ltd.
(Playdemic). These businesses are reflected in our historical
financial statements as discontinued operations, including for
periods prior to the consummation of the WarnerMedia
separation.
1
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------------------
General
We are a leading provider of telecommunications and technology
services globally. The services and products that we offer vary by
market and utilize various technology platforms in a range of
geographies. Our reportable segments are organized as follows:
The Communications segment provides wireless and wireline
telecom and broadband services to consumers located in the U.S. and
businesses globally. Our business strategies reflect bundled
product offerings that cut across product lines and utilize shared
assets. This segment contains the following business units:
--Mobility provides nationwide wireless service and
equipment.
--Business Wireline provides advanced ethernet-based fiber
services, IP Voice and managed professional services, as well as
traditional voice and data services and related equipment to
business customers.
--Consumer Wireline provides broadband services, including fiber
connections that provide our multi-gig services to residential
customers in select locations. Consumer Wireline also provides
legacy telephony voice communication services.
The Latin America segment provides wireless services and
equipment in Mexico.
Corporate and Other reconciles our segment results to
consolidated operating income and income before income taxes.
Corporate includes:
--DTV-related retained costs , which are costs previously
allocated to the Video business that were retained after the
transaction, net of reimbursements from DIRECTV under transition
service agreements.
--Parent administration support, which includes costs borne by
AT&T where the business units do not influence decision
making.
--Securitization fees associated with our sales of receivables
(see Note 17).
--Value portfolio, which are businesses no longer integral to
our operations or which we no longer actively market.
Other items consist of:
--Video, which includes our former U.S. video operations that
were contributed to DIRECTV on July 31, 2021, and our share of
DIRECTV's earnings as equity in net income of affiliates (see Note
19).
--Held-for-sale and other reclassifications, which includes our
former Crunchyroll, Government Solutions and wireless and wireline
operations in Puerto Rico and the U.S. Virgin Islands.
--Reclassification of prior service credits, which includes the
reclassification of prior service credit amortization, where we
present the impact of benefit plan amendments in our business unit
results. Prior service credit amortization is presented in "Other
income (expense) - net" in the consolidated statements of income
and therefore has no impact on consolidated operating income or
EBITDA (EBITDA is defined as operating income excluding
depreciation and amortization).
--Certain significant items, which includes items associated
with the merger and integration of acquired or divested businesses,
including amortization of intangible assets, employee separation
charges associated with voluntary and/or strategic offers, asset
impairments and abandonments and restructuring, and other items for
which the segments are not being evaluated.
--Eliminations and consolidations , which removes transactions
involving dealings between Mobility and our Video business, prior
to the July 31, 2021 separation of Video.
Areas of Focus
We are a leader in providing connectivity services through our
market focus areas of 5G and fiber. Fiber underpins the
connectivity we deliver, both wired and wireless. Building on that
fiber foundation is our solid spectrum portfolio, strengthened
through recent years' Federal Communications Commission (FCC)
auction acquisitions and 5G deployment. We believe our hybrid fixed
wireline and mobile approach will differentiate our services and
provide us with additional growth opportunities in the future as
bandwidth demands continue to grow. We will continue to demonstrate
our commitment to ensure management attention is sharply focused on
growth areas and operational efficiencies.
Communications
Our integrated telecommunications network utilizes different
technological platforms to provide instant connectivity at the
higher speeds made possible by our fiber network expansion and
wireless network enhancements. Streaming, augmented reality,
"smart" technologies and user generated content are expected to
continue to drive greater demand for broadband and capitalize on
our fiber and 5G deployments. During 2023, we will continue to
develop and provide high-value, integrated mobile and broadband
solutions.
Wireless Service We continue to experience rapid growth in data
usage as consumers are demanding seamless access across their
wireless and wired devices, and businesses and municipalities are
connecting more and more equipment and facilities to the internet.
The deployment of 5G, which allows for faster connectivity, lower
latency and greater bandwidth, requires modifications of existing
cell sites to add equipment supporting new frequencies, like the
C-Band and the 3.45 GHz band. Our
2
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------------------
5G service went nationwide in July 2020, and with that
availability, the introduction of 5G handsets and devices has
contributed to a renewed interest in equipment upgrades. The
increased speeds and network operating efficiency expected with 5G
technology should enable massive deployment of devices connected to
the internet as well as faster delivery of data services. In
January 2022, we began to deploy our C-band spectrum, subject to
certain voluntary limitations.
In North America, our network covers over 441 million people
with 4G LTE and over 285 million with 5G technology. In the United
States, our network covers all major metropolitan areas and more
than 337 million people with our LTE technology and more than 285
million people with our 5G technology.
As the wireless industry has matured, future wireless growth
will increasingly depend on our ability to offer innovative data
services on a wireless network that has sufficient spectrum and
capacity to support these innovations. We expect to continue to
invest significant capital in expanding our network capacity, as
well as obtaining additional spectrum that meets our long-term
needs. We participate in FCC spectrum auctions and have been
redeploying spectrum previously used for more basic services to
support more advanced mobile internet services.
Broadband Technology In 2020, we identified fiber as a core
priority for our business and enhanced our focus to expand our
fiber footprint and grow customers. At December 31, 2022, we had
more than 7 million fiber consumer wireline broadband customers,
adding more than 1.2 million during the year. The expansion builds
on our recent investments to convert to a software-based network,
managing the migration of wireline customers to services using our
fiber infrastructure to provide broadband technology.
Software-based technologies align with our global leadership in
software defined network (SDN) and network function virtualization
(NFV). This network approach delivers a demonstrable cost advantage
in the deployment of next-generation technology over the
traditional, hardware-intensive network approach. Our virtualized
network supports next-generation applications like 5G and
broadband-based services quickly and efficiently.
Latin America
We believe that the wireless model in the U.S., with
accelerating demand for mobile internet service and the associated
economic benefits, will be repeated around the world as companies
invest in high-speed mobile networks. We acquired Mexican wireless
operations in 2015 to establish a seamless, cross-border North
American wireless network which now covers an area with over 441
million people and businesses in the United States and Mexico. With
the increased capacity from our LTE network, we also expect
additional wholesale revenue in the coming years. Our 4G LTE
network in Mexico now covers approximately 104 million people and
businesses.
BUSINESS OPERATIONS
OPERATING SEGMENTS
Our segments are strategic business units that offer different
products and services over various technology platforms and/or in
different geographies that are managed accordingly. We have two
reportable segments: Communications and Latin America.
Additional information about our segments, including financial
information, is included under the heading "Segment Results" in
Item 7. and in Note 4 of Item 8.
COMMUNICATIONS
Our Communications segment provides wireless and wireline
telecom and broadband services to consumers located in the U.S. and
businesses globally. Our Communications services and products are
marketed under the AT&T, Cricket, AT&T PREPAID SM and
AT&T Fiber brand names. The Communications segment provided
approximately 97% of 2022 segment operating revenues and accounted
for all of our 2022 total segment income. This segment contains the
Mobility, Business Wireline and Consumer Wireline business
units.
Mobility - Our Mobility business unit provides nationwide
wireless services to consumers and wholesale and resale wireless
subscribers located in the United States by utilizing our network
to provide voice and data services, including high-speed internet
over wireless devices. We classify our subscribers as either
postpaid, prepaid, connected device or reseller. As of December 31,
2022, we served 217 million Mobility subscribers, including 85
million postpaid (70 million phone), 19 million prepaid, 6 million
reseller and 107 million connected devices. Our Mobility business
unit revenue includes the following categories: service and
equipment.
Services
We offer a comprehensive range of high-quality nationwide
wireless voice and data communications services in a variety of
pricing plans to meet the communications needs of targeted customer
categories. Through FirstNet services, we also provide a nationwide
wireless broadband network dedicated to public safety.
3
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------------------
Consumers continue to require increasing availability of
data-centric services and a network to connect and control those
devices. An increasing number of our subscribers are using more
advanced integrated and data-centric devices, including embedded
computing systems and/or software, commonly called the Internet of
Things (IoT). We offer plans that include unlimited features
allowing for the sharing of voice, text and data across multiple
devices, which attracts subscribers from other providers and helps
minimize subscriber churn. Customers in our "connected device"
category (e.g., users of monitoring devices and automobile systems)
generally purchase those devices from third-party suppliers that
buy data access supported by our network. We continue to upgrade
our network and coordinate with equipment manufacturers and
application developers to further capitalize on the continued
growing demand for wireless data services.
We also offer nationwide wireless voice and data communications
to certain customers who prefer to pay in advance. These services
are offered under the Cricket and AT&T PREPAID brands and are
typically monthly prepaid services.
Equipment
We sell a wide variety of handsets, wireless data cards and
wireless computing devices manufactured by various suppliers for
use with our voice and data services. We also sell accessories,
such as carrying cases and hands-free devices. We sell through our
own company-owned stores, agents and third-party retail stores. We
provide our customers the ability to purchase handsets on an
installment basis and the opportunity to bring their own device.
Subscribers that bring their own devices or retain handsets for
longer periods impact upgrade activity. Like other wireless service
providers, we also provide a limited number of postpaid contract
subscribers substantial equipment subsidies to initiate, renew or
upgrade service.
Business Wireline - Our Business Wireline business unit provides
services to business customers, including multinational
corporations, small and mid-sized businesses, governmental and
wholesale customers. Our Business Wireline business unit revenue
includes the following categories: service and equipment.
Services
We offer advanced IP-based services, such as Virtual Private
Networks (VPN), AT&T Dedicated Internet, and Ethernet as well
as traditional data services, cloud solutions, outsourcing and
managed professional services. We provide collaboration services
that utilize our IP infrastructure and allow our customers to
utilize the most advanced technology to improve their productivity.
We also provide state-of-the-art security solutions like threat
management and intrusion detection.
We continue to reconfigure our wireline network to take
advantage of the latest technologies and services, and rely on our
SDN and NFV to enhance business customers' digital agility in a
rapidly evolving environment. Some of the services we have offered
historically are in secular decline and going forward we will focus
on our owned and operated connectivity services powered by 5G and
fiber.
Equipment
Equipment revenues include customer premises equipment.
Consumer Wireline - Our Consumer Wireline business unit provides
broadband services, including fiber connections, and legacy
telephony voice communication services to customers in the United
States by utilizing our IP-based and copper wired network. Our
Consumer Wireline business unit revenue includes the following
categories: broadband, legacy voice and data services and other
service and equipment.
Broadband Services
We provide broadband and internet services to approximately 15
million customer locations, with 7 million fiber broadband
connections at December 31, 2022. With changes in video viewing
preferences and the recent work and learn from home trends, we are
experiencing increasing demand for high-speed broadband services.
Our investment in expanding our industry-leading fiber network
positions us to be a leader in wired connectivity. With our focus
on fiber that brings efficiencies and owner economics, we continue
to evaluate opportunities where we can turn down existing copper
infrastructure.
We believe that our flexible platform with a broadband and
wireless connection is the most efficient way to transport
direct-to-consumer video and data experiences both at home and on
mobile devices. Through this integrated approach, we can optimize
the use of storage in the home as well as in the cloud, while also
providing a seamless service for consumers across screens and
locations.
Legacy Voice and Data Services
Revenues from our traditional voice services continue to decline
as customers switch to wireless or VoIP services provided by us,
cable companies or other internet-based providers.
Other Services and Equipment
Other service revenues include AT&T U-verse voice services
(which use VoIP technology), customer fees and equipment.
4
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------------------
Additional information on our Communications segment is
contained in the "Overview" section of Item 7.
LATIN AMERICA
Our Latin America segment provides wireless services in Mexico.
We utilize our regional and national wireless networks in Mexico to
provide consumer and business customers with wireless data and
voice communication services. We divide our revenue into the
following categories: service and equipment.
Services
We provide postpaid and prepaid wireless services in Mexico to
approximately 22 million subscribers under the AT&T and Unefon
brands. Postpaid services allow for (1) no annual service contract
for subscribers who bring their own device or purchase a device on
installment and (2) service contracts for periods up to 36 months
for subscribers who purchase their equipment under the traditional
device subsidy model. We also offer prepaid services to customers
who prefer to pay in advance.
Equipment
We sell a wide variety of handsets, including smartphones
manufactured by various suppliers for use with our voice and data
services. We sell through our own company-owned stores, agents and
third-party retail stores.
Additional information on our Latin America segment is contained
in the "Overview" section of Item 7.
MAJOR CLASSES OF SERVICE
The following table sets forth the percentage of total
consolidated reported operating revenues by any class of service
that accounted for 10% or more of our consolidated total operating
revenues in any of the last three fiscal years:
Percentage of Total
Consolidated Operating Revenues
2022 2021 2020
------------ ------------
Communications Segment
Wireless service 50 % 43 % 39 %
Business service 18 17 17
Equipment 18 16 12
Latin America Segment
Wireless service 2 1 1
Equipment 1 1 1
Corporate and Other
Video services 1 - 12 20
1 U.S. video operations were separated in July 2021. See Note 6
Additional information on our geographical distribution of
revenues is contained in Note 4 of Item 8.
GOVERNMENT REGULATION
Facilities-based wireless communications providers in the United
States, like AT&T, must be licensed by the FCC to provide
communications services at specified spectrum frequencies within
defined geographic areas and must comply with FCC rules and
policies governing the use of the spectrum. The FCC's rules have a
direct impact on whether the wireless industry has sufficient
spectrum available to support the high-quality, innovative services
our customers demand. Wireless licenses are issued for a fixed time
period, typically 10 to 15 years, and we must seek renewal of these
licenses. While the FCC has generally renewed licenses, the FCC has
authority to both revoke a license for cause and to deny a license
renewal if a renewal is not in the public interest. Additionally,
while wireless communications providers' prices and service
offerings are generally not subject to regulation, the federal
government and various states periodically consider new regulations
and legislation relating to various aspects of wireless
services.
The Communications Act of 1934 and other related laws give the
FCC broad authority to regulate the U.S. operations of our
satellite and interstate telecommunications services. In addition,
our ILEC subsidiaries are subject to regulation by state
governments, which have the power to regulate intrastate rates and
services, including local, long-distance and network access
5
AT&T Inc.
Dollars in millions except per share amounts
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services, provided such state regulation is consistent with
federal law. Some states have eliminated or reduced regulations on
our retail offerings. These subsidiaries are also subject to the
jurisdiction of the FCC with respect to intercarrier compensation,
interconnection, and interstate and international rates and
services, including interstate access charges. Access charges are a
form of intercarrier compensation designed to reimburse our
wireline subsidiaries for the use of their networks by other
carriers.
We continue to support regulatory and legislative measures and
efforts at both the federal and state levels to minimize and/or
moderate regulatory burdens that are no longer appropriate in a
competitive communications market and that inhibit our ability to
compete more effectively and offer services wanted and needed by
our customers, including initiatives to transition services from
traditional networks to all IP-based networks. At the same time, we
also seek to ensure that legacy regulations are not further
extended to broadband or wireless services, which are subject to
vigorous competition.
Our subsidiaries operating outside the United States are subject
to the jurisdiction of national and supranational regulatory
authorities in the market where service is provided.
For a discussion of significant regulatory issues directly
affecting our operations, please see the information contained
under the headings "Operating Environment Overview" and "Regulatory
Developments" of Item 7, which information is incorporated herein
by reference.
IMPORTANCE, DURATION AND EFFECT OF LICENSES
Certain of our subsidiaries own or have licenses to various
patents, copyrights, trademarks and other intellectual property
necessary to conduct business. Many of our subsidiaries also hold
government-issued licenses or franchises to provide wireline or
wireless services. Additional information relating to regulation
affecting those rights is contained under the heading "Operating
Environment Overview," of Item 7. We actively pursue patents,
trademarks and service marks to protect our intellectual property
within the United States and abroad. We maintain a significant
global portfolio of patents, trademarks and service mark
registrations. We have also entered into agreements that permit
other companies, in exchange for fees and rights, and subject to
appropriate safeguards and restrictions, to utilize certain of our
patents, trademarks and service marks. As we transition our network
from a switch-based network to an IP, software-based network, we
have increasingly entered into licensing agreements with software
developers.
We periodically receive offers from third parties to obtain
licenses for patents and other intellectual rights in exchange for
royalties or other payments. We also receive notices from third
parties asserting that our products or services sold to customers
or software-based network functions infringe on their patents and
other intellectual property rights. These claims, whether against
us directly, such as network functions, or against third-party
suppliers of products or services that we, in turn, sell to our
customers, such as wireless handsets, could require us to pay
damages, pay royalties, stop offering the relevant products or
services and/or cease network functions or other activities. While
the outcome of any litigation is uncertain, we do not believe that
the resolution of any of these infringement claims or the
expiration or non-renewal of any of our intellectual property
rights would have a material adverse effect on our results of
operations.
MAJOR CUSTOMERS
No customer accounted for 10% or more of our consolidated
revenues in 2022, 2021 or 2020.
COMPETITION
Competition continues to increase for communications and digital
services from traditional and nontraditional competitors.
Technological advances have expanded the types and uses of services
and products available. In addition, lack of or a reduced level of
regulation of comparable legacy services has lowered costs for
alternative communications service providers. As a result, we face
continuing competition as well as some new opportunities in
significant portions of our business.
Wireless We face substantial competition in our wireless
businesses. Under current FCC rules, multiple licensees, who
provide wireless services on the cellular, PCS, Advanced Wireless
Services, 700 MHz and other spectrum bands, may operate in each of
our U.S. service areas. Our competitors include two national
wireless providers; a larger number of regional providers and
resellers of those services; and certain cable companies. In
addition, we face competition from providers who offer voice, text
messaging and other services as applications on data networks. We
are one of three facilities-based providers in Mexico (retail and
wholesale), with the most significant market share controlled by
América Móvil. We may experience significant competition from
companies that provide similar services using other communications
technologies and services. While some of these technologies and
services are now operational, others are being developed or may be
developed. We compete for customers based principally on
service/device offerings, price, network quality, coverage area and
customer service.
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Broadband The desire for high-speed data on demand, including
video, is continuing to lead customers to terminate their
traditional wired or linear services and use our fiber services or
competitors' wireless, satellite and internet-based services. In
most U.S. markets, we compete for customers with large cable
companies for high-speed internet and voice services, wireless
broadband providers, and other smaller telecommunications companies
for both long-distance and local services.
Legacy Voice and Data We continue to lose legacy voice and data
subscribers due to competitors (e.g., wireless, cable and VoIP
providers) who can provide comparable services at lower prices
because they are not subject to traditional telephone industry
regulation (or the extent of regulation they are subject to is in
dispute), utilize different technologies or promote a different
business model (such as advertising-based).
Additionally, we provide local and interstate telephone and
switched services to other service providers, primarily large
internet service providers using the largest class of nationwide
internet networks (internet backbone), wireless carriers, other
telephone companies, cable companies and systems integrators. These
services are subject to additional competitive pressures from the
development of new technologies, the introduction of innovative
offerings and increasing satellite, wireless, fiber-optic and cable
transmission capacity for services.
RESEARCH AND DEVELOPMENT
AT&T scientists and engineers conduct research in a variety
of areas, including IP networking, advanced network design and
architecture, network and cyber security, network operations
support systems and data analytics. The majority of the development
activities are performed to create new services and to invent tools
and systems to manage secure and reliable networks for us and our
customers. Research and development expenses were $1,236 in 2022,
$1,325 in 2021, and $1,013 in 2020.
HUMAN CAPITAL
Number of Employees As of January 31, 2023, we employed
approximately 160,700 persons.
Employee Development We believe our success depends on our
employees' success and that all employees must have the skills they
need to thrive. We offer training and elective courses that give
employees the opportunity to enhance their skills. We also intend
to help cultivate the next generation of talent that will lead our
company into the future by providing employees with educational
opportunities through our award-winning internal training
organization, AT&T University.
Labor Contracts Approximately 42% of our employees are
represented by the Communications Workers of America (CWA), the
International Brotherhood of Electrical Workers (IBEW) or other
unions. After expiration of the collective bargaining agreements,
work stoppages or labor disruptions may occur in the absence of new
contracts or other agreements being reached. The main contracts
included the following: A contract covering approximately 7,000
Mobility employees in nine states, for which we reached tentative
agreement in February 2023. A contract covering approximately 400
employees supporting internet-based products is set to expire in
July 2023. A contract covering approximately 200 employees in
Illinois is set to expire in May 2023.
Compensation and Benefits In addition to salaries, we provide a
variety of benefit programs to help meet the needs of our
employees. These programs cover active and former employees and may
vary by subsidiary and region. These programs include 401(k) plans,
pension benefits, and health and welfare benefits, among many
others. In addition to our active employee base, at December 31,
2022, we had approximately 506,000 retirees and dependents who were
eligible to receive retiree benefits.
We review our benefit plans to maintain competitive packages
that reflect the needs of our workforce. We also adapt our
compensation model to provide fair and inclusive pay practices
across our business. We are committed to pay equity for employees
who hold the same jobs, work in the same geographic area, and have
the same levels of experience and performance.
Employee Safety We provide our employees access to flexible and
convenient health and welfare programs and workplace
accommodations. We have prioritized self-care and emphasized a
focus on wellness, providing personal protective equipment,
flexible scheduling or time-off options and implementing
technologies to enhance the remote-work environment.
Diversity, Equity and Inclusion We believe that championing
diversity and fostering inclusion does more than just make us a
better company, it contributes to a world where people are
empowered to be their very best. That is why we are committed to
equality and why our company purpose is to connect people to
greater possibilities. This focus on diversity emanates from our
diverse and inclusive workforce, which is a product of our
unwavering commitment to ensure that employees from any and every
segment of society are treated with fairness and provided equal
opportunities to advance in the company.
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To have a diverse and inclusive workforce, we have put an
emphasis on attracting and hiring talented people who represent a
mix of backgrounds, identities and experiences. Across the AT&T
family of companies, we have employee groups that reflect our
diverse workforce. These groups are not only organized around
women, people of color, LGBTQ+ individuals, people with
disabilities and veterans, but also around professionals who are
experienced or interested in cybersecurity, engineering, innovation
and project management. When everyone's unique story is celebrated,
we are able to connect, create and innovate in real and meaningful
ways. It is important that our employees feel valued, have a sense
of belonging and are fully engaged in our success.
ITEM 1A. RISK FACTORS
In addition to the other information set forth in this document,
including the matters contained under the caption "Cautionary
Language Concerning Forward-Looking Statements," you should
carefully read the matters described below. We believe that each of
these matters could materially affect our business. We recognize
that most of these factors are beyond our ability to control and
therefore we cannot predict an outcome.
Macro-economic Factors:
Adverse changes in the U.S. securities markets, interest rates,
rising inflation and medical costs could materially increase our
benefit plan costs and future funding requirements.
Our costs to provide current benefits and funding for future
benefits are subject to increases, primarily due to continuing
increases in medical and prescription drug costs, in part due to
inflation, and can be affected by lower returns on assets held by
our pension and other benefit plans, which are reflected in our
financial statements for that year. In calculating the recognized
benefit costs, we have made certain assumptions regarding future
investment returns, interest rates and medical costs. These
assumptions could change significantly over time and could be
materially different than originally projected. Lower than assumed
investment returns, an increase in our benefit obligations, and
higher than assumed medical and prescription drug costs will
increase expenses.
The Financial Accounting Standards Board (FASB) requires
companies to recognize the funded status of defined benefit pension
and postretirement plans as an asset or liability in their
statement of financial position and to recognize changes in that
funded status in the year in which the changes occur. We have
elected to reflect the annual adjustments to the funded status in
our consolidated statement of income. Therefore, an increase in our
costs or adverse market conditions will have a negative effect on
our operating results.
Significant adverse changes in capital markets could result in
the deterioration of our defined benefit plans' funded status.
Inflationary pressures on costs, such as inputs for devices we
sell and network components, labor and distribution costs may
impact our network construction, our financial condition or results
of operations.
As a provider of telecommunications and technology services, we
sell handsets, wireless data cards, wireless computing devices and
customer premises equipment manufactured by various suppliers for
use with our voice and data services and depend on suppliers to
provide us, directly or through other suppliers, with items such as
network equipment, customer premises equipment, and
wireless-related equipment such as mobile hotspots, handsets,
wirelessly enabled computers, wireless data cards and other
connected devices for our customers. Beginning in 2021 and
continuing through the early part of 2023, the costs of these
inputs and the costs of labor necessary to develop, deploy and
maintain our networks and our products and services rapidly
increased. In addition, many of these inputs are subject to price
fluctuations from a number of factors, including, but not limited
to, market conditions, demand for raw materials used in the
production of these devices and network components, weather,
climate change, energy costs, currency fluctuations, supplier
capacities, governmental actions, import and export requirements
(including tariffs), and other factors beyond our control.
Inflationary and supply pressures may continue into the future and
could have an adverse impact on our ability to source
materials.
Our attempts to offset these cost pressures, such as through
increases in the selling prices of some of our products and
services, may not be successful. Higher product prices may result
in reductions in sales volume. Consumers may be less willing to pay
a price differential for our products and may increasingly purchase
lower-priced offerings, or may forego some purchases altogether,
during a period of inflationary pressure or an economic downturn.
To the extent that price increases are not sufficient to offset
these increased costs adequately or in a timely manner, and/or if
they result in significant decreases in sales volume, our business,
financial condition or operating results may be adversely affected.
Furthermore, we may not be able to offset any cost increases
through productivity and cost-saving initiatives.
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Adverse changes in global financial markets could limit our
ability and our larger customers' ability to access capital or
increase the cost of capital needed to fund business
operations.
During 2022, uncertainty surrounding global growth rates,
inflation, an increasing interest rate environment and the impact
of the COVID-19 pandemic continued to produce volatility in the
credit, currency and equity markets. Volatility may affect
companies' access to the credit markets, leading to higher
borrowing costs, or, in some cases, the inability to fund ongoing
operations. In addition, we contract with large financial
institutions to support our own treasury operations, including
contracts to hedge our exposure on interest rates and foreign
exchange and the funding of credit lines and other short-term debt
obligations, including commercial paper. These financial
institutions face stricter capital-related and other regulations in
the United States and Europe, as well as ongoing legal and
financial issues concerning their loan portfolios, which may hamper
their ability to provide credit or raise the cost of providing such
credit.
The U.K. Financial Conduct Authority, which regulates the London
Interbank Offering Rate (LIBOR), has announced that it intends to
phase out LIBOR in 2023. Although our securities and other debt
obligations may provide for alternative methods of calculating the
interest rate payable on such indebtedness, uncertainty as to the
extent and manner of future changes may adversely affect the
current trading market for LIBOR-based securities and the value of
variable rate indebtedness in general. A company's cost of
borrowing is also affected by evaluations given by various credit
rating agencies and these agencies have been applying tighter
credit standards when evaluating debt levels and future growth
prospects. While we have been successful in continuing to access
the credit and fixed income markets when needed, adverse changes in
the financial markets could render us either unable to access these
markets or able to access these markets only at higher interest
costs and with restrictive financial or other conditions, severely
affecting our business operations. Additionally, downgrades of our
credit rating by the major credit rating agencies could increase
our cost of borrowing and also impact the collateral we would be
required to post under certain agreements we have entered into with
our derivative counterparties, which could negatively impact our
liquidity. Further, valuation changes in our derivative portfolio
due to interest rates and foreign exchange rates could require us
to post collateral and thus may negatively impact our
liquidity.
Our international operations increase our exposure to political
instability, to changes in the international economy and to
regulation on our business and these risks could offset our
expected growth opportunities.
We have international operations, particularly in Mexico, and
other countries worldwide where we need to comply with a wide
variety of complex local laws, regulations and treaties. In
addition, we are exposed to, among other factors, fluctuations in
currency values, changes in relationships between U.S. and foreign
governments, war or other hostilities, and other regulations that
may materially affect our earnings. Involvement with foreign firms
also exposes us to the risk of being unable to control the actions
of those firms and therefore exposes us to risks associated with
our obligation to comply with the Foreign Corrupt Practices Act
(FCPA). Violations of the FCPA could have a material adverse effect
on our operating results.
Industry-wide Factors:
Our business is subject to risks related to the COVID-19
virus.
The COVID-19 pandemic and resulting mitigation measures have
caused, and may continue to cause, a negative effect on our
operating results. These effects include, but are not limited to
closure of retail stores; impact on our customers' ability to pay
for our products and services; reduction in international roaming
revenue; and reduced staffing levels in call centers and field
operations. We may also incur significantly higher expenses
attributable to infrastructure investments required to meet higher
network utilization from more customers consuming bandwidth from
changes in work from home trends; extended cancellation periods;
and increased labor costs if the COVID-19 pandemic continues for an
extended period.
The COVID-19 pandemic and mitigation measures have caused, and
may continue to cause, adverse impacts on global supply chains and
economic conditions. These impacts could affect our network
development, deployment and maintenance, and the demand for our
products and services. The extent to which the COVID-19 pandemic
impacts our business, results of operations, cash flows and
financial condition will depend on future developments that are
highly uncertain and cannot be predicted, including new information
that may emerge concerning other strains of the virus and the
actions to contain its impact.
Changes to federal, state and foreign government regulations and
decisions in regulatory proceedings, as well as private litigation,
could further increase our operating costs and/or alter customer
perceptions of our operations, which could materially adversely
affect us.
Our subsidiaries providing wired services are subject to
significant federal and state regulation while many of our
competitors are not. In addition, our subsidiaries and affiliates
operating outside the United States are also subject to the
jurisdiction of national and supranational regulatory authorities
in the market where service is provided. Our wireless subsidiaries
are regulated to varying degrees by the FCC and in some instances,
by state and local agencies. Adverse regulations and rulings by the
FCC relating to broadband and wireless deployment could impede our
ability to manage our networks and recover costs and lessen
incentives to invest in our networks. The continuing growth of
IP-based services, especially when accessed by wireless
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devices, has created or potentially could create conflicting
regulation between the FCC and various state and local authorities,
which may involve lengthy litigation to resolve and may result in
outcomes unfavorable to us. In addition, in response to the FAA
questioning whether our 5G C-band launch could impact radio
altimeter equipment on airplanes, we voluntarily committed to a
series of temporary, precautionary measures, in addition to
deferring turning on a limited number of towers around certain
airports to allow the FAA more time to evaluate. These measures
have been subsequently modified from time to time. The FAA's
continued evaluation may impact our planned 5G C-band launch in
certain areas. In addition, increased public focus on a variety of
issues related to our operations, such as privacy issues,
government requests or orders for customer data, and concerns about
global climate changes, have led to proposals or new legislation at
state, federal and foreign government levels to change or increase
regulation on our operations. Enactment of new privacy laws and
regulations could, among other things, adversely affect our ability
to collect and offer targeted advertisements or result in
additional costs of compliance or litigation. Should customers
decide that our competitors offer a more customer-friendly
environment, our competitive position, results of operations or
financial condition could be materially adversely affected.
Effects of climate change may impose risk of damage to our
infrastructure, our ability to provide services, and may cause
changes in federal, state and foreign government regulation, all of
which may result in potential adverse impact to our financial
results.
Extreme weather events precipitated by long-term climate change
have the potential to directly damage network facilities or disrupt
our ability to build and maintain portions of our network and could
potentially disrupt suppliers' ability to provide products and
services required to provide reliable network coverage. Any such
disruption could delay network deployment plans, interrupt service
for our customers, increase our costs and have a negative effect on
our operating results. The potential physical effects of climate
change, such as increased frequency and severity of storms, floods,
fires, freezing conditions, sea-level rise and other
climate-related events, could adversely affect our operations,
infrastructure and financial results. Operational impacts resulting
from the potential physical effects of climate change, such as
damage to our network infrastructure, could result in increased
costs and loss of revenue. We could incur significant costs to
improve the climate resiliency of our infrastructure and otherwise
prepare for, respond to, and mitigate such physical effects of
climate change. We are not able to accurately predict the
materiality of any potential losses or costs associated with the
physical effects of climate change.
Further, customers, consumers, investors and other stakeholders
are increasingly focusing on environmental issues, including
climate change, water use, deforestation, plastic waste and other
sustainability concerns. Concern over climate change or other
environmental, social and governance (ESG) matters may result in
new or increased legal and regulatory requirements to reduce or
mitigate impacts to the environment and reduce the impact of our
business on climate change. Further, climate change regulations may
require us to alter our proposed business plans or increase our
operating costs due to increased regulation or environmental
considerations, and could adversely affect our business and
reputation.
Continuing growth in and the converging nature of wireless and
broadband services will require us to deploy significant amounts of
capital and require ongoing access to spectrum in order to provide
attractive services to customers.
Wireless and broadband services are undergoing rapid and
significant technological changes and a dramatic increase in usage,
including, in particular, the demand for faster and seamless usage
of data, including video, across mobile and fixed devices. The
COVID-19 pandemic has accelerated these changes and also resulted
in higher network utilization, as more customers consume bandwidth
from changes in work and learn from home trends. We must
continually invest in our networks in order to improve our wireless
and broadband services to meet this increasing demand and changes
in customer expectations while remaining competitive. Improvements
in these services depend on many factors, including continued
access to and deployment of adequate spectrum and the capital
needed to expand our wireline network to support transport of these
services. In order to stem broadband subscriber losses to cable
competitors in our non-fiber wireline areas, we have been expanding
our all-fiber wireline network. We must maintain and expand our
network capacity and coverage for transport of data, including
video, and voice between cell and fixed landline sites. To this
end, we participate in spectrum auctions and continue to deploy
software and other technology advancements in order to efficiently
invest in our network.
We have spent, and plan to continue spending, significant
capital and other resources on the ongoing development and
deployment of our 5G and fiber wireline networks. This deployment
and other network service enhancements and product launches may not
occur as scheduled or at the cost expected due to many factors,
including unexpected inflation, delays in determining equipment and
wireless handset operating standards, supplier delays, software
issues, increases in network and handset component costs,
regulatory permitting delays for tower sites or enhancements, or
labor-related delays. Deployment of new technology also may
adversely affect the performance of the network for existing
services. If we cannot acquire needed spectrum, our 5G and fiber
offerings fail to gain acceptance in the marketplace or we
otherwise fail to deploy the services customers desire on a timely
basis with acceptable quality and at reasonable costs, then our
ability to attract and retain customers, and, therefore, maintain
and improve our operating margins, could be materially adversely
affected.
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Increasing competition for wireless customers could materially
adversely affect our operating results.
We have multiple wireless competitors in each of our service
areas and compete for customers based principally on service/device
offerings, price, network quality, coverage area and customer
service. In addition, we are facing growing competition from
providers offering services using advanced wireless technologies
and IP-based networks. We expect market saturation to continue to
cause the wireless industry's customer growth rate to moderate in
comparison with historical growth rates, leading to increased
competition for customers. Our share of industry sales could be
reduced due to aggressive pricing or promotional strategies pursued
by competitors. We also expect that our customers' growing demand
for high-speed video and data services will place constraints on
our network capacity. These competition and capacity constraints
will continue to put pressure on pricing and margins as companies
compete for potential customers. Our ability to respond will
depend, among other things, on continued improvement in network
quality and customer service and our ability to price our products
and services competitively as well as effective marketing of
attractive products and services. These efforts will involve
significant expenses and require strategic management decisions on,
and timely implementation of, equipment choices, network deployment
and service offerings.
Intellectual property rights may be inadequate to take advantage
of business opportunities, which may materially adversely affect
our operations.
Effective intellectual property protection may not be available
in every country where we operate. We may need to spend significant
amounts of money to protect our rights. Any impairment of our
intellectual property rights, including due to changes in U.S. or
foreign intellectual property laws or the absence of effective
legal protections or enforcement measures, could materially
adversely impact our operations.
Incidents leading to damage to our reputation, and any resulting
lawsuits, claims or other legal proceedings, could have a material
adverse effect on our business.
We believe that our brand image, awareness and reputation
strengthen our relationship with consumers and contribute
significantly to the success of our business. We strive to create a
culture in which our colleagues act with integrity and respect and
feel comfortable speaking up to report instances of misconduct or
other concerns. Our ability to attract and retain employees is
highly dependent upon our commitment to a diverse and inclusive
workplace, ethical business practices and other qualities. Acts of
misconduct by any employee, and particularly by senior management,
could erode trust and confidence and damage our reputation.
Negative public opinion could result from actual or alleged conduct
by us or those currently or formerly associated with us, and from
any number of activities or circumstances, including operations,
employment-related offenses (such as sexual harassment and
discrimination), regulatory compliance and actions taken by
regulators or others in response to such conduct. Any damage to our
reputation or payments of significant amounts, even if reserved,
could materially and adversely affect our business, reputation,
financial condition, results of operations and cash flows. We
currently are, and may in the future be, named as a defendant in
lawsuits, claims and other legal proceedings that arise in the
ordinary course of our
business based on alleged acts of misconduct by employees. These
actions seek, among other things, compensation for alleged personal
injury (including claims for loss of life), workers' compensation,
employment discrimination, sexual harassment, workplace misconduct,
wage and hour claims and other employment-related damages,
compensation for breach of contract, statutory or regulatory
claims, negligence or gross negligence, punitive damages,
consequential damages, and civil penalties or other losses or
injunctive or declaratory relief. The outcome of any allegations,
lawsuits, claims or legal proceedings is inherently uncertain and
could result in significant costs, damage to our brands or
reputation and diversion of management's attention from our
business.
Company-Specific Financial Factors:
Customer adoption of new software-based technologies may require
higher quality services from us, and meeting these demands could
create supply chain issues and could increase capital costs.
The communications industry has experienced rapid changes in the
past several years. An increasing number of our customers are using
mobile devices as their primary means of viewing video. In
addition, businesses and government bodies are broadly shifting to
wireless-based services for homes and infrastructure to improve
services to their respective customers and constituencies. We have
spent, and continue to spend, significant capital to shift our
wired network to software-based technology to manage this demand
and are expanding 5G wireless technology to address these consumer
demands. We are entering into a significant number of software
licensing agreements and working with software developers to
provide network functions in lieu of installing switches or other
physical network equipment in order to respond to rapid
developments in wireless demand. While software-based functionality
can be changed much more quickly than, for example, physical
switches, the rapid pace of development means that we may
increasingly need to rely on single-source and software solutions
that have not previously been deployed in production environments.
Should this software not function as intended or our license
agreements provide inadequate protection from intellectual property
infringement claims, we could be forced to either substitute (if
available) or else spend time to develop alternative technologies
at a much higher cost and incur harm to our reputation for
reliability, and, as a result, our ability to remain competitive
could be materially adversely affected.
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We depend on various suppliers to provide equipment to operate
our business and satisfy customer demand and interruption or delay
in supply can adversely impact our operating results.
We depend on suppliers to provide us, directly or through other
suppliers, with items such as network equipment, customer premises
equipment and wireless-related equipment such as mobile hotspots,
handsets, wirelessly enabled computers, wireless data cards and
other connected devices for our customers. These suppliers could
fail to provide equipment on a timely or cost effective basis, or
fail to meet our performance expectations, for a number of reasons,
including difficulties in obtaining export licenses for certain
technologies, inflationary pressures, inability to secure component
parts, general business disruption, natural disasters, safety
issues, economic and political instability, including the outbreak
of war and other hostilities, and public health emergencies such as
the COVID-19 pandemic. These factors have caused, and may again
cause, delays in the development, manufacturing (including the
sourcing of key components) and shipment of products to the extent
that we or our suppliers are impacted. In certain limited
circumstances, suppliers have been unable to supply products in a
timely fashion, affecting our ability to provide products and
services precisely as and when requested by our customers. It is
possible that, in some circumstances, we could be forced to switch
to a different key supplier or be unable to meet customer demand
for certain products or services. Because of the cost and time lag
that can be associated with transitioning from one supplier to
another, our business could be substantially disrupted if we were
required to, or chose to, replace the products of one or more key
suppliers with products from another source, especially if the
replacement became necessary on short notice. Any such disruption
could increase our costs, decrease our operating efficiencies and
have a negative effect on our operating results.
Increasing costs to provide services and failure to renew
agreements on favorable terms, or at all, could adversely affect
operating margins.
Our operating costs, including customer acquisition and
retention costs, could continue to put pressure on margins and
customer retention levels.
A number of our competitors offering comparable legacy services
that rely on alternative technologies and business models are
typically subject to less regulation, and therefore are able to
operate with lower costs. These competitors generally can focus on
discrete customer segments since they do not have regulatory
obligations to provide universal service. Also, these competitors
have cost advantages compared to us, due in part to operating on
newer, more technically advanced and lower-cost networks with a
nonunionized workforce, lower employee benefits and fewer retirees.
We are transitioning services from our old copper-based network and
seeking regulatory approvals, where needed, at both the state and
federal levels. If we do not obtain regulatory approvals for our
network transition or obtain approvals with onerous conditions, we
could experience significant cost and competitive
disadvantages.
We may not realize or sustain the expected benefits from our
business transformation initiatives and these efforts could have a
materially adverse effect on our business, operations, financial
condition, results of operations and competitive position.
We have been and will be undertaking certain transformation
initiatives, including the WarnerMedia/Discovery Transaction, which
are designed to reduce costs, streamline and modernize distribution
and customer service, remove redundancies and simplify and improve
processes and support functions. Our focus is on supporting added
customer value with an improved customer experience. We intend for
these efficiencies to enable increased investments in our strategic
areas of focus, which consist of improving broadband connectivity
(for example, fiber and 5G). We also expect these initiatives to
drive efficiencies and improved margins. If we do not successfully
manage and execute these initiatives, or if they are inadequate or
ineffective, we may fail to meet our financial goals and achieve
anticipated benefits, improvements may be delayed, not sustained or
not realized, and our business, operations and competitive position
could be adversely affected.
Unfavorable litigation or governmental investigation results
could require us to pay significant amounts or lead to onerous
operating procedures.
We are subject to a number of lawsuits both in the United States
and in foreign countries, including, at any particular time, claims
relating to antitrust, patent infringement, wage and hour, personal
injury, customer privacy violations, regulatory proceedings, breach
of contract, and selling and collection practices. We also spend
substantial resources complying with various government standards,
which may entail related investigations and litigation. In the
wireless area, we also face current and potential litigation
relating to alleged adverse health effects on customers or
employees who use such technologies including, for example,
wireless devices. We may incur significant expenses defending such
suits or government charges and may be required to pay amounts or
otherwise change our operations in ways that could materially
adversely affect our operations or financial results.
Cyberattacks impacting our networks or systems may have a
material adverse affect on our operations.
Cyberattacks, including through the use of malware, computer
viruses, distributed denial of services attacks, ransomware
attacks, credential harvesting, social engineering and other means
for obtaining unauthorized access to or disrupting the operation of
our networks and systems and those of our suppliers, vendors and
other service providers, could have a material adverse effect on
our operations. Cyberattacks can cause equipment or network
failures, loss of information, including sensitive personal
information of customers or employees or proprietary information,
as well as disruptions to our or our customers', suppliers' or
vendors' operations, which could result in significant expenses,
potential investigations and legal liability, a loss of
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current or future customers and reputational damage. Our wired
network in particular is becoming increasingly reliant on software
as it evolves to handle growing demands for video transmission.
Cyberattacks against companies, including the Company and its
suppliers and vendors, have occurred and will continue to occur and
have increased in frequency, scope and potential harm in recent
years. The development and maintenance of systems to prevent such
attacks is costly and requires ongoing monitoring and updating.
While, to date, we have not been subject to cyberattacks that,
individually or in the aggregate, have been material to our
operations or financial condition, the preventive actions we take
to reduce the risks associated with cyberattacks may be
insufficient to repel or mitigate the effects of a major
cyberattack in the future.
Natural disasters, extreme weather conditions or terrorist or
other hostile acts could cause damage to our infrastructure and
result in significant disruptions to our operations.
Our business operations could be subject to interruption by
equipment failures, power outages, terrorist or other hostile acts,
and natural disasters, such as flooding, hurricanes and forest
fires, whether caused by discrete severe weather events and/or
precipitated by long-term climate change. Such events could cause
significant damage to the infrastructure upon which our business
operations rely, resulting in degradation or disruption of service
to our customers, as well as significant recovery time and
expenditures to resume operations. Our system redundancy and other
measures we take to protect our infrastructure and operations from
the impacts of such events may be ineffective or inadequate to
sustain our operations through all such events. Any of these
occurrences could result in lost revenues from business
interruption, damage to our reputation and reduced profits.
Increases in our debt levels to fund spectrum purchases, or
other strategic decisions could adversely affect our ability to
finance future debt at attractive rates and reduce our ability to
respond to competition and adverse economic trends.
We have incurred debt to fund significant acquisitions, as well
as spectrum purchases needed to compete in our industry. While we
believe such decisions were prudent and necessary to take advantage
of both growth opportunities and respond to industry developments,
we did experience credit-rating downgrades from historical levels.
Banks and potential purchasers of our publicly traded debt may
decide that these strategic decisions and similar actions we may
take in the future, as well as expected trends in the industry,
will continue to increase the risk of investing in our debt and may
demand a higher rate of interest, impose restrictive covenants or
otherwise limit the amount of potential borrowing. Additionally,
our capital allocation plan is focused on, among other things,
managing our debt level going forward. Any failure to successfully
execute this plan could adversely affect our cost of funds,
liquidity, competitive position and access to capital markets.
Our business may be impacted by changes in tax laws and
regulations, judicial interpretations of the same or administrative
actions by federal, state, local and foreign taxing
authorities.
Tax laws are dynamic and subject to change as new laws are
passed and new interpretations of the law are issued or applied. In
many cases, the application of existing, newly enacted or amended
tax laws (such as the U.S. Tax Cuts and Jobs Act of 2017 and the
Inflation Reduction Act of 2022) may be uncertain and subject to
differing interpretations, especially when evaluated against ever
changing products and services provided by our global
telecommunications and technology businesses. In addition, tax
legislation has been introduced or is being considered in various
jurisdictions that could significantly impact our tax rate, tax
liabilities, and carrying value of deferred tax assets or deferred
tax liabilities. Any of these changes could materially impact our
financial performance and our tax provision, net income and cash
flows.
We are also subject to ongoing examinations by taxing
authorities in various jurisdictions. Although we regularly assess
the likelihood of an adverse outcome resulting from these
examinations to determine the adequacy of provisions for taxes,
there can be no assurance as to the outcome of these examinations.
In the event that we have not accurately or fully described,
disclosed or determined, calculated or remitted amounts that were
due to taxing authorities or if the ultimate determination of our
taxes owed is for an amount in excess of amounts previously
accrued, we could be subject to additional taxes, penalties and
interest, which could materially impact our business, financial
condition and operating results.
If the distribution of WarnerMedia, together with certain
related transactions, were to fail to qualify for non-recognition
treatment for U.S. federal income tax purposes under audit, then we
could be subject to significant tax liability.
In connection with the WarnerMedia/Discovery Transaction,
AT&T received a favorable Private Letter Ruling from the IRS.
Nonetheless, the IRS or another applicable tax authority could
determine on audit that the distribution by us of WarnerMedia to
our stockholders and certain related transactions should be treated
as taxable transactions if it determines that any of the facts,
representations or undertakings made in connection with the request
for the ruling were incorrect or are violated. We may be entitled
to indemnification from Warner Bros. Discovery (Warner Bros.) in
the case of certain breaches of representations or undertakings by
Warner Bros. under the tax matters agreement related to the
WarnerMedia/Discovery Transaction. However, we could potentially be
required to pay such tax prior to reimbursement from Warner Bros.,
and such indemnification is subject to Warner Bros.' credit risk.
If the IRS or another tax authority were to so conclude, there
could be a material adverse impact on our business, financial
condition, results of operations and cash flows.
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CAUTIONARY LANGUAGE CONCERNING FORWARD-LOOKING STATEMENTS
Information set forth in this report contains forward-looking
statements that are subject to risks and uncertainties, and actual
results could differ materially. Many of these factors are
discussed in more detail in the "Risk Factors" section. We claim
the protection of the safe harbor for forward-looking statements
provided by the Private Securities Litigation Reform Act of
1995.
The following factors could cause our future results to differ
materially from those expressed in the forward-looking
statements:
--The severity, magnitude and duration of the COVID-19 pandemic
and containment, mitigation and other measures taken in response,
including the potential impacts of these matters on our business
and operations.
--Our inability to predict the extent to which the COVID-19
pandemic and related impacts will continue to impact our business
operations, financial performance and results of operations.
--Adverse economic, political and/or capital access changes or
war or other hostilities in the markets served by us or in
countries in which we have investments and/or operations, including
inflationary pressures, the impact on customer demand and our
ability and our suppliers' ability to access financial markets at
favorable rates and terms.
--Increases in our benefit plans' costs, including increases due
to adverse changes in the United States and foreign securities
markets, resulting in worse-than-assumed investment returns and
discount rates; adverse changes in mortality assumptions; adverse
medical cost trends; and unfavorable or delayed implementation or
repeal of healthcare legislation, regulations or related court
decisions.
--The final outcome of FCC and other federal, state or foreign
government agency proceedings (including judicial review, if any,
of such proceedings) and legislative efforts involving issues that
are important to our business, including, without limitation,
pending Notices of Apparent Liability; the transition from legacy
technologies to IP-based infrastructure, including the withdrawal
of legacy TDM-based services; universal service; broadband
deployment; wireless equipment siting regulations and, in
particular, siting for 5G service; E911 services; rules concerning
digital discrimination; competition policy; privacy; net
neutrality; copyright protection; availability of new spectrum on
fair and balanced terms; and wireless and satellite license awards
and renewals.
--Enactment of additional state, local, federal and/or foreign
regulatory and tax laws and regulations, or changes to existing
standards and actions by tax agencies and judicial authorities
including the resolution of disputes with any taxing jurisdictions,
pertaining to our subsidiaries and foreign investments, including
laws and regulations that reduce our incentive to invest in our
networks, resulting in lower revenue growth and/or higher operating
costs.
--U.S. and foreign laws and regulations regarding intellectual
property rights protection and privacy, personal data protection
and user consent, which are complex and rapidly evolving and could
result in adverse impacts to our business plans, increased costs,
or claims against us that may harm our reputation.
--Our ability to compete in an increasingly competitive industry
and against competitors that can offer product/service offerings at
lower prices due to lower cost structures and regulatory and
legislative actions adverse to us, including non-regulation of
comparable alternative technologies and/or government-owned or
subsidized networks.
--Disruption in our supply chain for a number of reasons,
including, difficulties in obtaining export licenses for certain
technology, inability to secure component parts, general business
disruption, workforce shortage, natural disasters, safety issues,
vendor fraud, economic and political instability, including the
outbreak of war or other hostilities, and public health
emergencies.
--The continued development and delivery of attractive and
profitable wireless, and broadband offerings and devices; the
extent to which regulatory and build-out requirements apply to our
offerings; our ability to match speeds offered by our competitors;
and the availability, cost and/or reliability of the various
technologies and/or content required to provide such offerings.
--The availability and cost and our ability to adequately fund
additional wireless spectrum and network development, deployment
and maintenance; and regulations and conditions relating to
spectrum use, licensing, obtaining additional spectrum, technical
standards and deployment and usage, including network management
rules.
--Our ability to manage growth in wireless data services,
including network quality and acquisition of adequate spectrum at
reasonable costs and terms.
--The outcome of pending, threatened or potential litigation
(which includes arbitrations), including, without limitation,
patent and product safety claims by or against third parties or
claims based on alleged misconduct by employees.
--The impact from major equipment or software failures on our
networks or cyber incidents; the effect of security breaches
related to the network or customer information; our inability to
obtain handsets, equipment/software or have handsets,
equipment/software serviced in a timely and cost-effective manner
from suppliers; or severe weather conditions or other climate
related events including flooding and hurricanes, natural disasters
including earthquakes and forest fires, pandemics, energy
shortages, wars or terrorist attacks.
--The issuance by the FASB or other accounting oversight bodies
of new accounting standards or changes to existing standards.
--Our response to competition and regulatory, legislative and
technological developments.
--The uncertainty surrounding further congressional action
regarding spending and taxation, which may result in changes in
government spending and affect the ability and willingness of
businesses and consumers to spend in general.
--Our ability to realize or sustain the expected benefits of our
business transformation initiatives, which are designed to reduce
costs, streamline distribution, remove redundancies and simplify
and improve processes and support functions.
--Our ability to successfully complete divestitures, as well as
achieve our expectations regarding the financial impact of the
completed and/or pending transactions.
Readers are cautioned that other factors discussed in this
report, although not enumerated here, also could materially affect
our future earnings.
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ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 2. PROPERTIES
Our properties do not lend themselves to description by
character and location of principal units. At December 31, 2022, of
our total property, plant and equipment, central office equipment
represented 30%; outside plant (including cable, wiring and other
non-central office network equipment) represented 26%; other
equipment, comprised principally of wireless network equipment
attached to towers, furniture and office equipment and vehicles and
other work equipment, represented 25%; land, building and wireless
communications towers represented 12%; and other miscellaneous
property represented 7%.
For our Communications segment, substantially all of the
installations of central office equipment are located in buildings
and on land we own. Many garages, administrative and business
offices, wireless towers, telephone centers and retail stores are
leased. Property on which communication towers are located may be
either owned or leased.
ITEM 3. LEGAL PROCEEDINGS
We are a party to numerous lawsuits, regulatory proceedings and
other matters arising in the ordinary course of business. As of the
date of this report, we do not believe any pending legal
proceedings to which we or our subsidiaries are subject are
required to be disclosed as material legal proceedings pursuant to
this item.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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Information about our Executive Officers
(As of February 1, 2023)
Name Age Position Held Since
John T. Stankey 60 Chief Executive Officer and President 7/2020
F. Thaddeus Arroyo 59 Chief Strategy and Development Officer 5/2022
Senior Executive Vice President and Chief
Pascal Desroches 58 Financial Officer 4/2021
Edward W. Gillespie 61 Senior Executive Vice President - External 4/2020
and Legislative Affairs, AT&T Services,
Inc.
Senior Executive Vice President and Chief
David S. Huntley 64 Compliance Officer 12/2014
Kellyn S. Kenny 45 Chief Marketing and Growth Officer 5/2022
Lori M. Lee 57 Global Marketing Officer and Senior Executive 12/2022
Vice President - International
Chief Technology Officer, AT&T Services,
Jeremy Legg 53 Inc. 5/2022
Senior Executive Vice President and General
David R. McAtee II 54 Counsel 10/2015
Jeffery S. McElfresh 52 Chief Operating Officer 5/2022
Senior Executive Vice President - Human
Angela R. Santone 51 Resources 12/2019
The above executive officers have held high-level managerial
positions with AT&T or its subsidiaries for more than the past
five years, except for Mr. Desroches, Mr. Gillespie, Ms. Kenny, Mr.
Legg, and Ms. Santone. Executive officers are not appointed to a
fixed term of office.
Mr. Desroches was previously Executive Vice President - Finance
of AT&T from November 2020 to March 2021, Executive Vice
President and Chief Financial Officer of WarnerMedia from June 2018
to November 2020, and Executive Vice President and Chief Financial
Officer of Turner from January 2015 to June 2018.
Mr. Gillespie was previously Managing Director of Sard Verbinnen
& Co. from June 2018 to April 2020, Founder and Principal of Ed
Gillespie Strategies from February 2009 to December 2016, and
Counselor to the President for George W. Bush, Executive Office of
the President at The White House, from July 2007 to January
2009.
Ms. Kenny was previously Chief Marketing and Growth Officer,
AT&T Communications, LLC from November 2020 to May 2022. Prior
to that she was Global Chief Marketing Officer of Hilton Worldwide
Holdings from January 2018 to June 2020 and Vice President of
Marketing for Uber Technologies from April 2016 to January
2018.
Mr. Legg was previously Chief Technology Officer - AT&T
Technology Services of AT&T from June 2020 to April 2022, Chief
Technology Officer of WarnerMedia from December 2018 to June 2020,
and Chief Technology Officer of Turner from June 2015 to December
2018.
Ms. Santone was previously Chief Administrative Officer of
AT&T from May 2019 to December 2019, Executive Vice President
and Global Chief Human Resources Officer of Turner from February
2016 to April 2019, and Senior Vice President and Chief Human
Resources Officer of Turner from June 2013 to January 2016.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is listed on the New York Stock Exchange under
the ticker symbol "T". The number of stockholders of record as of
December 31, 2022 and 2021 was 784,110 and 817,330. The number of
stockholders of record as of February 8, 2023, was 781,511. We
declared dividends on common stock, on a quarterly basis, totaling
$1.11 per share in 2022 and $2.08 per share in 2021.
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Our Board of Directors has approved the following authorization
to repurchase common stock: March 2014 authorization program for
300 million shares, with 144 million outstanding at December 31,
2022. To implement this authorization, we used open market
repurchases, relying on Rule 10b5-1 of the Securities Exchange Act
of 1934, where feasible. We also used accelerated share repurchase
agreements with large financial institutions to repurchase our
stock. We will continue to fund any share repurchases through a
combination of cash from operations, borrowings dependent on market
conditions, or cash from the disposition of certain non-strategic
investments.
Our 2023 financing activities will focus on managing our debt
level and paying dividends, subject to approval by our Board of
Directors. We plan to fund our financing uses of cash through a
combination of cash from operations, issuance of debt and asset
sales. The timing and mix of any debt issuance and/or refinancing
will be guided by credit market conditions and interest rate
trends.
A summary of our repurchases of common stock during the fourth
quarter of 2022 is as follows:
ISSUER PURCHASES OF EQUITY SECURITIES
(a) (b) (c) (d)
Maximum Number (or
Approximate Dollar
Total Number of Value) of Shares
Shares (or Units) (or Units) That
Purchased May Yet Be
Total Number of Average Price as Part of Publicly Purchased
Shares (or Units) Paid Per Share Announced Plans Under The Plans
Period Purchased 1,2,3 (or Unit) or Programs 1 or Programs
October 1, 2022
-
October 31, 2022 400,261 $ 15.23 - 143,731,972
November 1, 2022
-
November 30, 2022 344,935 $ 18.41 - 143,731,972
December 1, 2022
-
December 31, 2022 146,267 $ 19.16 - 143,731,972
Total 891,463 $ 17.10 -
==================== ================== === ============ =================== ==================
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, 891,463 shares were acquired through
the withholding of taxes on the vesting of restricted stock and
performance shares or in respect of the exercise price of
options.
3 Of the shares repurchased or transferred, no shares were
transferred from AT&T maintained Voluntary Employee Benefit
Association (VEBA) trusts.
ITEM 6. [RESERVED]
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
AT&T Inc. is referred to as "we," "AT&T" or the
"Company" throughout this document. AT&T products and services
are provided or offered by subsidiaries and affiliates of AT&T
Inc. under the AT&T brand and not by AT&T Inc., and the
names of the particular subsidiaries and affiliates providing the
services generally have been omitted. AT&T is a holding company
whose subsidiaries and affiliates operate worldwide in the
telecommunications and technology industries. You should read this
discussion in conjunction with the consolidated financial
statements and accompanying notes (Notes). Unless otherwise noted,
this discussion refers only to our continuing operations and does
not include discussion of balances or activity of WarnerMedia,
Vrio, Xandr and Playdemic Ltd. (Playdemic), which are part of
discontinued operations.
Our Management's Discussion and Analysis of Financial Condition
and Results of Operations included in this document generally
discusses 2022 and 2021 items and year-to-year comparisons between
2022 and 2021. Discussions of 2020 items and year-to-year
comparisons between 2021 and 2020 that are not included in this
document can be found in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in Part II, Item 7
of our Annual Report on Form 10-K for the fiscal year ended
December 31, 2021.
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On April 8, 2022, we closed our transaction to combine
substantially all of our WarnerMedia segment (WarnerMedia) with a
subsidiary of Discovery, Inc (Discovery). Upon the separation and
distribution of WarnerMedia, the WarnerMedia business met the
criteria for discontinued operations. For discontinued operations,
we also evaluated transactions that were components of AT&T's
single plan of a strategic shift, including dispositions that did
not individually meet the criteria due to materiality, and have
determined discontinued operations to be comprised of WarnerMedia,
Vrio, Xandr and Playdemic. These businesses are reflected in the
accompanying financial statements as discontinued operations,
including for periods prior to the consummation of the
WarnerMedia/Discovery transaction. (See Notes 6 and 23)
On July 31, 2021, we closed our transaction with TPG Capital
(TPG) to form a new company named DIRECTV Entertainment Holdings,
LLC (DIRECTV). With the close of the transaction, we separated our
Video business, comprised of our U.S. video operations, and began
accounting for our investment in DIRECTV under the equity method.
(See Note 6)
We have two reportable segments: Communications and Latin
America. Our segment results presented in Note 4 and discussed
below follow our internal management reporting. Each segment's
percentage calculation of total segment operating revenue is
derived from our segment results table in Note 4. Segment operating
income is attributable to our Communications segment due to
operating losses in Latin America. Percentage increases and
decreases that are not considered meaningful are denoted with a
dash.
Percent Change
2022 2021 2020 2022 vs. 2021 2021 vs. 2020
Operating Revenues
Communications $117,067 $114,730 $109,965 2.0 % 4.3%
Latin America 3,144 2,747 2,562 14.5 7.2
Corporate and Other:
Corporate 530 731 766 (27.5) (4.6)
Video - 15,513 28,610 - (45.8)
Held-for-sale and other
reclassifications - 453 1,414 - (68.0)
Eliminations and
consolidations - (136) (267) - 49.1
AT&T Operating Revenues $120,741 $134,038 $143,050 (9.9)% (6.3)%
Operating Income
Communications $ 29,107 $ 28,393 $ 29,062 2.5% (2.3)%
Latin America (326) (510) (587) 36.1 13.1
Segment Operating Income 28,781 27,883 28,475 3.2 (2.1)
Corporate (2,570) (1,644) (1,398) (56.3) (17.6)
Video - 2,491 2,174 - 14.6
Held-for-sale and other
reclassifications - 143 681 - (79.0)
Reclassification of prior
service
credits (2,691) (2,680) (2,442) (0.4) (9.7)
Certain significant items (28,107) (296) (19,118) - 98.5
AT&T Operating Income (Loss) $(4,587) $ 25,897 $ 8,372 -% -%
================================== ======= ======= ======= ========== ==========
The Communications segment accounted for approximately 97% of
our 2022 total segment operating revenues compared to 98% in 2021
and accounted for all segment operating income in 2022 and 2021.
This segment provides services to businesses and consumers located
in the U.S. and businesses globally. Our business strategies
reflect bundled product offerings that cut across product lines and
utilize shared assets. This segment contains the following business
units:
--Mobility provides nationwide wireless service and
equipment.
--Business Wireline provides advanced ethernet-based fiber
services, IP Voice and managed professional services, as well as
traditional voice and data services and related equipment to
business customers.
--Consumer Wireline provides broadband services, including fiber
connections that provide our multi-gig services to residential
customers in select locations. Consumer Wireline also provides
legacy telephony voice communication services.
The Latin America segment accounted for approximately 3% of our
2022 total segment operating revenues compared to 2% in 2021. This
segment provides wireless services and equipment in Mexico.
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RESULTS OF OPERATIONS
Consolidated Results Our financial results from continuing
operations are summarized in the following table. We then discuss
factors affecting our overall results from continuing operations.
Additional analysis is discussed in our "Segment Results" section.
We also discuss our expected revenue and expense trends for 2023 in
the "Operating Environment and Trends of the Business" section.
Certain prior-period amounts have been reclassified to conform to
the current period's presentation.
Percent Change
2022 vs. 2021 vs.
2022 2021 2020 2021 2020
Operating revenues
Service $ 97,831 $111,565 $124,057 (12.3) % (10.1) %
Equipment 22,910 22,473 18,993 1.9 18.3
Total Operating Revenues 120,741 134,038 143,050 (9.9) (6.3)
Operating expenses
Operations and support 79,809 90,076 96,468 (11.4) (6.6)
Asset impairments and
abandonments
and restructuring 27,498 213 15,687 - (98.6)
Depreciation and amortization 18,021 17,852 22,523 0.9 (20.7)
Total Operating Expenses 125,328 108,141 134,678 15.9 (19.7)
Operating Income (Loss) (4,587) 25,897 8,372 - -
Interest expense 6,108 6,716 7,727 (9.1) (13.1)
Equity in net income
of affiliates 1,791 603 89 - -
Other income (expense)
- net 5,810 9,387 (1,088) (38.1) -
Income (Loss) from Continuing
Operations Before Income
Taxes (3,094) 29,171 (354) - -
Income (Loss) from Continuing
Operations $(6,874) $ 23,776 $(1,522) -% -%
================================== ======= ======= ======= ========= ======
OVERVIEW
Operating revenues decreased in 2022 and 2021. The 2022 decline
reflects the July 31, 2021 separation of the U.S. video business,
other business divestitures that were not included in discontinued
operations and lower Business Wireline revenues driven by lower
demand for legacy services and product simplification. Partially
offsetting declines were higher Mobility service and equipment
revenues and, to a lesser extent, gains in broadband service in our
Communications segment and growth in Mexico wireless
operations.
The 2021 decline reflects the 2021 separation of the U.S. video
business and the October 2020 sale of wireless and wireline
operations in Puerto Rico and the U.S. Virgin Islands. Also
contributing to revenue declines was lower Business Wireline
revenues due in part to higher demand for pandemic-related
connectivity in the prior year. Partially offsetting declines were
higher Mobility equipment and service revenues and gains in
broadband service, and growth in Mexico wireless operations
including favorable foreign exchange impacts.
Operations and support expenses decreased in 2022 and 2021. The
2022 decline reflects the separation of U.S. video and lower
personnel costs associated with ongoing transformation initiatives,
partially offset by higher bad debt expense, the elimination of
Connect America Fund Phase II (CAF II) government credits and
increased wholesale network access charges. Wireless equipment
costs were up slightly, with higher sales volumes and the sale of
higher-priced smartphones largely offset by lower 3G shutdown costs
in 2022. In the first quarter of 2022, we updated the expected
economic lives of customer relationships, which extended the
amortization period of deferred acquisition and fulfillment costs
and reduced expenses approximately $395, with $150 recorded to
Mobility, $115 to Business Wireline and $130 to Consumer
Wireline.
The 2021 decline reflects our 2021 business divestitures, lower
bad debt expense and lower personnel costs associated with our
transformation initiatives. Declines were mostly offset by
increased domestic wireless equipment expense from higher
volumes.
Asset impairments and abandonments and restructuring increased
in 2022 and decreased in 2021. The increase in 2022 was primarily
due to $24,812 of noncash goodwill impairments associated with our
Business Wireline, Consumer Wireline and Mexico reporting units and
were driven by higher interest rates consistent with the
macroeconomic environment, with secular
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declines also impacting Business Wireline growth rates (see Note
9). The increase in 2022 also included $1,413 of wireline conduit
asset abandonments (see Note 7) and $1,273 of restructuring and
other impairment charges due to updated network build plans
stemming from spectrum acquired in recent auctions, severance
charges associated with transformation initiatives and impairment
of personal protective equipment inventory.
Impairment charges in 2021 were lower than 2020, reflecting a
fourth-quarter 2020 impairment charge of $15,508 resulting from our
assessment of the recoverability of the long-lived assets and
goodwill associated with our U.S. video business.
Depreciation and amortization expense increased in 2022 and
decreased in 2021.
Depreciation expense increased $218, or 1.2%, in 2022. The
increase was primarily due to ongoing capital investment for
strategic initiatives such as fiber and network upgrades and
expansion, partially offset by higher estimated lives of our fiber
assets (see Note 7). Depreciation expense decreased $1,394, or
7.3%, in 2021, primarily due to ceasing depreciation on U.S. video
held-for-sale assets.
Amortization expense decreased $49, or 22.5%, in 2022 and
$3,277, or 93.8%, in 2021. Lower amortization reflects our
accelerated method of amortization of intangible assets from
previous acquisitions and ceasing amortization on U.S. video
held-for-sale assets in 2021.
Operating income decreased in 2022 and increased in 2021. Our
operating margin was (3.8)% in 2022, compared to 19.3% in 2021 and
5.9% in 2020.
Interest expense decreased in 2022 primarily due to lower debt
balances and higher capitalized interest associated with spectrum
acquisitions, partially offset by higher interest rates. Interest
expense decreased in 2021 primarily due to lower interest rates and
higher capitalized interest associated with spectrum acquisitions,
partially offset by higher debt balances.
Equity in net income of affiliates increased in 2022 and 2021,
primarily due to the close of our transaction with TPG related to
the U.S. video business, which resulted in our accounting for our
investment in DIRECTV under the equity method of accounting
beginning August 1, 2021 (see Notes 6, 10 and 19).
Other income (expense) - net decreased in 2022 and increased in
2021. The decrease in 2022 was primarily due to lower actuarial
gains ($1,999 in 2022 compared to $4,140 in 2021), lower pension
and postretirement benefit credits and lower returns on other
benefit-related investments. Pension and postretirement benefit
credits decreased as a result of higher assumed discount rates and
lower returns on benefit plan assets. Our 2022 benefit expense also
includes approximately $280 favorable impact from a retirement
benefit plan change, with $230 resulting from prior service credits
(approximately $100 for Business Wireline, $80 for Consumer
Wireline and $40 for Mobility) (see Note 14).
The increase in 2021 was primarily due to the recognition of
$4,140 in actuarial gains, compared to losses of $4,169 in 2020,
and the recognition of $1,405 of debt redemption costs in 2020.
Also contributing to increased income in 2021 were higher net
pension and postretirement benefit credits from higher prior
service credit amortization (see Note 14).
Income tax expense decreased in 2022 and increased in 2021. The
2022 decrease was primarily driven by lower income before income
tax offset by impairments of goodwill (see Note 9), which are not
deductible for tax purposes.
The increase in 2021 was primarily due to increased income
before income taxes, offset primarily by the Coronavirus Aid,
Relief, and Economic Security Act (CARES Act) benefit of U.S.
federal Net Operating Loss (NOL) carryback and benefits of
divestitures in 2021.
Our effective tax rate was (122.2)% in 2022, 18.5% in 2021, and
(329.9)% in 2020. The effective tax rate was impacted by our
goodwill impairments associated with our Business Wireline,
Consumer Wireline and Mexico reporting units in 2022, and Video
goodwill impairment in 2020, which are not deductible for tax
purposes.
21
AT&T Inc.
Dollars in millions except per share amounts
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Segment Results Our segments are strategic business units that
offer different products and services over various technology
platforms and/or in different geographies that are managed
accordingly. We also evaluate segment performance based on EBITDA
and/or EBITDA margin, which is defined as operating income
excluding depreciation and amortization. EBITDA is used as part of
our management reporting and we believe EBITDA to be a relevant and
useful measurement to our investors as it measures the cash
generation potential of our business units. EBITDA does not give
effect to depreciation and amortization expenses incurred in
operating income nor is it burdened by cash used for debt service
requirements and thus does not reflect available funds for
distributions, reinvestment or other discretionary uses. EBITDA
margin is EBITDA divided by total revenues.
In the first quarter of 2022, we reclassified into "Corporate"
certain administrative costs borne by AT&T where the business
units do not influence decision making to conform with the current
period presentation. This recast increased Corporate operations and
support expenses by approximately $270 and $1,310 for full-year
2021 and 2020, respectively. Correspondingly, this recast lowered
administrative expenses for the Communications segment, with no
change on a consolidated basis.
COMMUNICATIONS SEGMENT Percent Change
2022 vs. 2021 vs.
2022 2021 2020 2021 2020
Segment Operating Revenues
Mobility $ 81,780 $ 78,254 $ 72,564 4.5 % 7.8 %
Business Wireline 22,538 23,937 25,083 (5.8) (4.6)
Consumer Wireline 12,749 12,539 12,318 1.7 1.8
Total Segment Operating Revenues $117,067 $114,730 $109,965 2.0% 4.3%
Segment Operating Income
Mobility $ 24,528 $ 23,370 $ 22,801 5.0% 2.5%
Business Wireline 3,252 4,027 4,799 (19.2) (16.1)
Consumer Wireline 1,327 996 1,462 33.2 (31.9)
Total Segment Operating Income $ 29,107 $ 28,393 $ 29,062 2.5 % (2.3) %
Selected Subscribers and Connections
December 31,
(000s) 2022 2021 2020
Mobility subscribers 217,397 201,791 182,558
Total domestic broadband connections 15,386 15,504 15,384
Network access lines in service 5,213 6,177 7,263
U-verse VoIP connections 2,930 3,333 3,816
======== ======== ======== ========== =======
Operating revenues increased in 2022, driven by increases in our
Mobility and Consumer Wireline business units, partially offset by
a decrease in our Business Wireline business unit. The increases
are primarily driven by wireless service and equipment revenue
growth and gains in broadband service. Business Wireline continues
to reflect lower demand for legacy services and product
simplification.
Operating income increased in 2022 and decreased in 2021. The
2022 operating income reflects an increase in operating income from
our Mobility and Consumer Wireline business units, partially offset
by declines in our Business Wireline business unit. Our
Communications segment operating income margin was 24.9% in 2022,
24.7% in 2021 and 26.4% in 2020.
22
AT&T Inc.
Dollars in millions except per share amounts
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Communications Business Unit Discussion
Mobility Results
----------
Percent Change
2022 vs. 2021 vs.
2022 2021 2020 2021 2020
Operating revenues
Service $60,499 $57,590 $55,542 5.1 % 3.7%
Equipment 21,281 20,664 17,022 3.0 21.4
Total Operating Revenues 81,780 78,254 72,564 4.5 7.8
Operating expenses
Operations and support 49,054 46,762 41,677 4.9 12.2
Depreciation and amortization 8,198 8,122 8,086 0.9 0.4
Total Operating Expenses 57,252 54,884 49,763 4.3 10.3
Operating Income $24,528 $23,370 $22,801 5.0% 2.5%
================================== ====== ====== ====== ======== === ======
The following tables highlight other key measures of performance
for Mobility:
Subscribers
------------
Percent Change
2022 vs. 2021 vs.
(in 000s) 2022 2021 2020 2021 2020
Postpaid 84,700 81,534 77,154 3.9% 5.7%
Postpaid phone 69,596 67,260 64,216 3.5 4.7
Prepaid 19,176 19,028 18,102 0.8 5.1
Reseller 6,043 6,113 6,535 (1.1) (6.5)
Connected devices 1 107,478 95,116 80,767 13.0 17.8
Total Mobility Subscribers
2 217,397 201,791 182,558 7.7 % 10.5 %
======= ======= ======= ===== ====== ===== =====
1 Includes data-centric devices such as session-based tablets, monitoring devices
and primarily wholesale automobile systems.
2 Wireless subscribers at December 31, 2022 excludes the impact of 10,176 subscriber
and connected device disconnections resulting from our 3G network shutdown in
February 2022. Postpaid disconnections were 897, including 437 phone, 234 prepaid,
749 reseller subscribers, and 8,296 connected devices.
Mobility Net Additions
--------------
Percent Change
2022 vs. 2021 vs.
(in 000s) 2022 2021 2020 2021 2020
Postpaid Phone Net Additions 2,868 3,196 1,457 (10.3) % - %
Total Phone Net Additions 3,272 3,850 1,640 (15.0) -
Postpaid 2 4,091 4,482 2,183 (8.7) -
Prepaid 479 956 379 (49.9) -
Reseller 462 (534) (449) - (18.9)
Connected devices 3 20,594 14,328 14,785 43.7 (3.1)
Mobility Net Subscriber
Additions 1 25,626 19,232 16,898 33.2 % 13.8 %
Postpaid Churn 4 0.97 % 0.94 % 0.98 % 3 BP (4) BP
Postpaid Phone-Only Churn
4 0.81 % 0.76 % 0.79 % 5 BP (3) BP
==== ===== ==== ==== ==== ==== ====== ====== ====== ======
1 Excludes migrations and acquisition-related additions during the period.
2 In addition to postpaid phones, includes tablets and wearables and other.
Tablet net adds (losses) were 203, 28 and (512) for the years ended December
31, 2022, 2021 and 2020, respectively. Wearables and other net adds were 1,020,
1,258 and 1,238 for the years ended December 31, 2022, 2021 and 2020, respectively.
3 Includes data-centric devices such as session-based tablets, monitoring devices
and primarily wholesale automobile systems. Excludes postpaid tablets and other
postpaid data devices. Wholesale connected car net adds were approximately
9,980, 7,875 and 9,890 for the years ended December 31, 2022, 2021 and 2020,
respectively.
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, excluding the impact of disconnections
resulting from our 3G network shutdown in February 2022.
23
AT&T Inc.
Dollars in millions except per share amounts
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Service revenue increased during 2022, largely due to growth
from subscriber gains and postpaid average revenue per subscriber
(ARPU) growth.
ARPU
ARPU increased in 2022 and reflects pricing actions, improved
international roaming and customers shifting to higher priced
unlimited plans, partially offset by the impact of higher
promotional discount amortization (see Note 5).
Churn
The effective management of subscriber churn is critical to our
ability to maximize revenue growth and to maintain and improve
margins. Postpaid churn and postpaid phone-only churn were higher
in 2022 due to a return to pre-pandemic customer behavior, as well
as pricing actions and the resulting increase in both voluntary and
involuntary disconnects.
Equipment revenue increased in 2022, primarily driven by a
higher volume of devices sold and a mix of higher-priced postpaid
smartphones.
Operations and support expenses increased in 2022, largely
driven by growth in equipment sales and associated expenses, bad
debt expense, higher network costs, the elimination of CAF II
government credits, and higher HBO Max licensing fees and FirstNet
costs. In the first quarter of 2022, we updated our analysis of
economic lives of customer relationships and extended the
amortization period of Mobility deferred customer contract costs,
which decreased expense approximately $150.
Depreciation expense increased in 2022, primarily due to ongoing
capital spending for network upgrades and expansion, partially
offset by ceasing use of 3G network assets.
Operating income increased in 2022 and 2021. Our Mobility
operating income margin was 30.0% in 2022, 29.9% in 2021 and 31.4%
in 2020. Our Mobility EBITDA margin was 40.0% in 2022, 40.2% in
2021 and 42.6% in 2020.
Subscriber Relationships
As the wireless industry has matured, with nearly full
penetration of smartphones in the U.S. population, future wireless
growth will depend on our ability to offer innovative services,
plans and devices that bundle product offerings and take advantage
of our 5G wireless network. We believe 5G opens up vast
possibilities of connecting sensors, devices, and autonomous
things, commonly referred to as the Internet of Things (IoT). More
and more, these devices are performing use cases that require high
bandwidth, ultra-reliability and low latency that only 5G and edge
computing can bring. To support higher mobile data usage, our
priority is to best utilize a wireless network that has sufficient
spectrum and capacity to support these innovations on as broad a
geographic basis as possible.
Business Wireline Results
----------
Percent Change
2022 vs. 2021 vs.
2022 2021 2020 2021 2020
Operating revenues
Service $21,891 $23,224 $24,313 (5.7)% (4.5)%
Equipment 647 713 770 (9.3) (7.4)
Total Operating Revenues 22,538 23,937 25,083 (5.8) (4.6)
Operating expenses
Operations and support 13,972 14,718 15,068 (5.1) (2.3)
Depreciation and amortization 5,314 5,192 5,216 2.3 (0.5)
Total Operating Expenses 19,286 19,910 20,284 (3.1) (1.8)
Operating Income $ 3,252 $ 4,027 $ 4,799 (19.2)% (16.1)%
================================== ====== ====== ====== ========= ======
Service revenues decreased in 2022, driven by lower demand for
legacy voice and data services and product simplification. Also
contributing to the decline was lower revenues from the government
sector. We expect these trends to continue. Partially offsetting
revenue declines was growth in connectivity services and revenues
of approximately $200 from intellectual property sales in 2022.
Equipment revenues decreased in 2022, driven by declines in
legacy and non-core services which we expect to continue.
24
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------------------
Operations and support expenses decreased in 2022, primarily due
to our continued efforts to drive efficiencies in our network
operations through automation, reductions in customer support
expenses through digitization and proactive rationalization of low
profit margin products, and lower personnel costs associated with
ongoing transformation initiatives. Expense declines were also
driven by credits from a third-quarter 2022 retirement benefit plan
change and lower amortization of deferred fulfillment costs,
including our first-quarter 2022 updates to the estimated economic
lives of subscribers, which decreased expense approximately $115 in
2022. The declines were partially offset by higher wholesale access
network costs. As part of our transformation activities, we expect
continued operations and support expense improvements into 2023 as
we further size our operations in alignment with the strategic
direction of the business.
Depreciation expense increased in 2022, primarily due to ongoing
capital investment for strategic initiatives such as fiber and
network upgrades and expansion, partially offset by updates to
extend the estimated lives of our fiber assets (see Note 7).
Operating income decreased in 2022 and 2021. Our Business
Wireline operating income margin was 14.4% in 2022, 16.8% in 2021
and 19.1% in 2020. Our Business Wireline EBITDA margin was 38.0% in
2022, 38.5% in 2021 and 39.9% in 2020.
Consumer Wireline Results
----------
Percent Change
2022 vs. 2021 vs.
2022 2021 2020 2021 2020
Operating revenues
Broadband $9,669 $9,085 $8,534 6.4% 6.5%
Legacy voice and data services 1,746 1,977 2,213 (11.7) (10.7)
Other service and equipment 1,334 1,477 1,571 (9.7) (6.0)
Total Operating Revenues 12,749 12,539 12,318 1.7 1.8
Operating expenses
Operations and support 8,253 8,448 7,942 (2.3) 6.4
Depreciation and amortization 3,169 3,095 2,914 2.4 6.2
Total Operating Expenses 11,422 11,543 10,856 (1.0) 6.3
Operating Income $1,327 $ 996 $1,462 33.2% (31.9)%
=================================== ===== ===== ===== ========= ======
The following tables highlight other key measures of performance
for Consumer Wireline:
Connections
----------
Percent Change
2022 vs. 2021 vs.
(in 000s) 2022 2021 2020 2021 2020
Broadband Connections
Total Broadband and DSL
Connections 13,991 14,160 14,100 (1.2)% 0.4%
Broadband 13,753 13,845 13,693 (0.7) 1.1
Fiber Broadband Connections 7,215 5,992 4,951 20.4 21.0
Voice Connections
Retail Consumer Switched
Access Lines 2,028 2,423 2,862 (16.3) (15.3)
U-verse Consumer VoIP Connections 2,311 2,736 3,231 (15.5) (15.3)
Total Retail Consumer Voice
Connections 4,339 5,159 6,093 (15.9)% (15.3)%
====== ====== ====== ========= ======
25
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------------------
Broadband Net Additions
----------
Percent Change
2022 vs. 2021 vs.
(in 000s) 2022 2021 2020 2021 2020
Total Broadband and DSL Net
Additions (169) 60 (19) -% -%
Broadband Net Additions (92) 152 95 - 60.0
Fiber Broadband Net Additions 1,223 1,041 1,064 17.5% (2.2)%
==================================== ===== ===== ===== ========= ======
Broadband revenues increased in 2022, driven by an increase in
fiber customers, which we expect to continue for the foreseeable
future as we invest further in building our fiber footprint,
partially offset by declines in copper-based broadband
services.
Legacy voice and data service revenues decreased in 2022,
reflecting the continued decline in the number of customers, which
we expect to continue.
Other service and equipment revenues decreased in 2022,
reflecting the continued decline in the number of VoIP customers,
which we expect to continue.
Operations and support expenses decreased in 2022, primarily
driven by lower network and customer support costs, credits from a
third-quarter 2022 retirement benefit plan change and lower HBO Max
licensing fees. Also contributing to the decline was lower
amortization of deferred fulfillment costs, including our
first-quarter 2022 updates to the estimated economic lives of
broadband/fiber subscribers, which decreased expenses approximately
$130 in 2022. These declines were partially offset by the
elimination of CAF II government credits, higher bad debt expense
and advertising costs.
Depreciation expense increased in 2022, primarily due to ongoing
capital investment for strategic initiatives such as fiber and
network upgrades and expansion, partially offset by updates to the
estimated lives of our fiber assets (see Note 7).
Operating income increased in 2022 and decreased in 2021. Our
Consumer Wireline operating income margin was 10.4% in 2022, 7.9%
in 2021 and 11.9% in 2020. Our Consumer Wireline EBITDA margin was
35.3% in 2022, 32.6% in 2021 and 35.5% in 2020.
LATIN AMERICA SEGMENT Percent Change
2022 vs. 2021 vs.
2022 2021 2020 2021 2020
Operating revenues
Service $2,162 $1,834 $1,656 17.9 % 10.7%
Equipment 982 913 906 7.6 0.8
Total Operating Revenues 3,144 2,747 2,562 14.5 7.2
Operating expenses
Operations and support 2,812 2,652 2,636 6.0 0.6
Depreciation and amortization 658 605 513 8.8 17.9
Total Operating Expenses 3,470 3,257 3,149 6.5 3.4
Operating Income (Loss) $(326) $(510) $(587) 36.1% 13.1%
================================== ===== ===== ===== ========= ======
26
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------------------
The following tables highlight other key measures of performance
for Mexico:
Subscribers
----------
Percent Change
2022 vs. 2021 vs.
(in 000s) 2022 2021 2020 2021 2020
Postpaid 4,925 4,807 4,696 2.5% 2.4%
Prepaid 16,204 15,057 13,758 7.6 9.4
Reseller 474 498 489 (4.8) 1.8
Mexico Wireless Subscribers 21,603 20,362 18,943 6.1% 7.5%
Mexico Wireless Net Additions
----------
Percent Change
2022 vs. 2021 vs.
(in 000s) 2022 2021 2020 2021 2020
Postpaid 118 111 (407) 6.3% -%
Prepaid 1,147 1,299 174 (11.7) -
Reseller (24) 9 118 - (92.4)
Mexico Wireless Net Additions 1,241 1,419 (115) (12.5)% -%
====== ====== ====== ========= ======
Service revenues increased in 2022, reflecting growth in
wholesale services, subscribers and ARPU.
Equipment revenues increased in 2022, due to higher equipment
sales.
Operations and support expenses increased in 2022, due to higher
acquisition costs, bad debt and network expenses. Approximately 5%
of Mexico expenses are U.S. dollar-based, with the remainder in the
local currency.
Depreciation expense increased in 2022, reflecting higher
in-service assets.
Operating income improved in 2022 and 2021. Our Mexico operating
income margin was (10.4)% in 2022, (18.6)% in 2021 and (22.9)% in
2020. Our Mexico EBITDA margin was 10.6% in 2022, 3.5% in 2021 and
(2.9)% in 2020.
OPERATING ENVIRONMENT AND TRS OF THE BUSINESS
2023 Revenue Trends We expect revenue growth in our wireless and
broadband businesses as customers demand instant connectivity and
higher speeds made possible by wireless network enhancements
through 5G deployment and our fiber network expansion. We believe
that our simplified go-to-market strategy for 5G in underpenetrated
markets will continue to contribute to wireless subscriber and
service revenue growth and that expansion of our fiber footprint
and our multi-gig offerings will drive greater demand for broadband
services on our fast-growing fiber network.
As we expand our fiber reach, we will be orienting our business
portfolio to leverage this opportunity to offset continuing
declines in legacy Business Wireline products by growing
connectivity with small to mid-sized businesses. We plan to use our
strong fiber and wireless assets, broad distribution and converged
product offers to strengthen our overall market position. We will
continue to rationalize our product portfolio with a longer-term
shift of the business to fiber and mobile connectivity, and growth
in value-added services.
2023 Expense Trends We expect the spending required to support
growth initiatives, primarily our continued deployment of fiber and
5G to pressure expense trends in 2023. To the extent customers
further upgrade their handsets in 2023, the expenses associated
with those device sales are expected to contribute to higher costs.
During 2023, we will also continue to prioritize efficiency, led by
our cost transformation initiative. These investments will help
prepare us to meet increased customer demand for enhanced wireless
and broadband services, including video streaming, augmented
reality and "smart" technologies. The software benefits of our 5G
wireless technology should result in a more efficient use of
capital and lower network-related expenses in the coming years.
We continue to transform our operations to be more efficient and
effective. We are restructuring businesses, sunsetting legacy
networks, improving customer service and ordering functions through
digital transformation, sizing our support costs and staffing with
current activity levels, and reassessing overall benefit costs.
Cost savings and asset sales align with our focus on debt
reduction.
27
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------------------
Market Conditions The U.S. stock market experienced volatility
and contraction in 2022. Several factors, including the continued
impact from the global pandemic, have resulted in changes in demand
in business communication services. The global pandemic has caused,
and could again cause, delays in the development, manufacturing
(including the sourcing of key components) and shipment of
products, as well as continued tight labor market and actual or
perceived inflation. Most of our products and services are not
directly affected by the imposition of tariffs on Chinese goods.
However, we expect ongoing pressure on pricing during 2023 as we
respond to the geopolitical and macroeconomic environment and our
competitive marketplace, especially in wireless services.
Included on our consolidated balance sheets are assets held by
benefit plans for the payment of future benefits. Our pension plans
are subject to funding requirements of the Employee Retirement
Income Security Act of 1974, as amended (ERISA). We expect only
minimal ERISA contribution requirements to our pension plans for
2023. Investment returns on these assets depend largely on trends
in the economy, and a weakness in the equity, fixed income and real
asset markets could require us to make future contributions to the
pension plans. In addition, our policy of recognizing actuarial
gains and losses related to our pension and other postretirement
plans in the period in which they arise subjects us to earnings
volatility caused by changes in market conditions; however, these
actuarial gains and losses do not impact segment performance as
they are required to be recorded in "Other income (expense) - net."
Changes in our discount rate, which are tied to changes in the bond
market, and changes in the performance of equity markets, may have
significant impacts on the valuation of our pension and other
postretirement obligations at the end of 2023 (see "Critical
Accounting Policies and Estimates").
OPERATING ENVIRONMENT OVERVIEW
AT&T subsidiaries operating within the United States are
subject to federal and state regulatory authorities. AT&T
subsidiaries operating outside the United States are subject to the
jurisdiction of national and supranational regulatory authorities
in the markets where service is provided.
In the Telecommunications Act of 1996 (Telecom Act), Congress
established a national policy framework intended to bring the
benefits of competition and investment in advanced
telecommunications facilities and services to all Americans by
opening all telecommunications markets to competition and reducing
or eliminating regulatory burdens that harm consumer welfare.
Nonetheless, over the ensuing two decades, the Federal
Communications Commission (FCC) and some state regulatory
commissions have maintained or expanded certain regulatory
requirements that were imposed decades ago on our traditional
wireline subsidiaries when they operated as legal monopolies. More
recently, the FCC has pursued a more deregulatory agenda,
eliminating a variety of antiquated and unnecessary regulations and
streamlining its processes in a number of areas. We continue to
support regulatory and legislative measures and efforts, at both
the state and federal levels, to reduce inappropriate regulatory
burdens that inhibit our ability to compete effectively and offer
needed services to our customers, including initiatives to
transition services from traditional networks to all IP-based
networks. At the same time, we also seek to ensure that legacy
regulations are not further extended to broadband or wireless
services, which are subject to vigorous competition.
Internet The FCC currently classifies fixed and mobile consumer
broadband services as information services, subject to light-touch
regulation. However, some states have adopted legislation or issued
executive orders that would reimpose net neutrality rules repealed
by the FCC. Suits were filed concerning such laws in California and
Vermont. The California suit was dismissed without prejudice on May
4, 2022, and the California statute is now in effect. The
litigation challenging the Vermont statute has been stayed pending
the Second Circuit's disposition of an appeal by the State of New
York of an order enjoining enforcement of a New York statute
regulating broadband rates on the ground that such statute is
preempted by federal law. We expect additional states may seek to
impose net neutrality requirements in the future.
On November 15, 2021, the Infrastructure Investment and Jobs Act
(IIJA) was signed into law. The legislation appropriates $65,000 to
support broadband deployment and adoption. The National
Telecommunications and Information Agency (NTIA) is responsible for
distributing more than $48,000 of this funding, including $42,500
in state grants for broadband deployment projects in unserved and
underserved areas. NTIA established initial requirements for this
program in May 2022 and is expected to announce state grant
allocations in 2023. The IIJA also appropriated $14,200 for
establishment of the Affordable Connectivity Program (ACP), an
FCC-administered monthly, low-income broadband benefit program,
replacing the Emergency Broadband Benefit program (established in
December 2020 by the Consolidated Appropriations Act, 2021).
Qualifying customers can receive up to thirty dollars per month (or
seventy-five dollars per month for those on Tribal lands) to assist
with their internet bill. AT&T is a participating provider in
the ACP program and will consider participating in the deployment
program where appropriate. The IIJA includes various provisions
that have resulted in FCC proceedings regarding ACP program
administration and consumer protection, reform of the existing
universal support program, and broadband labeling and equal
access.
Privacy-related legislation continues to be adopted or
considered in a number of jurisdictions. Legislative, regulatory
and litigation actions could result in increased costs of
compliance, further regulation or claims against broadband internet
access service providers and others, and increased uncertainty in
the value and availability of data.
28
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------------------
Wireless Industry-wide network densification and 5G technology
expansion efforts, which are needed to satisfy extensive demand for
video and internet access, will involve significant deployment of
"small cell" equipment. This increases the importance of local
permitting processes that allow for the placement of small cell
equipment in the public right-of-way on reasonable timelines and
terms. The FCC has adopted multiple Orders streamlining federal,
state, and local wireless structure review processes that had the
tendency to delay and impede deployment of small cell and related
infrastructure used to provide telecommunications and broadband
services. During 2020-2021, we have also deployed 5G nationwide on
"low band" spectrum on macro towers. Executing on the recent
spectrum purchase, we announced ongoing construction and continuing
deployment of 5G on C-band spectrum in 2022 and beyond.
EXPECTED GROWTH AREAS
Over the next few years, we expect our growth to come from
wireless and IP-based fiber broadband services. We provide
integrated services to diverse groups of customers in the U.S. on
an integrated telecommunications network utilizing different
technological platforms. In 2023, our key initiatives include:
--Continuing our wireless subscriber momentum and 5G deployment,
with expansion of 5G service, including to underpenetrated
markets.
--Improving fiber penetration, accelerating subscriber growth
and increasing broadband revenues.
--Continuing to drive efficiencies and a competitive advantage
through cost transformation initiatives and product
simplification.
Wireless We expect to continue to deliver revenue growth in the
coming years. We are in a period of rapid growth in wireless video
usage and believe that there are substantial opportunities
available for next-generation converged services that combine
technologies and services. As of December 31, 2022, we served 239
million wireless subscribers in North America, with more than 217
million in the United States.
Our LTE technology covers over 441 million people in North
America, and in the United States, we cover all major metropolitan
areas and over 337 million people. We also provide 4G coverage
using another technology (HSPA+), and when combined with our
upgraded backhaul network, we provide enhanced network capabilities
and superior mobile broadband speeds for data and video services.
In December 2018, we introduced the nation's first commercial
mobile 5G service and expanded that deployment nationwide in July
2020. At December 31, 2022, our network covers more than 285
million people with 5G technology in the United States and North
America.
Our networks covering both the U.S. and Mexico have enabled our
customers to use wireless services without roaming on other
companies' networks. We believe this seamless access will prove
attractive to customers and provide a significant growth
opportunity. At December 31, 2022, we provided LTE coverage to over
104 million people in Mexico.
Integration of Data and Broadband Services As the communications
industry has evolved into internet-based technologies capable of
blending wireline and wireless services, we plan to focus on
expanding our wireless network capabilities and provide broadband
offerings that allow customers to integrate their home or business
fixed services with their mobile service. In January 2022, we
launched our multi-gig rollout, which brings the fastest internet
to AT&T Fiber customers with symmetrical 2 gig and 5 gig tiers.
We will continue to develop and provide unique integrated mobile
and broadband/fiber solutions.
REGULATORY DEVELOPMENTS
Set forth below is a summary of the most significant regulatory
proceedings that directly affected our operations during 2022.
Industry-wide regulatory developments are discussed above in
Operating Environment Overview. While these issues may apply only
to certain subsidiaries, the words "we," "AT&T" and "our" are
used to simplify the discussion. The following discussions are
intended as a condensed summary of the issues rather than as a
comprehensive legal analysis and description of all of these
specific issues.
International Regulation Our subsidiaries operating outside the
United States are subject to the jurisdiction of regulatory
authorities in the territories in which the subsidiaries operate.
Our licensing, compliance and advocacy initiatives in foreign
countries primarily enable the provision of enterprise (i.e., large
business) services globally and wireless services in Mexico.
The General Data Protection Regulation went into effect in
Europe in May of 2018. AT&T processes and handles personal data
of its customers and subscribers, employees of its enterprise
customers and its employees. This regulation created a range of new
compliance obligations and significantly increased financial
penalties for noncompliance.
Federal Regulation We have organized our following discussion by
service impacted.
Internet The FCC currently classifies fixed and mobile consumer
broadband services as information services, subject to light-touch
regulation. The D.C. Circuit upheld the FCC's current
classification, although it remanded three discrete issues to the
FCC for further consideration. These issues related to the effect
of the FCC's decision to classify broadband services as
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information services on public safety, the regulation of pole
attachments, and universal service support for low-income consumers
through the Lifeline program. Because no party sought Supreme Court
review of the D.C. Circuit's decision to uphold the FCC's
classification of broadband as an information service, that
decision is final.
In October 2020, the FCC adopted an order addressing the three
issues remanded by the D.C. Circuit for further consideration.
After considering those issues, the FCC concluded there were no
grounds to depart from its determination that fixed and mobile
consumer broadband services should be classified as information
services. An appeal of the FCC's remand decision is pending.
Some states have adopted legislation or issued executive orders
that would reimpose net neutrality rules repealed by the FCC. Suits
were filed concerning such laws in California and Vermont. The
California suit was dismissed without prejudice on May 4, 2022, and
the California statute is now in effect. The litigation challenging
the Vermont statute has been stayed pending the Second Circuit's
disposition of an appeal by the State of New York of an order
enjoining enforcement of a New York statute regulating broadband
rates on the ground that such statute is preempted by federal law.
We expect additional states may seek to impose net neutrality
requirements in the future.
On November 15, 2021, President Biden signed the IIJA into law.
The legislation appropriates funds to support broadband deployment
and adoption. The NTIA is responsible for distributing the majority
of these funds primarily through state grants for broadband
deployment projects in unserved and underserved areas, and to a
lesser extent for middle mile broadband infrastructure, and digital
equity programs. On May 13, 2022, NTIA issued three Notices of
Funding Opportunity for these initiatives - the Broadband Equity,
Access, and Deployment Program, the Enabling Middle Mile Broadband
Infrastructure Program, and the State Digital Equity Program. NTIA
will continue to administer and implement these programs. The IIJA
also appropriated funds for establishment of the ACP, an
FCC-administered monthly, low-income broadband benefit program,
replacing the Emergency Broadband Benefit program. Qualifying
customers can receive reimbursements to assist with their internet
bill. AT&T is a participating provider in the ACP program and
will consider participating in the deployment program where
appropriate. The IIJA includes various provisions that have
resulted in FCC proceedings regarding ACP program administration
and consumer protection, reform of the existing universal support
program, and broadband labeling and equal access.
Privacy-related legislation continues to be adopted or
considered in a number of jurisdictions. Legislative, regulatory
and litigation actions could result in increased costs of
compliance, further regulation or claims against broadband internet
access service providers and others, and increased uncertainty in
the value and availability of data.
Wireless and Broadband In June and November 2020, the FCC issued
a Declaratory Ruling clarifying the limits on state and local
authority to deny applications to modify existing structures to
accommodate wireless facilities. Appeals of the November 2020 order
remain pending in the Ninth Circuit Court of Appeals, following
multiple requests by the FCC to hold the appeal in abeyance until
the Senate confirms a fifth FCC Commissioner. If sustained on
appeal, these FCC decisions will remove state and local regulatory
barriers and reduce the costs of the infrastructure needed for 5G
and FirstNet deployments, which will enhance our ability to place
small cell facilities on utility poles, expand existing facilities
to accommodate public safety services, and replace legacy
facilities and services with advanced broadband infrastructure and
services. During 2022, we have also deployed 5G nationwide on "low
band" spectrum on macro towers. Executing on the recent spectrum
purchase, we continued deploying 5G nationwide on "low band"
spectrum.
In March 2020, the FCC released its order setting rules for
certain spectrum bands (C-band) for 5G operations. In that order,
the FCC concluded that C-band 5G services that met the agency's
technical limits on power and emissions would not cause harmful
interference with aircraft operations. In reliance on that order,
AT&T bid a total of $23,406 and was awarded 1,621 C-band
licenses, including 40 MHz available for deployment in December
2021, with the remainder available for deployment no later than
December 2023. In late 2021, the Federal Aviation Administration
(FAA) questioned whether the C-band launch could impact radio
altimeter equipment on airplanes, which operate on spectrum bands
over 400 MHz away from the spectrum AT&T launched in 2022 and
220 MHz away from spectrum AT&T plans to launch in 2023. In
response, to allow the FAA more time to evaluate, AT&T and
Verizon delayed their planned December 2021 5G C-band launch by six
weeks and voluntarily committed to a series of temporary,
precautionary measures, in addition to deferring turning on a
limited number of towers around certain airports. These measures
have been subsequently modified from time to time. We continue to
work with the FAA to reduce the temporary measures with C-band
deployments as aircraft equipment is upgraded.
In recent years, the FCC took several actions to make spectrum
available for 5G services, including the auction of 280 MHz of
mid-band spectrum previously used for satellite service (the "C
Band" auction) and 39 GHz band spectrum. AT&T obtained spectrum
in these auctions (see "Other Business Matters"). The FCC also made
150 MHz of mid-band CBRS spectrum available, to be shared with
Federal incumbents, which enjoy priority. In addition, the FCC
recently completed Auction 110, in which AT&T won 40 MHz of
3.45 GHz spectrum nationwide at a cost of $9,079.
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ACCOUNTING POLICIES AND STANDARDS
Critical Accounting Policies and Estimates Because of the size
of the financial statement line items they relate to or the extent
of judgment required by our management, some of our accounting
policies and estimates have a more significant impact on our
consolidated financial statements than others.
Pension and Postretirement Benefits Our actuarial estimates of
retiree benefit expense and the associated significant
weighted-average assumptions are discussed in Note 14. Our assumed
weighted-average discount rates for both pension and postretirement
benefits of 5.20%, at December 31, 2022, reflect the hypothetical
rate at which the projected benefit obligations could be
effectively settled or paid out to participants. We determined our
discount rate based on a range of factors, including a yield curve
composed of the rates of return on several hundred high-quality,
fixed income corporate bonds available at the measurement date and
corresponding to the related expected durations of future cash
outflows for the obligations. These bonds had an average rating of
at least Aa3 or AA- by the nationally recognized statistical rating
organizations, denominated in U.S. dollars, and generally not
callable, convertible or index linked. For the year ended December
31, 2022, when compared to the year ended December 31, 2021, we
increased our pension discount rate by 2.20%, resulting in a
decrease in our pension plan benefit obligation of $11,738, and
increased our postretirement discount rate by 2.40%, resulting in a
decrease in our postretirement benefit obligation of $2,102.
Our expected long-term rate of return was 6.75% on pension plan
assets and 4.50% on postretirement plan assets for 2022. We have
increased our expected return on plan assets to 7.50% on pension
plan assets and 6.50% on postretirement plan assets for 2023,
reflecting higher long-term capital market expectations for
equities and higher yields for bonds. Our expected return on plan
assets is calculated using the actual fair value of plan assets. If
all other factors were to remain unchanged, we expect that a 0.50%
decrease in the expected long-term rate of return would cause 2023
combined pension and postretirement cost to increase $201, which
under our accounting policy would be adjusted to actual returns in
the current year upon remeasurement of our retiree benefit
plans.
We recognize gains and losses on pension and postretirement plan
assets and obligations immediately in "Other income (expense) -
net" in our consolidated statements of income. These gains and
losses are generally measured annually as of December 31, and
accordingly, will normally be recorded during the fourth quarter,
unless an earlier remeasurement is required. Should actual
experience differ from actuarial assumptions, the projected pension
benefit obligation and net pension cost and accumulated
postretirement benefit obligation and postretirement benefit cost
would be affected in future years. See Note 14 for additional
discussions regarding our assumptions.
Depreciation Our depreciation of assets, including use of
composite group depreciation for certain subsidiaries and estimates
of useful lives, is described in Notes 1 and 7.
If all other factors were to remain unchanged, we expect that a
one-year increase in the useful lives of our plant in service would
have resulted in a decrease of approximately $2,653 in our 2022
depreciation expense and that a one-year decrease would have
resulted in an increase of approximately $3,778 in our 2022
depreciation expense. See Notes 7 and 8 for depreciation and
amortization expense applicable to property, plant and equipment,
including our finance lease right-of-use assets.
Asset Valuations and Impairments
Goodwill and other indefinite-lived intangible assets are not
amortized but tested at least annually on October 1 for impairment.
For impairment testing, we estimate fair values using models that
predominantly rely on the expected cash flows to be derived from
the reporting unit or use of the asset. Long-lived assets are
reviewed for impairment whenever events or circumstances indicate
that the book value may not be recoverable over the remaining life.
Inputs underlying the expected cash flows include, but are not
limited to, subscriber counts, revenue per user, capital investment
and acquisition costs per subscriber, and ongoing operating costs.
We based our assumptions on a combination of our historical
results, trends, business plans and marketplace participant
data.
Annual Goodwill Testing
Goodwill is tested on a reporting unit basis by comparing the
estimated fair value of each reporting unit to its book value. If
the fair value exceeds the book value, then no impairment is
measured. We estimate fair values using an income approach (also
known as a discounted cash flow model) and a market multiple
approach. The income approach utilizes our future cash flow
projections with a perpetuity value discounted at an appropriate
weighted average cost of capital. The market multiple approach uses
the multiples of publicly traded companies whose services are
comparable to those offered by the reporting units.
As of October 1, 2022, the calculated fair value of the Mobility
reporting unit exceeded its book value and no additional testing
was necessary. If either the projected rate of long-term growth of
Mobility cash flows or revenues declined by 0.5%, or if the
weighted average cost of capital increased by 0.5%, the fair value
would still be higher than the book value of the goodwill. In
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the event of a 10% drop in the fair value of the Mobility
reporting unit, the fair value still would have exceeded the book
value of the reporting unit.
Our 2022 annual goodwill impairment analysis resulted in noncash
impairment charges related to our Business Wireline, Consumer
Wireline and Mexico reporting units. The decline in fair values was
primarily due to changes in the macroeconomic environment, namely
increased weighted-average cost of capital. Also, inflation
pressure and lower projected cash flows driven by secular declines,
predominantly at Business Wireline, impacted the fair values.
Future sustained declines in macroeconomic or business conditions,
or higher discount rates or declines in the value of AT&T stock
could result in goodwill impairment charges in future periods. A
summary of business unit goodwill impairment by segment and
sensitivity analysis is as follows:
Communications Latin America
Business Consumer
Wireline Wireline Mexico
Goodwill as of October 1, 2022: $ 17,903 $ 30,155 $ 826
Impairment charge (13,478) (10,508) (826)
Remaining Goodwill at December 31, 2022 $ 4,425 $ 19,647 $ -
Sensitivity analysis, approximate hypothetical
impairment charge:
Weighted-average cost of capital increase of
25 BP $ 1,200 $ 2,200 $ -
Projected terminal growth rate decline of 25
BP 700 1,400 -
Projected long-term EBITDA margin decline of
100 BP 1,500 1,300 -
==================================================== ========== ========== ===============
U.S. Wireless Licenses
The fair value of U.S. wireless licenses is assessed using a
discounted cash flow model (the Greenfield Approach) and a
qualitative corroborative market approach based on auction prices,
depending upon auction activity. The Greenfield Approach assumes a
company initially owns only the wireless licenses and makes
investments required to build an operation comparable to current
use. These licenses are tested annually for impairment on an
aggregated basis, consistent with their use on a national scope for
the United States. For impairment testing, we assume subscriber and
revenue growth will trend up to projected levels, with a long-term
growth rate reflecting expected long-term inflation trends. We
assume churn rates will initially exceed our current experience but
decline to rates that are in line with industry-leading churn. We
used a discount rate of 9.50%, based on the optimal long-term
capital structure of a market participant and its associated cost
of debt and equity for the licenses, to calculate the present value
of the projected cash flows. If either the projected rate of
long-term growth of cash flows or revenues declined by 0.5%, or if
the discount rate increased by 0.5%, the fair values of these
wireless licenses would still be higher than the book value of the
licenses. The fair value of these wireless licenses exceeded their
book values by more than 10%.
Other Finite-Lived Intangibles
Customer relationships, licenses in Mexico and other
finite-lived intangible assets are reviewed for impairment whenever
events or circumstances indicate that the book value may not be
recoverable over their remaining life. For this analysis, we
compare the expected undiscounted future cash flows attributable to
the asset to its book value. When the asset's book value exceeds
undiscounted future cash flows, an impairment is recorded to reduce
the book value of the asset to its estimated fair value (see Notes
7 and 9).
Income Taxes Our estimates of income taxes and the significant
items giving rise to the deferred assets and liabilities are shown
in Note 13 and reflect our assessment of actual future taxes to be
paid on items reflected in the financial statements, giving
consideration to both timing and probability of these estimates.
Actual income taxes could vary from these estimates due to future
changes in income tax law or the final review of our tax returns by
federal, state or foreign tax authorities.
We use our judgment to determine whether it is more likely than
not that we will sustain positions that we have taken on tax
returns and, if so, the amount of benefit to initially recognize
within our financial statements. We regularly review our uncertain
tax positions and adjust our unrecognized tax benefits (UTBs) in
light of changes in facts and circumstances, such as changes in tax
law, interactions with taxing authorities and developments in case
law. These adjustments to our UTBs may affect our income tax
expense. Settlement of uncertain tax positions may require use of
our cash.
New Accounting Standards
See Note 1 for discussion of recently issued or adopted
accounting standards.
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OTHER BUSINESS MATTERS
Spectrum Auctions On January 14, 2022, the FCC announced that we
were the winning bidder for 1,624 3.45 GHz licenses in Auction 110.
We provided the FCC an upfront deposit of $123 in the third quarter
of 2021 and paid the remaining $8,956 in the first quarter of 2022,
for a total of $9,079. We received the licenses in May 2022, and
classified the auction deposits and related capitalized interest as
"Licenses - Net" on our December 31, 2022 consolidated balance
sheet.
On February 24, 2021, the FCC announced that AT&T was the
winning bidder for 1,621 C-Band licenses, comprised of a total of
80 MHz nationwide, including 40 MHz in Phase I. We provided to the
FCC an upfront deposit of $550 in 2020 and cash payments totaling
$22,856 in the first quarter of 2021, for a total of $23,406. We
received the licenses in July 2021 and classified the auction
deposits, related capitalized interest and billed relocation costs
as "Licenses - Net" on our December 31, 2021 consolidated balance
sheet. In December 2021, we paid $955 of Incentive Payments for the
clearing of Phase I spectrum and estimate that we will be
responsible for an additional $2,112 upon clearing of Phase II
spectrum, expected by the end of 2023. Additionally, we are
responsible for approximately $1,100 of compensable relocation
costs over the next several years as the spectrum is being cleared
by satellite operators, of which we paid $650 in the fourth quarter
of 2021 and $98 in the third quarter of 2022.
WarnerMedia On April 8, 2022, we completed the separation and
distribution of our WarnerMedia business, and merger of Magallanes,
Inc. (Spinco), an AT&T subsidiary formed to hold the
WarnerMedia business, with a subsidiary of Discovery, Inc., which
was renamed Warner Bros. Discovery, Inc. (WBD). Each AT&T
shareholder was entitled to receive 0.241917 shares of WBD common
stock for each share of AT&T common stock held as of the record
date, which represented approximately 71% of WBD. In connection
with and in accordance with the terms of the Separation and
Distribution Agreement (SDA), prior to the distribution and merger,
AT&T received approximately $40,400, which includes $38,800 of
Spinco cash and $1,600 of debt retained by WarnerMedia. During the
second quarter of 2022, assets of approximately $121,100 and
liabilities of $70,600 were removed from our balance sheet as well
as $45,041 of retained earnings and $5,632 of additional paid-in
capital associated with the transaction. Additionally, in August
2022, we and WBD finalized the post-closing adjustment, pursuant to
Section 1.3 of the SDA, which resulted in a $1,200 payment to WBD
in the third quarter of 2022 and was reflected in the December 31,
2022 balance sheet as an adjustment to additional paid-in capital.
The payment is accounted for as cash used in financing activities
in our statement of cash flows in third quarter of 2022. (See Note
6)
AT&T, Spinco and Discovery entered into a Tax Matters
Agreement, which governs the parties' rights, responsibilities and
obligations with respect to tax liabilities and benefits, the
preservation of the expected tax-free status of the transactions
contemplated by the SDA, and other matters regarding taxes.
Additionally, we entered into an adjusted HBO Max agreement with
WBD that provides us with expanded distribution rights and
additional flexibility to market and sell the service in a
cost-efficient manner. Under the terms of the agreement, beginning
June 1, 2022, we are permitted to include HBO Max in our customer
offerings in exchange for a licensing fee. Furthermore, AT&T
has the right, but not the obligation, to market and distribute HBO
Max to its customers in plans, bundles, and promotional offers.
Xandr On June 6, 2022, we completed the sale of the marketplace
component of Xandr to Microsoft Corporation. Xandr was reflected in
our historical financial statements as discontinued operations.
(See Note 6)
Gigapower, LLC On December 22, 2022, we agreed to form
Gigapower, LLC (Gigapower), a joint venture with BlackRock
Alternatives, to provide a fiber network to Internet service
providers and other businesses across the U.S. that serve customers
outside of our traditional 21-state wireline footprint. The
transaction is subject to customary closing conditions, including
regulatory approvals. Upon closing the joint venture, we expect to
deconsolidate Gigapower's operations.
Labor Contracts As of January 31, 2023, we employed
approximately 160,700 persons. Approximately 42% of our employees
are represented by the Communications Workers of America (CWA), the
International Brotherhood of Electrical Workers (IBEW) or other
unions. After expiration of the collective bargaining agreements,
work stoppages or labor disruptions may occur in the absence of new
contracts or other agreements being reached. The main contracts
included the following:
--A contract covering approximately 7,000 Mobility employees in
nine states, for which we reached tentative agreement in February
2023.
--A contract covering approximately 400 employees supporting
internet-based products is set to expire in July 2023.
--A contract covering approximately 200 Mobility employees in
Illinois is set to expire in May 2023.
Inflation Reduction Act The Inflation Reduction Act of 2022
(Inflation Reduction Act) was enacted on August 16, 2022. The
Inflation Reduction Act imposes a new 15% corporate alternative
minimum tax (CAMT) on "applicable corporations" for taxable years
beginning after December 31, 2022. The CAMT is imposed to the
extent the alternative minimum tax exceeds a company's regular tax
liability. A corporation that pays alternative minimum tax is
eligible for a credit against income tax in future years. Subject
to future regulatory guidance, we currently do not believe the CAMT
will have a material impact on our 2023 tax liability.
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OECD On October 8, 2021, the Organization for Economic
Co-operation and Development (OECD) announced the OECD/G20
Inclusive Framework on Base Erosion and Profit Shifting which
agreed to a two-pillar solution to address tax challenges arising
from digitalization of the economy. On December 20, 2021, the OECD
released Pillar Two Model Rules defining the global minimum tax,
which calls for the taxation of large corporations at a minimum
rate of 15%. The OECD continues to release additional guidance on
the two-pillar framework with widespread implementation anticipated
by 2024. There can be no assurance that these new rules will not
increase our taxes in these countries and have an adverse impact on
our provision for income taxes, when enacted or enforced by
participating countries in which we do business.
Environmental We are subject from time to time to judicial and
administrative proceedings brought by various governmental
authorities under federal, state or local environmental laws. We
reference in our Forms 10-Q and 10-K certain environmental
proceedings that could result in monetary sanctions (exclusive of
interest and costs) of three hundred thousand dollars or more.
However, we do not believe that any of those currently pending will
have a material adverse effect on our results of operations.
LIQUIDITY AND CAPITAL RESOURCES
Continuing operations for the years ended
December 31, 2022 2021 2020
Cash provided by operating activities $ 35,812 $ 37,170 $ 37,484
Cash used in investing activities (26,899) (32,489) (13,447)
Cash (used in) provided by financing activities (59,564) 1,894 (31,031)
At December 31, 2022 2021
Cash and cash equivalents $ 3,701 $ 19,223
Total debt 135,890 175,631
===================================================== ========== ==========
We had $3,701 in cash and cash equivalents available at December
31, 2022, decreasing $15,522 since December 31, 2021 and returning
to historical levels with the close of the WarnerMedia/Discovery
transaction. Cash and cash equivalents included cash of $866 and
money market funds and other cash equivalents of $2,835.
Approximately $1,045 of our cash and cash equivalents were held by
our foreign entities in accounts predominantly outside of the U.S.
and may be subject to restrictions on repatriation.
In 2022, cash inflows were primarily provided by cash receipts
from operations, including cash from our sale and transfer of our
receivables to third parties, cash received in connection with the
separation and distribution of the WarnerMedia business, issuance
of commercial paper and long-term debt and distributions from
DIRECTV. These inflows were exceeded by cash used to meet the needs
of the business, including, but not limited to, payment of
operating expenses, spectrum acquisitions, funding capital
expenditures and vendor financing payments, repayment of short-term
borrowings and long-term debt, and dividend payments to
stockholders. We maintain availability under our credit facilities
and our commercial paper program to meet our short-term liquidity
requirements.
Refer to "Contractual Obligations" discussion below for
additional information regarding our cash requirements.
Cash Provided by Operating Activities from Continuing
Operations
During 2022, cash provided by operating activities was $35,812
compared to $37,170 in 2021, reflecting the separation of DIRECTV
and working capital impacts, including higher payments for wireless
devices tied to accelerated subscriber growth.
We actively manage the timing of our supplier payments for
operating items to optimize the use of our cash. Among other
things, we seek to make payments on 90-day or greater terms, while
providing the suppliers with access to bank facilities that permit
earlier payments at their cost. In addition, for payments to a key
supplier, as part of our working capital initiatives, we have
arrangements that allow us to extend the stated payment terms by up
to 90 days at an additional cost to us (referred to as supplier
financing). The net impact of supplier financing was to improve
cash from operating activities $851 in 2022 and $25 in 2021. All
supplier financing payments are due within one year.
Cash Used in or Provided by Investing Activities from Continuing
Operations
During 2022, cash used in investing activities totaled $26,899,
consisting primarily of $19,626 (including interest during
construction) for capital expenditures, and $10,200 for
acquisitions of licenses won in Auction 110 and associated
capitalized
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interest. In 2022, we received a return of investment of $2,649
from DIRECTV representing distributions in excess of cumulative
equity in earnings from DIRECTV (see Note 10).
For capital improvements, we have negotiated favorable vendor
payment terms of 120 days or more (referred to as vendor financing)
with some of our vendors, which are excluded from capital
expenditures and reported as financing activities. Vendor financing
payments were $4,697 in 2022, compared to $4,596 in 2021. Capital
expenditures in 2022 were $19,626, and when including $4,697 cash
paid for vendor financing, capital investment was $24,323 ($4,182
higher than the prior year).
The vast majority of our capital expenditures are spent on our
networks, including product development and related support
systems. In 2022, we placed $5,817 of equipment in service under
vendor financing arrangements (compared to $5,282 in 2021) and
approximately $320 of assets related to the FirstNet build
(compared to $750 in 2021). Total reimbursements from the
government for FirstNet were approximately $260 for 2022 and $865
for 2021.
The amount of our capital expenditures is influenced by demand
for services and products, capacity needs and network enhancements.
Our capital expenditures and vendor financing payments were
elevated in 2022, reflecting strategic investments. In 2023, we
expect that our capital investment, which includes capital
expenditures and cash paid for vendor financing, will be consistent
with 2022 levels.
Cash Used in or Provided by Financing Activities from Continuing
Operations
In 2022, cash used in financing activities totaled $59,564 and
was comprised of debt issuances and repayments, payments of
dividends, and vendor financing payments. We also paid
approximately $1,211 in cash on the note payable to DIRECTV, with
$130 due as of December 31, 2022 (see Note 19).
A tabular summary of our debt activity during 2022 is as
follows:
First Second Third Fourth Full Year
Quarter Quarter Quarter Quarter 2022
Net commercial paper borrowings $ 1,471 $ (5,219) $ (724) $(1,337) $ (5,809)
Issuance of Notes and Debentures:
Private Financing $ - $ - $ 750 $ - $ 750
2025 Term Loan - - - 2,500 2,500
Other 479 - - - 479
Debt Issuances $ 479 $ - $ 750 $ 2,500 $ 3,729
Repayments:
2021 Syndicated Term Loan $ - $ (7,350) $ - $ - $ (7,350)
BAML Bilateral Term Loan - Tranche A - (1,000) - - (1,000)
Private financing - (750) - (750) (1,500)
Repayments of other short-term borrowings $ - $ (9,100) $ - $ (750) $ (9,850)
USD notes 1, 2, 3 $ (123) $(18,957) $ - $ (287) $(19,367)
Euro notes - (3,343) - - (3,343)
BAML Bilateral Term Loan - Tranche B - (1,000) - - (1,000)
Other (667) (123) (199) (419) (1,408)
Repayments of long-term debt $ (790) $(23,423) $ (199) $ (706) $(25,118)
=== ===== ======== ====== ======= ========
1 On April 11, 2022, we issued notices for the redemption in full of all of
the outstanding approximately $9,042 aggregate principal amount of various global
notes due 2022 to 2026 with coupon rates ranging from 2.625% to 4.450% (Make-Whole
Notes). The Make-Whole Notes were redeemed on the redemption dates set forth
in the notices of redemption, at "make whole" redemption prices calculated as
set forth in the respective redemption notices in the second quarter.
2 Includes $7,954 of cash paid toward the $8,822 aggregate principal amount
of various notes that were tendered for cash in May 2022. The notes had interest
rates ranging between 3.100% and 8.750% and original maturities ranging from
2026 to 2061.
3 Includes $287 of principal repayment on a $592 zero coupon note that matured
in November 2022. The other $305 was applied to operating cash flows related
to interest expense that accreted to the note over its life.
The weighted average interest rate of our long-term debt
portfolio, including credit agreement borrowings and the impact of
derivatives, was approximately 4.1% as of December 31, 2022 and
3.8% as of December 31, 2021. We had $133,207 of total notes and
debentures outstanding at December 31, 2022, which included Euro,
British pound sterling, Canadian dollar, Mexican peso, Australian
dollar, and Swiss franc denominated debt that totaled approximately
$35,525.
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At December 31, 2022, we had $7,467 of debt maturing within one
year, consisting of $866 of commercial paper borrowings and $6,601
of long-term debt issuances.
During 2022, we paid $4,697 of cash under our vendor financing
program, compared to $4,596 in 2021. Total vendor financing
payables included in our December 31, 2022 consolidated balance
sheet were $6,147, with $4,592 due within one year (in "Accounts
payable and accrued liabilities") and the remainder predominantly
due within five years (in "Other noncurrent liabilities").
At December 31, 2022, we had approximately 144 million shares
remaining from our share repurchase authorizations approved by the
Board of Directors in 2014. During 2022, we repurchased
approximately 34 million shares under the March 2014
authorization.
We paid dividends on common shares and preferred shares of
$9,859 in 2022, compared with $15,068 in 2021. Dividends on common
stock declared by our Board of Directors, on a quarterly basis,
totaled $1.11 per share in 2022 and $2.08 per share in 2021. Our
dividend policy considers the expectations and requirements of
stockholders, capital funding requirements of AT&T and
long-term growth opportunities. On February 1, 2022, we announced
that our Board of Directors approved an expected annual dividend
level of $1.11 per common share, or approximately $8,000 per year,
following the close of the WarnerMedia/Discovery transaction.
In the fourth quarter of 2022, all outstanding AT&T Mobility
II LLC (Mobility preferred interests) were put to us (approximately
$8,000), with approximately one-third redeemed in the fourth
quarter; approximately 107 million interests are expected to be
redeemed primarily in October 2023 and 107 million redeemed in
October 2024, per the terms of the agreement, unless the interests
are called or the puts are accepted by AT&T prior to those
dates. With the certainty of redemption, the remaining Mobility
preferred interests were reclassified from equity to a liability at
fair value, with approximately $2,670 recorded in current as
"Accounts payable and accrued liabilities" and $2,670 recorded in
"Other noncurrent liabilities." In the fourth quarter of 2022, we
paid approximately $2,600 cash to redeem the Mobility preferred
interests put to us on October 24, 2022. (See Note 16)
Our 2023 financing activities will focus on managing our debt
level and paying dividends, subject to approval by our Board of
Directors. We plan to fund our financing uses of cash through a
combination of cash from operations, issuance of debt, and asset
sales. The timing and mix of any debt issuance and/or refinancing
will be guided by credit market conditions and interest rate
trends.
Credit Facilities
The following summary of our various credit and loan agreements
does not purport to be complete and is qualified in its entirety by
reference to each agreement filed as exhibits to our Annual Report
on Form 10-K.
We use credit facilities as a tool in managing our liquidity
status. In November 2022, we terminated one of our revolving credit
agreements and amended and restated the other. We currently have
one $12,000 revolving credit agreement that terminates on November
18, 2027 (Revolving Credit Agreement). No amounts were outstanding
as of December 31, 2022.
On January 29, 2021, we entered into a $14,700 Term Loan Credit
Agreement (2021 Syndicated Term Loan), with Bank of America, N.A.,
as agent. On March 23, 2021, we borrowed $7,350 under the 2021
Syndicated Term Loan and the remaining $7,350 of lenders'
commitments were terminated. In the first quarter of 2022, the
maturity date of the 2021 Syndicated Term Loan was extended to
December 31, 2022. On April 13, 2022, the 2021 Syndicated Term Loan
was paid off and terminated.
In March 2021, we entered into and drew on a $2,000 term loan
credit agreement (BAML Bilateral Term Loan) consisting of (i) a
$1,000 facility originally due December 31, 2021 (BAML Tranche A
Facility) and subsequently extended to December 31, 2022 in the
fourth quarter of 2021, and (ii) a $1,000 facility due December 31,
2022 (BAML Tranche B Facility), with Bank of America, N.A., as
agent. On April 13, 2022, the BAML Bilateral Term Loan was paid off
and terminated.
In November 2022, we entered into and drew on a $2,500 term loan
agreement due February 16, 2025 (2025 Term Loan), with Mizuho Bank,
Ltd., as agent. As of December 31, 2022, $2,500 was outstanding
under this agreement.
We also utilize other external financing sources, which include
various credit arrangements supported by government agencies to
support network equipment purchases as well as a commercial paper
program.
Each of our credit and loan agreements contains covenants that
are customary for an issuer with an investment grade senior debt
credit rating. Our Revolving Credit Agreement and 2025 Term Loan
include a net debt-to-EBITDA financial ratio covenant requiring
AT&T to maintain, as of the last day of each fiscal quarter, a
ratio of not more than 3.75-to-1. Other loan agreements include a
net debt-to-EBITDA financial ratio covenant requiring AT&T to
maintain, as of the last day of each fiscal quarter
36
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------------------
through June 30, 2023 a ratio of not more than 4.0-to-1, and a
ratio of not more than 3.5-to-1 for any fiscal quarter thereafter.
As of December 31, 2022, we were in compliance with the covenants
for our credit facilities.
Collateral Arrangements
Most of our counterparty collateral arrangements require cash
collateral posting by AT&T only when derivative market values
exceed certain thresholds. Under these arrangements, which cover
the majority of our approximately $38,800 derivative portfolio,
counterparties are still required to post collateral. During 2022,
we posted approximately $760 of cash collateral, on a net basis.
Cash postings under these arrangements vary with changes in credit
ratings and netting agreements. (See Note 12)
Other
Our total capital consists of debt (long-term debt and debt
maturing within one year) and stockholders' equity. Our capital
structure does not include debt issued by our equity method
investments. At December 31, 2022, our debt ratio was 56.1%,
compared to 48.9% at December 31, 2021 and 46.4% at December 31,
2020. The debt ratio is affected by the same factors that affect
total capital, and reflects our recent debt issuances, repayments
and reclassifications related to redemption of noncontrolling
interests.
A significant amount of our cash outflows for continuing
operations is related to tax items, acquisition of spectrum through
FCC auctions and benefits paid for current and former
employees:
--Total taxes incurred, collected and remitted by AT&T
during 2022 and 2021, were $16,630 and $17,119. These taxes include
income, franchise, property, sales, excise, payroll, gross receipts
and various other taxes and fees.
--Total domestic spectrum acquired primarily through FCC
auctions, including cash, exchanged spectrum and auction deposits
was approximately $10,200 in 2022, $25,400 in 2021 and $2,800 in
2020.
--Total health and welfare benefits provided to certain active
and retired employees and their dependents totaled approximately
$3,200 in 2022 and $3,390 in 2021, with $788 paid from plan assets
in 2022 compared to $1,163 in 2021. Of those benefits,
approximately $2,840 related to medical and prescription drug
benefits in 2022 compared to $2,990 in 2021. In addition, in 2022,
we prefunded $500 for future benefit payments versus $685 in 2021.
We paid $5,854 of pension benefits out of plan assets in 2022
compared to $5,942 in 2021.
Contractual Obligations
Our contractual obligations as of December 31, 2022, and the
estimated timing of payment, are in the following table:
Payments Due By Period
Less than 1-3 3-5 More than
Total 1 Year Years Years 5 Years
Long-term debt obligations 1 $147,673 $ 6,929 $14,898 $14,897 $ 110,949
Interest payments on long-term
debt 2 101,559 6,062 10,910 9,818 74,769
Purchase obligations 3 27,015 12,313 11,424 2,457 821
Operating lease obligations 4 26,468 4,657 7,746 5,132 8,933
FirstNet sustainability payments
5 17,205 195 390 3,255 13,365
Unrecognized tax benefits 6 8,323 486 - - 7,837
Other finance obligations 7 13,788 5,391 2,830 1,787 3,780
Mobility preferred interests
8 5,340 2,670 2,670 - -
Total Contractual Obligations $347,371 $ 38,703 $50,868 $37,346 $ 220,454
=================================== ======= ======= ====== ====== =======
1 Represents principal or payoff amounts of notes, debentures
and credit agreement borrowings at maturity (see Note 11). Foreign
debt includes the impact from hedges, when applicable.
2 Includes credit agreement borrowings.
3 We expect to fund the purchase obligations with cash provided
by operations or through incremental borrowings. Consists of
commitments primarily related to spectrum acquisitions and other
commercial commitments. The minimum commitment for certain
obligations is based on termination penalties that could be paid to
exit the contracts. (See Note 21)
4 Represents operating lease payments (see Note 8).
5 Represents contractual commitment to make sustainability
payments over the 25-year contract. These sustainability payments
represent our commitment to fund FirstNet's operating expenses and
future reinvestment in the network, which we own and operate.
FirstNet has a statutory requirement to reinvest funds that exceed
the agency's operating expenses, which we anticipate to be $15,000.
(See Note 20)
6 The noncurrent portion of the UTBs is included in the "More
than 5 Years" column, as we cannot reasonably estimate the timing
or amounts of additional cash payments, if any, at this time (see
Note 13).
7 Represents future minimum payments under the Crown Castle and
other arrangements (see Note 18), payables subject to extended
payment terms (see Note 22), finance lease payments (see Note 8)
and note payable to DIRECTV (see Note 19).
8 See Note 16.
37
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------------------
Certain items were excluded from this table because the year of
payment is unknown and could not be reliably estimated, we believe
the obligations are immaterial, or the settlement of the obligation
will not require the use of cash. These items include: deferred
income tax liability of $57,032 (see Note 13); net postemployment
benefit obligations of $8,433 (including current portion); and
other noncurrent liabilities of $11,035.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
We are exposed to market risks primarily from changes in
interest rates and foreign currency exchange rates. These risks,
along with other business risks, impact our cost of capital. It is
our policy to manage our debt structure and foreign exchange
exposure in order to manage capital costs, control financial risks
and maintain financial flexibility over the long term. In managing
market risks, we employ derivatives according to documented
policies and procedures, including interest rate swaps, interest
rate locks, foreign currency exchange contracts and combined
interest rate foreign currency contracts (cross-currency swaps). We
do not use derivatives for trading or speculative purposes. We do
not foresee significant changes in the strategies we use to manage
market risk in the near future.
One of the most significant assumptions used in estimating our
postretirement benefit obligations is the assumed weighted-average
discount rate, which is the hypothetical rate at which the
projected benefit obligations could be effectively settled or paid
out to participants. We determined our discount rate based on a
range of factors, including a yield curve composed of the rates of
return on several hundred high-quality, fixed income corporate
bonds available at the measurement date and corresponding to the
related expected durations of future cash outflows for the
obligations. In recent years, the discount rates have been
increasingly volatile, and on average have been lower than in
historical periods. Lower discount rates used to measure our
pension and postretirement plans result in higher obligations.
Future increases in these rates could result in lower obligations,
improved funded status and actuarial gains.
Interest Rate Risk
The majority of our financial instruments are medium- and
long-term fixed-rate notes and debentures. Changes in interest
rates can lead to significant fluctuations in the fair value of
these instruments. The principal amounts by expected maturity,
average interest rate and fair value of our liabilities that are
exposed to interest rate risk are described in Notes 11 and 12. In
managing interest expense, we control our mix of fixed and floating
rate debt through term loans, floating rate notes, and interest
rate swaps. We have established interest rate risk limits that we
closely monitor by measuring interest rate sensitivities in our
debt and interest rate derivatives portfolios.
Most of our foreign-denominated long-term debt has been swapped
from fixed-rate or floating-rate foreign currencies to fixed-rate
U.S. dollars at issuance through cross-currency swaps, removing
interest rate risk and foreign currency exchange risk associated
with the underlying interest and principal payments. Likewise,
periodically we enter into interest rate locks to partially hedge
the risk of increases in the benchmark interest rate during the
period leading up to the probable issuance of fixed-rate debt. We
expect gains or losses in our cross-currency swaps and interest
rate locks to offset the losses and gains in the financial
instruments they hedge.
We had no interest rate swaps and no interest rate locks at
December 31, 2022.
Foreign Exchange Risk
We principally use foreign exchange contracts to hedge costs and
debt denominated in foreign currencies. We are also exposed to
foreign currency exchange risk through our foreign affiliates and
equity investments in foreign companies.
Through cross-currency swaps, most of our foreign-denominated
debt has been swapped from fixed-rate or floating-rate foreign
currencies to fixed-rate U.S. dollars at issuance, removing
interest rate and foreign currency exchange risk associated with
the underlying interest and principal payments. We expect gains or
losses in our cross-currency swaps to offset the gains and losses
in the financial instruments they hedge. We had cross-currency
swaps with a notional value of $38,213 and a fair value of $(5,982)
outstanding at December 31, 2022.
For the purpose of assessing specific risks, we use a
sensitivity analysis to determine the effects that market risk
exposures may have on the fair value of our financial instruments
and results of operations. We had foreign exchange forward
contracts with a notional value of $617 and a fair value of $(23)
outstanding at December 31, 2022.
38
AT&T Inc.
Report of Management
The consolidated financial statements have been prepared in
conformity with U.S. generally accepted accounting principles. The
integrity and objectivity of the data in these financial
statements, including estimates and judgments relating to matters
not concluded by year end, are the responsibility of management, as
is all other information included in the Annual Report, unless
otherwise indicated.
The financial statements of AT&T Inc. (AT&T) have been
audited by Ernst & Young LLP, Independent Registered Public
Accounting Firm. Management has made available to Ernst & Young
LLP all of AT&T's financial records and related data, as well
as the minutes of stockholders' and directors' meetings.
Furthermore, management believes that all representations made to
Ernst & Young LLP during its audit were valid and
appropriate.
Management maintains disclosure controls and procedures that are
designed to ensure that information required to be disclosed by
AT&T is recorded, processed, summarized, accumulated and
communicated to its management, including its principal executive
and principal financial officers, to allow timely decisions
regarding required disclosure, and reported within the time periods
specified by the Securities and Exchange Commission's rules and
forms.
Management also seeks to ensure the objectivity and integrity of
its financial data by the careful selection of its managers, by
organizational arrangements that provide an appropriate division of
responsibility and by communication programs aimed at ensuring that
its policies, standards and managerial authorities are understood
throughout the organization.
The Audit Committee of the Board of Directors meets periodically
with management, the internal auditors and the independent auditors
to review the manner in which they are performing their respective
responsibilities and to discuss auditing, internal accounting
controls and financial reporting matters. Both the internal
auditors and the independent auditors periodically meet alone with
the Audit Committee and have access to the Audit Committee at any
time.
Assessment of Internal Control
The management of AT&T is responsible for establishing and
maintaining adequate internal control over financial reporting, as
defined in Rule 13a-15(f) or 15d-15(f) under the Securities
Exchange Act of 1934. AT&T's internal control system was
designed to provide reasonable assurance to the company's
management and Board of Directors regarding the preparation and
fair presentation of published financial statements.
AT&T management assessed the effectiveness of the company's
internal control over financial reporting as of December 31, 2022.
In making this assessment, it used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO) in Internal Control - Integrated Framework (2013 framework).
Based on its assessment, AT&T management believes that, as of
December 31, 2022, the company's internal control over financial
reporting is effective based on those criteria.
Ernst & Young LLP, the independent registered public
accounting firm that audited the financial statements included in
this Annual Report, has issued an attestation report on the
company's internal control over financial reporting.
/s/John T. Stankey /s/Pascal Desroches
John T. Stankey Pascal Desroches
Chief Executive Officer Senior Executive Vice President
and President and Chief Financial Officer
39
AT&T Inc.
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of AT&T
Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of
AT&T Inc. (the Company) as of December 31, 2022 and 2021, the
related consolidated statements of income, comprehensive income,
cash flows and changes in stockholders' equity for each of the
three years in the period ended December 31, 2022, and the related
notes and financial statement schedule listed in Item 15(a)
(collectively referred to as the "consolidated financial
statements"). In our opinion, the consolidated financial statements
present fairly, in all material respects, the financial position of
the Company at December 31, 2022 and 2021, and the results of its
operations and its cash flows for each of the three years in the
period ended December 31, 2022, in conformity with U.S. generally
accepted accounting principles.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States) (PCAOB),
the Company's internal control over financial reporting as of
December 31, 2022, based on criteria established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (2013 framework) and our
report dated February 13, 2023 expressed an unqualified opinion
thereon.
Basis for Opinion
These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion
on the Company's financial statements based on our audits. We are a
public accounting firm registered with the PCAOB and are required
to be independent with respect to the Company in accordance with
the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in accordance with the standards of the
PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial
statements are free of material misstatement, whether due to error
or fraud. Our audits included performing procedures to assess the
risks of material misstatement of the financial statements, whether
due to error or fraud, and performing procedures that respond to
those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial
statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as
well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis
for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters
arising from the current period audit of the financial statements
that were communicated or required to be communicated to the audit
committee and that: (1) relate to accounts or disclosures that are
material to the financial statements and (2) involved our
especially challenging, subjective or complex judgments. The
communication of critical audit matters does not alter in any way
our opinion on the consolidated financial statements, taken as a
whole, and we are not, by communicating the critical audit matters
below, providing separate opinions on the critical audit matters or
on the accounts or disclosures to which they relate.
Discount rates used in determining pension and postretirement
benefit obligations
Description of At December 31, 2022, the Company's defined benefit pension obligation
the Matter was $42,828 million and exceeded the fair value of pension plan
assets of $40,874 million, resulting in an unfunded benefit obligation
of $1,954 million. Additionally, at December 31, 2022, the Company's
postretirement benefit obligation was $7,280 million and exceeded
the fair value of postretirement plan assets of $2,160 million,
resulting in an unfunded benefit obligation of $5,120 million.
As explained in Note 14 to the consolidated financial statements,
the Company updates the assumptions used to measure the defined
benefit pension and postretirement benefit obligations, including
discount rates, at December 31 or upon a remeasurement event.
The Company determines the discount rates used to measure the
obligations based on the development of a yield curve using high-quality
corporate bonds selected to yield cash flows that correspond
to the expected timing and amount of the expected future benefit
payments.
40
AT&T Inc.
Auditing the defined benefit pension and postretirement benefit
obligations was complex due to the judgmental nature of the actuarial
assumptions made by management, primarily the discount rate,
used in the Company's measurement process. The discount rate
has a significant effect on the measurement of the defined benefit
pension and postretirement benefit obligations, and auditing
the discount rate was complex because it required an evaluation
of the credit quality of the corporate bonds used to develop
the discount rate and the correlation of those bonds' cash inflows
to the timing and amount of future expected benefit payments.
How We We obtained an understanding, evaluated the design and tested
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 comprised the
yield curve and compared the timing and amount of cash flows
at maturity with the expected amounts and duration of the related
benefit payments.
Evaluation of goodwill for impairment
Description of At December 31, 2022, the Company's goodwill balance was $67,895
the Matter million. As discussed in Note 1 to the consolidated financial
statements, reporting unit goodwill is tested at least annually
for impairment. Estimating fair values in connection with these
impairment evaluations involves the utilization of discounted
cash flow and market multiple approaches. As described in Note
9 to the consolidated financial statements, impairment charges
of $13,478 million in the Business Wireline reporting unit, $10,508
million in the Consumer Wireline reporting unit and $826 million
in the Mexico reporting unit were recorded during the year.
Auditing management's annual goodwill impairment test for the
Consumer Wireline and Business Wireline reporting units was complex
because the estimation of fair values involves subjective management
assumptions, such as projected terminal growth rates, projected
long-term EBITDA margins, and weighted average cost of capital,
and complex valuation methodologies, such as the discounted cash
flow and market multiple approaches. Assumptions used in these
valuation models are forward-looking, and changes in these assumptions
can have a material effect on the determination of fair value.
How We Addressed We obtained an understanding, evaluated the design and tested
the the operating effectiveness of certain controls over the Company's
Matter in Our impairment evaluation processes. Our procedures included testing
Audit controls over management's review of the valuation models and
its determination of the significant assumptions described above.
Our audit procedures to test management's impairment evaluations
included, among others, assessing the valuation methodologies
and significant assumptions discussed above and the underlying
data used to develop such assumptions. For example, we compared
the significant assumptions to current industry, market and economic
trends, and other guideline companies in the same industry. Where
appropriate, we evaluated whether changes to the Company's business
and other factors would affect the significant assumptions. We
also assessed the historical accuracy of management's estimates
and performed independent sensitivity analyses. We involved our
valuation specialists to assist us in evaluating the methodologies
and auditing the assumptions used to calculate the estimated
fair values of the Company's reporting units.
/s/ Ernst & Young LLP
We have served as the Company's auditor since 1999.
Dallas, Texas
February 13, 2023
41
AT&T Inc.
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of AT&T
Inc.
Opinion on Internal Control Over Financial Reporting
We have audited AT&T Inc.'s internal control over financial
reporting as of December 31, 2022, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (2013
framework) (the COSO criteria). In our opinion, AT&T Inc. (the
Company) maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2022, based on
the COSO criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States) (PCAOB),
the 2022 consolidated financial statements of the Company and our
report dated February 13, 2023 expressed an unqualified opinion
thereon.
Basis for Opinion
The Company's management is responsible for maintaining
effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial
reporting included in the accompanying Report of Management. Our
responsibility is to express an opinion on the Company's internal
control over financial reporting based on our audit. We are a
public accounting firm registered with the PCAOB and are required
to be independent with respect to the Company in accordance with
the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audit in accordance with the standards of the
PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether effective internal
control over financial reporting was maintained in all material
respects.
Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a
material weakness exists, testing and evaluating the design and
operating effectiveness of internal control based on the assessed
risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides
a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial
Reporting
A company's internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally
accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of
the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of
management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company's assets that could
have a material effect on the financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Dallas, Texas
February 13, 2023
42
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Statements of Income
2022 2021 2020
Operating Revenues
Service $ 97,831 $111,565 $124,057
Equipment 22,910 22,473 18,993
Total operating revenues 120,741 134,038 143,050
Operating Expenses
Cost of revenues
Equipment 24,009 23,685 19,585
Broadcast, programming and operations - 8,106 16,077
Other cost of revenues (exclusive of depreciation
and amortization shown separately below) 26,839 28,616 29,989
Selling, general and administrative 28,961 29,669 30,817
Asset impairments and abandonments and restructuring 27,498 213 15,687
Depreciation and amortization 18,021 17,852 22,523
Total operating expenses 125,328 108,141 134,678
Operating Income (Loss) (4,587) 25,897 8,372
Other Income (Expense)
Interest expense (6,108) (6,716) (7,727)
Equity in net income of affiliates 1,791 603 89
Other income (expense) - net 5,810 9,387 (1,088)
Total other income (expense) 1,493 3,274 (8,726)
Income (Loss) from Continuing Operations Before Income
Taxes (3,094) 29,171 (354)
Income tax expense on continuing operations 3,780 5,395 1,168
Income (Loss) from Continuing Operations (6,874) 23,776 (1,522)
Loss from discontinued operations, net of tax (181) (2,297) (2,299)
Net Income (Loss) (7,055) 21,479 (3,821)
Less: Net Income Attributable to Noncontrolling Interest (1,469) (1,398) (1,355)
Net Income (Loss) Attributable to AT&T $(8,524) $ 20,081 $(5,176)
Less: Preferred Stock Dividends (203) (207) (193)
Net Income (Loss) Attributable to Common Stock $(8,727) $ 19,874 $(5,369)
Basic Earnings (Loss) Per Share from continuing operations $ (1.10) $ 3.07 $ (0.45)
Basic Loss Per Share from discontinued operations $ (0.03) $ (0.30) $ (0.30)
Basic Earnings (Loss) Per Share Attributable to Common
Stock $ (1.13) $ 2.77 $ (0.75)
Diluted Earnings (Loss) Per Share from continuing
operations $ (1.10) $ 3.02 $ (0.45)
Diluted Loss Per Share from discontinued operations $ (0.03) $ (0.29) $ (0.30)
Diluted Earnings (Loss) Per Share Attributable to Common
Stock $ (1.13) $ 2.73 $ (0.75)
============================================================ ======= ======= =======
The accompanying notes are an integral part of the consolidated
financial statements.
43
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------------------
Consolidated Statements of Comprehensive Income
2022 2021 2020
Net income (loss) $(7,055) $21,479 $(3,821)
Other comprehensive income (loss), net of tax:
Foreign Currency:
Translation adjustment (includes $0, $(2) and $(59)
attributable
to noncontrolling
interest), net of taxes of $90, $(44) and $(42) 346 (127) (929)
Reclassification adjustment included in net income
(loss),
net of taxes of
$0, $204 and $0 - 2,087 -
Distributions of WarnerMedia, net of taxes of $(38),
$0 and $0 (182) - -
Securities:
Net unrealized gains (losses), net of taxes of $(49),
$(21) and $27 (143) (63) 78
Reclassification adjustment included in net income
(loss),
net of taxes of $3, $(1)
and $(5) 8 (3) (15)
Derivative Instruments:
Net unrealized gains (losses), net of taxes of $(183),
$(192) and $(212) (648) (715) (811)
Reclassification adjustment included in net income
(loss),
net of taxes of $25, $19
and $18 96 72 69
Distributions of WarnerMedia, net of taxes of $(12),
$0 and $0 (24) - -
Defined benefit postretirement plans:
Net prior service (cost) credit arising during period,
net of taxes of $583, $(8)
and $735 1,787 (34) 2,250
Amortization of net prior service credit included in
net income (loss), net of taxes of
$(663), $(660) and $(601) (2,028) (2,020) (1,841)
Distributions of WarnerMedia, net of taxes of $5, $0
and $0 25 - -
Other comprehensive income (loss) (763) (803) (1,199)
Total comprehensive income (loss) (7,818) 20,676 (5,020)
Less: Total comprehensive income attributable to
noncontrolling
interest (1,469) (1,396) (1,296)
Total Comprehensive Income (Loss) Attributable to AT&T $(9,287) $19,280 $(6,316)
============================================================= ======= ====== =======
The accompanying notes are an integral part of the consolidated
financial statements.
44
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------------------
Consolidated Balance Sheets
-------------------------------------------------------------------------------------------
December 31,
2022 2021
Assets
Current Assets
Cash and cash equivalents $ 3,701 $ 19,223
Accounts receivable - net of related allowance for credit
loss of $588 and $658 11,466 12,313
Inventories 3,123 3,325
Prepaid and other current assets 14,818 16,131
Assets from discontinued operations - 119,776
Total current assets 33,108 170,768
Property, Plant and Equipment - Net 127,445 121,649
Goodwill - Net 67,895 92,740
Licenses - Net 124,092 113,830
Other Intangible Assets - Net 5,354 5,391
Investments in and Advances to Equity Affiliates 3,533 6,168
Operating Lease Right-Of-Use Assets 21,814 21,824
Other Assets 19,612 19,252
Total Assets $402,853 $551,622
Liabilities and Stockholders' Equity
Current Liabilities
Debt maturing within one year $ 7,467 $ 24,620
Note payable to DIRECTV 130 1,245
Accounts payable and accrued liabilities 42,644 39,095
Advanced billings and customer deposits 3,918 3,966
Dividends payable 2,014 3,749
Liabilities from discontinued operations - 33,555
Total current liabilities 56,173 106,230
Long-Term Debt 128,423 151,011
Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes 57,032 53,767
Postemployment benefit obligation 7,260 12,560
Operating lease liabilities 18,659 18,956
Other noncurrent liabilities 28,849 25,243
Total deferred credits and other noncurrent liabilities 111,800 110,526
Stockholders' Equity
Preferred stock ($1 par value, 10,000,000 authorized at December
31, 2022
and December 31, 2021):
Series A (48,000 issued and outstanding at December 31, 2022
and December 31, 2021) - -
Series B (20,000 issued and outstanding at December 31, 2022
and December 31, 2021) - -
Series C (70,000 issued and outstanding at December 31, 2022
and December 31, 2021) - -
Common stock ($1 par value, 14,000,000,000 authorized at
December 31, 2022 and
December 31, 2021: issued 7,620,748,598 at December 31, 2022
and December 31, 2021) 7,621 7,621
Additional paid-in capital 123,610 130,112
Retained (deficit) earnings (19,415) 42,350
Treasury stock (493,156,816 at December 31, 2022 and 479,684,705
at December 31, 2021, at cost) (17,082) (17,280)
Accumulated other comprehensive income 2,766 3,529
Noncontrolling interest 8,957 17,523
Total stockholders' equity 106,457 183,855
Total Liabilities and Stockholders' Equity $402,853 $551,622
===================================================================== ======= =======
The accompanying notes are an integral part of the consolidated
financial statements.
45
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------------------
Consolidated Statements of Cash Flows
2022 2021 2020
Operating Activities
Income (loss) from continuing operations $(6,874) $ 23,776 $(1,522)
Adjustments to reconcile income (loss) from continuing
operations to net cash provided by operating activities
from continuing operations:
Depreciation and amortization 18,021 17,852 22,523
Provision for uncollectible accounts 1,865 1,241 1,798
Deferred income tax expense 2,975 7,412 2,145
Net (gain) loss on investments, net of impairments 381 (369) (970)
Pension and postretirement benefit expense (credit) (3,237) (3,857) (2,992)
Actuarial (gain) loss on pension and postretirement
benefits (1,999) (4,143) 4,169
Asset impairments and abandonments and restructuring 27,498 213 15,687
Changes in operating assets and liabilities:
Receivables 727 (1,125) 1,079
Other current assets (674) (1,288) (2,138)
Accounts payable and other accrued liabilities (1,109) (1,570) (1,895)
Equipment installment receivables and related sales 154 (271) (1,428)
Deferred customer contract acquisition and fulfillment
costs (947) 18 382
Postretirement claims and contributions (823) (822) (985)
Other - net (146) 103 1,631
Total adjustments 42,686 13,394 39,006
Net Cash Provided by Operating Activities from Continuing
Operations 35,812 37,170 37,484
Investing Activities
Capital expenditures (19,626) (15,545) (14,690)
Acquisitions, net of cash acquired (10,200) (25,453) (1,625)
Dispositions 199 7,136 2,472
Distributions from DIRECTV in excess of cumulative equity
in earnings 2,649 1,323 -
Other - net 79 50 396
Net Cash Used in Investing Activities from Continuing
Operations (26,899) (32,489) (13,447)
Financing Activities
Net change in short-term borrowings with original maturities
of three months or less (519) 1,316 (17)
Issuance of other short-term borrowings 3,955 21,856 9,440
Repayment of other short-term borrowings (18,345) (7,510) (9,467)
Issuance of long-term debt 2,979 9,931 31,988
Repayment of long-term debt (25,118) (3,039) (39,062)
Note payable to DIRECTV, net of payments (1,211) 1,341 -
Payment of vendor financing (4,697) (4,596) (2,966)
Issuance of preferred stock - - 3,869
Purchase of treasury stock (890) (202) (5,498)
Issuance of treasury stock 28 96 105
Issuance of preferred interests in subsidiaries - - 1,979
Redemption of preferred interest in subsidiary (2,665) - (1,950)
Dividends paid (9,859) (15,068) (14,956)
Other - net (3,222) (2,231) (4,496)
Net Cash (Used in) Provided by Financing Activities from
Continuing Operations (59,564) 1,894 (31,031)
Net (decrease) increase in cash and cash equivalents and
restricted cash from continuing operations (50,651) 6,575 (6,994)
Cash flows from Discontinued Operations:
Cash (used in) provided by operating activities (3,789) 4,788 5,645
Cash provided by (used in) investing activities 1,094 399 (102)
Cash provided by (used in) financing activities 35,823 (316) (974)
Net increase (decrease) in cash and cash equivalents and
restricted cash from discontinued operations 33,128 4,871 4,569
Net (decrease) increase in cash and cash equivalents and
restricted cash (17,523) 11,446 (2,425)
Cash and cash equivalents and restricted cash beginning
of year 21,316 9,870 12,295
Cash and Cash Equivalents and Restricted Cash End of Year $ 3,793 $ 21,316 $ 9,870
============================================================ ======= ====== =======
The accompanying notes are an integral part of the consolidated
financial statements.
46
AT&T Inc.
Dollars and shares in millions except per share amounts
-----------------------------------------------------------------------
Consolidated Statements of Changes in Stockholders' Equity
-----------------------------------------------------------------------------
2022 2021 2020
Shares Amount Shares Amount Shares Amount
Preferred Stock -
Series
A
Balance at beginning
of
year - $ - - $ - - $ -
Balance at end of
year - $ - - $ - - $ -
Preferred Stock -
Series
B
Balance at beginning
of
year - $ - - $ - - $ -
Balance at end of
year - $ - - $ - - $ -
Preferred Stock -
Series
C
Balance at beginning
of
year - $ - - $ - - $ -
Balance at end of
year - $ - - $ - - $ -
Common Stock
Balance at beginning
of
year 7,621 $ 7,621 7,621 $ 7,621 7,621 $ 7,621
Balance at end of
year 7,621 $ 7,621 7,621 $ 7,621 7,621 $ 7,621
Additional Paid-In
Capital
Balance at beginning
of
year $ 130,112 $130,175 $126,279
Distribution of
WarnerMedia (6,832) - -
Repurchase and
acquisition
of
common stock - - 67
Issuance of
preferred stock - - 3,869
Issuance of treasury
stock (171) (76) (62)
Share-based payments (162) 13 18
Acquisition or
reclassification
of interests held
by noncontrolling
owners 663 - 4
Balance at end of
year $ 123,610 $130,112 $130,175
Retained (Deficit)
Earnings
Balance at beginning
of
year $ 42,350 $ 37,457 $ 57,936
Cumulative effect
of accounting
changes and other
adjustments - - (293)
Adjusted beginning
balance 42,350 37,457 57,643
Net income (loss)
attributable
to AT&T (8,524) 20,081 (5,176)
Distribution of
WarnerMedia (45,041) - -
Preferred stock
dividends (207) (224) (139)
Common stock
dividends
($1.11, $2.08
and $2.08 per
share) (7,993) (14,964) (14,871)
Balance at end of
year $(19,415) $ 42,350 $ 37,457
==================== ====== ======== ====== ======= ====== =======
The accompanying notes are an integral part of the consolidated
financial statements.
47
AT&T Inc.
Dollars and shares in millions except per share amounts
-----------------------------------------------------------------------
Consolidated Statements of Changes in Stockholders' Equity - continued
-------------------------------------------------------------------------------
2022 2021 2020
Shares Amount Shares Amount Shares Amount
Treasury Stock
Balance at beginning
of
year (480) $(17,280) (495) $(17,910) (366) $(13,085)
Repurchase and
acquisition
of
common stock (44) (890) (8) (237) (150) (5,631)
Issuance of treasury
stock 31 1,088 23 867 21 806
Balance at end of
year (493) $(17,082) (480) $(17,280) (495) $(17,910)
======
Accumulated Other
Comprehensive
Income
Attributable to AT&T, net
of tax
Balance at beginning
of
year $ 3,529 $ 4,330 $ 5,470
Other
comprehensive
income
(loss)
attributable to
AT&T (763) (801) (1,140)
Balance at end of
year $ 2,766 $ 3,529 $ 4,330
Noncontrolling
Interest
Balance at beginning
of
year $ 17,523 $ 17,567 $ 17,713
Cumulative effect
of accounting
changes and other
adjustments - - (7)
Adjusted beginning
balance 17,523 17,567 17,706
Net income
attributable
to
noncontrolling
interest 1,469 1,398 1,355
Issuance and
acquisition
(disposition) of
noncontrolling
owners (21) 7 1,979
Redemption of
noncontrolling
interest (2,665) - (1,950)
Reclassification of
noncontrolling
interest (5,997) - -
Distributions (1,352) (1,447) (1,464)
Translation
adjustments
attributable to
noncontrolling
interest,
net of taxes - (2) (59)
Balance at end of
year $ 8,957 $ 17,523 $ 17,567
Total
Stockholders'
Equity
at
beginning of
year $ 183,855 $ 179,240 $ 201,934
Total
Stockholders'
Equity
at
end of year $ 106,457 $ 183,855 $ 179,240
==================== ====== ======== ====== ======== ====== ========
The accompanying notes are an integral part of the consolidated
financial statements.
48
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------------------
Notes to Consolidated Financial Statements
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation Throughout this document, AT&T Inc. is
referred to as "AT&T," "we" or the "Company." The consolidated
financial statements include the accounts of the Company and
subsidiaries and affiliates which we control. AT&T is a holding
company whose subsidiaries and affiliates operate worldwide in the
telecommunications and technology industries.
On April 8, 2022, we completed the separation of our WarnerMedia
business, which represented substantially all of our WarnerMedia
segment, in a Reverse Morris Trust transaction, under which
Magallanes, Inc. (Spinco), a formerly wholly-owned subsidiary of
AT&T that held the WarnerMedia business, was distributed to
AT&T stockholders via a pro rata dividend, followed by the
combination of Spinco with a subsidiary of Discovery, Inc.
(Discovery), which was renamed Warner Bros. Discovery, Inc. (WBD).
(See Note 6)
Upon the separation and distribution, the WarnerMedia business
met the criteria for discontinued operations. For discontinued
operations, we also evaluated transactions that were components of
AT&T's single plan of a strategic shift, including dispositions
that previously did not individually meet the criteria due to
materiality, and have determined discontinued operations to be
comprised of WarnerMedia, Vrio, Xandr and Playdemic Ltd.
(Playdemic). These businesses are reflected in the accompanying
financial statements as discontinued operations, including for
periods prior to the consummation of the WarnerMedia/Discovery
transaction. (See Notes 6 and 23)
On July 31, 2021, we closed our transaction with TPG Capital
(TPG) to form a new company named DIRECTV Entertainment Holdings,
LLC (DIRECTV). With the close of the transaction, we separated and
deconsolidated our Video business, comprised of our U.S. video
operations, and began accounting for our investment in DIRECTV
under the equity method (see Notes 6, 10 and 19).
All significant intercompany transactions are eliminated in the
consolidation process. Investments in subsidiaries and partnerships
which we do not control but have significant influence are
accounted for under the equity method. Earnings from certain
investments accounted for using the equity method are included in
our results on a one quarter lag. We also record our proportionate
share of our equity method investees' other comprehensive income
(OCI) items, including translation adjustments. We treat
distributions received from equity method investees as returns on
investment and classify them as cash flows from operating
activities until those distributions exceed our cumulative equity
in the earnings of that investment. We treat the excess amount as a
return of investment and classify it as cash flows from investing
activities.
The preparation of financial statements in conformity with U.S.
generally accepted accounting principles (GAAP) requires management
to make estimates and assumptions, including other estimates of
fair value, probable losses and expenses, that affect the amounts
reported in the financial statements and accompanying notes. Actual
results could differ from those estimates. Moreover, unfavorable
changes in market conditions, including interest rates, could
adversely impact those estimates and result in asset impairments.
Certain prior-period amounts have been conformed to the current
period's presentation. Unless otherwise noted, the information in
Notes 1 through 22 and 24 refer only to our continuing operations
and do not include discussion of balances or activity of
WarnerMedia, Vrio, Xandr and Playdemic, which are part of
discontinued operations.
Adopted and New Accounting Standards
Convertible Instruments Beginning with 2022 interim reporting,
we adopted, through retrospective application, the Financial
Accounting Standards Board's (FASB) Accounting Standards Update
(ASU) No. 2020-06, "Debt-Debt With Conversion and Other Options
(Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity's
Own Equity (Subtopic 815-40): Accounting for Convertible
Instruments and Contracts in an Entity's Own Equity" (ASU 2020-06).
ASU 2020-06 requires that instruments which may be settled in cash
or stock are presumed settled in stock in calculating diluted
earnings per share. While our intent is to settle the Series A
Cumulative Perpetual Membership Interests in AT&T Mobility II
LLC (Mobility preferred interests) in cash, settlement of this
instrument in AT&T shares would result in additional dilutive
impact, the magnitude of which is influenced by the fair value of
the Mobility preferred interests and the average AT&T common
stock price during the reporting period, which could vary from
period-to-period (see Note 16).
49
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------
The following table presents the impact of the adoption of ASU
2020-06 on our diluted earnings per share from continuing
operations:
Effect of
Historical Adoption
Accounting of ASU 2020-06 Under ASU
Method 1 2020-06
Diluted earnings per share from
continuing operations:
Year ended December 31, 2022 $ (1.10) $ - $ (1.10)
Year ended December 31, 2021 $ 3.07 $ (0.05) $ 3.02
Year ended December 31, 2020 $ (0.45) $ - $ (0.45)
1 See Note 2 for a discussion of the numerator and denominator adjustments.
Reference Rate Reform In March 2020, the FASB issued ASU No.
2020-04, "Reference Rate Reform (Topic 848): Facilitation of the
Effects of Reference Rate Reform on Financial Reporting" (ASU
2020-04, as amended), which provides optional expedients, and
allows for certain exceptions to existing GAAP, for contract
modifications triggered by the expected market transition of
certain benchmark interest rates to alternative reference rates.
ASU 2020-04 applies to contracts, hedging relationships, certain
derivatives and other arrangements that reference the London
Interbank Offering Rate (LIBOR) or any other rates ending after
December 31, 2024. ASU 2020-04, as amended, became effective
immediately. We do not believe our adoption of ASU 2020-04,
including optional expedients, will materially impact our financial
statements.
Government Assistance In November 2021, the FASB issued ASU No.
2021-10, "Government Assistance (Topic 832): Disclosures by
Business Entities about Government Assistance" (ASU 2021-10), which
requires annual disclosures (e.g., terms and conditions, accounting
treatment, impacted financial statement lines), in the notes to the
financial statements, about transactions with a government that are
accounted for by applying a grant or contribution accounting model
by analogy to other guidance. We adopted ASU 2021-10 effective for
the annual reporting period ended December 31, 2022, as required,
under prospective application, with no required updates to our
disclosures.
Credit Losses As of January 1, 2020, we adopted, through
modified retrospective application, ASU No. 2016-13, "Financial
Instruments-Credit Losses (Topic 326): Measurement of Credit Losses
on Financial Instruments," or Accounting Standards Codification
(ASC) 326 (ASC 326), which replaces the incurred loss impairment
methodology under prior GAAP with an expected credit loss model.
ASC 326 affects trade receivables, loans, contract assets, certain
beneficial interests, off-balance-sheet credit exposures not
accounted for as insurance and other financial assets that are not
subject to fair value through net income, as defined by the
standard. Under the expected credit loss model, we are required to
consider future economic trends to estimate expected credit losses
over the lifetime of the asset. Upon adoption on January 1, 2020,
we recorded a $293 reduction to "Retained earnings," $395 increase
to "Allowances for credit losses" applicable to our trade and loan
receivables, $10 reduction of contract assets, $105 reduction of
net deferred income tax liability and $7 reduction of
"Noncontrolling interest." Our adoption of ASC 326 did not have a
material impact on our financial statements.
Supplier Finance Obligations In September 2022, the FASB issued
ASU No. 2022-04, "Liabilities - Supplier Finance Programs (Subtopic
405-50): Disclosure of Supplier Finance Program Obligations" (ASU
2022-04), which establishes interim and annual reporting disclosure
requirements about a company's supplier finance programs for its
purchase of goods and services. Interim and annual requirements
include disclosure of outstanding amounts under the obligations as
of the end of the reporting period, and annual requirements include
a rollforward of those obligations for the annual reporting period,
as well as a description of payment and other key terms of the
programs. ASU 2022-04 will be effective for interim and annual
periods beginning after December 15, 2022, with retrospective
application, except for the annual rollforward requirement, which
becomes effective for annual periods beginning after December 15,
2023, with prospective application. The standard allows early
adoption of all requirements. In the year of adoption, the
disclosure of payment and other key terms under the programs and
outstanding balances under the obligations will also apply to
interim reporting dates. We are in the process of evaluating the
impact of our adoption of ASU 2022-04.
Accounting Policies
Income Taxes We record deferred income taxes for temporary
differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the computed tax basis of
those assets and liabilities. We record valuation allowances
against the deferred tax assets (included, together with our
deferred income tax assets, as part of our reportable net
50
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------
deferred income tax liabilities on our consolidated balance
sheets), for which the realization is uncertain. We review these
items regularly in light of changes in federal, state and foreign
tax laws and changes in our business.
As of January 1, 2021, we adopted, with modified retrospective
application, the FASB's ASU No. 2019-12, "Income Taxes (Topic 740):
Simplifying the Accounting for Income Taxes" (ASU 2019-12), which
simplified income tax accounting requirements in areas deemed
costly and complex. ASU 2019-12 did not have a material impact on
our financial statements.
Cash and Cash Equivalents Cash and cash equivalents include all
highly liquid investments with original maturities of three months
or less. The carrying amounts approximate fair value. At December
31, 2022, we held $866 in cash and $2,835 in money market funds and
other cash equivalents. Of our total cash and cash equivalents,
$1,045 resided in foreign jurisdictions, some of which is subject
to restrictions on repatriation.
Allowance for Credit Losses We record expense to maintain an
allowance for credit losses for estimated losses that result from
the failure or inability of our customers to make required payments
deemed collectible from the customer when the service was provided
or product was delivered. When determining the allowances for trade
receivables and loans, we consider the probability of
recoverability of accounts receivable based on past experience,
taking into account current collection trends and general economic
factors, including bankruptcy rates. We also consider future
economic trends to estimate expected credit losses over the
lifetime of the asset. Credit risks are assessed based on
historical write-offs, net of recoveries, as well as an analysis of
the aged accounts receivable balances with allowances generally
increasing as the receivable ages. Accounts receivable may be fully
reserved for when specific collection issues are known to exist,
such as catastrophes or pending bankruptcies.
Inventories Inventories primarily consist of wireless devices
and accessories and are valued at the lower of cost or net
realizable value.
Property, Plant and Equipment Property, plant and equipment is
stated at cost, except for assets acquired using acquisition
accounting, which are initially recorded at fair value (see Note
7). The cost of additions and substantial improvements to property,
plant and equipment is capitalized, and includes internal
compensation costs for these projects. The cost of maintenance and
repairs of property, plant and equipment is charged to operating
expenses. Property, plant and equipment costs are depreciated using
straight-line methods over their estimated economic lives. Certain
subsidiaries follow composite group depreciation methodology.
Accordingly, when a portion of their depreciable property, plant
and equipment is retired in the ordinary course of business, the
gross book value is reclassified to accumulated depreciation, and
no gain or loss is recognized on the disposition of these
assets.
Property, plant and equipment is reviewed for recoverability
whenever events or changes in circumstances indicate that the
carrying amount of an asset group may not be recoverable. We
recognize an impairment loss when the carrying amount of a
long-lived asset is not recoverable. The carrying amount of a
long-lived asset is not recoverable if it exceeds the sum of the
undiscounted cash flows expected to result from the use and
eventual disposition of the asset. (See Note 7)
The liability for the fair value of an asset retirement
obligation is recorded in the period in which it is incurred if a
reasonable estimate of fair value can be made. In periods
subsequent to initial measurement, we recognize period-to-period
changes in the liability resulting from the passage of time and
revisions to either the timing or the amount of the original
estimate. The increase in the carrying value of the associated
long-lived asset is depreciated over the corresponding estimated
economic life.
Software Costs We capitalize certain costs incurred in
connection with developing or obtaining internal-use software.
Capitalized software costs are included in "Property, Plant and
Equipment - Net" on our consolidated balance sheets. In addition,
there is certain network software that allows the equipment to
provide the features and functions unique to the AT&T network,
which we include in the cost of the equipment categories for
financial reporting purposes.
We amortize our capitalized software costs over a three-year to
seven-year period, reflecting the estimated period during which
these assets will remain in service.
Goodwill and Other Intangible Assets We have the following major
classes of intangible assets: goodwill; licenses, which include
Federal Communications Commission (FCC) and other wireless
licenses; trademarks and trade names; customer lists; and various
other finite-lived intangible assets (see Note 9).
Goodwill represents the excess of consideration paid over the
fair value of identifiable net assets acquired in business
combinations. Wireless licenses provide us with the exclusive right
to utilize certain radio frequency spectrum to provide wireless
communications services. While wireless licenses are issued for a
fixed period of time (generally ten years), renewals
51
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------
of domestic wireless licenses have occurred routinely and at
nominal cost. We have determined that there are currently no legal,
regulatory, contractual, competitive, economic or other factors
that limit the useful lives of our FCC wireless licenses.
We amortize our wireless licenses in Mexico over their average
remaining economic life of 25 years.
We acquired the rights to the AT&T and other trade names in
previous acquisitions, classifying certain of those trade names as
indefinite-lived. We have the effective ability to retain these
exclusive rights permanently at a nominal cost.
Goodwill, FCC wireless licenses and other indefinite-lived
intangible assets are not amortized but are tested at least
annually for impairment (see Note 9). The testing is performed on
the value as of October 1 each year and compares the book values of
the assets to their fair values. Goodwill is tested by comparing
the carrying amount of each reporting unit, deemed to be our
principal operating segments or one level below them, to the fair
value using both discounted cash flow as well as market multiple
approaches. FCC wireless licenses are tested on an aggregate basis,
consistent with our use of the licenses on a national scope, using
a discounted cash flow approach. Trade names are tested by
comparing their book values to their fair values calculated using a
discounted cash flow approach on a presumed royalty rate derived
from the revenues related to each brand name.
Intangible assets that have finite useful lives are amortized
over their estimated economic lives (see Note 9). Customer lists
and relationships are amortized using primarily the
sum-of-the-months-digits method of amortization over the period in
which those relationships are expected to contribute to our future
cash flows. Finite-lived trademarks and trade names are amortized
using the straight-line method over the estimated useful life of
the assets. The remaining finite-lived intangible assets are
generally amortized using the straight-line method. These assets,
along with other long-lived assets, are reviewed for recoverability
whenever events or changes in circumstances indicate that the
carrying amount of an asset group may not be recoverable.
Advertising Costs We expense advertising costs for products and
services or for promoting our corporate image as incurred (see Note
22).
Foreign Currency Translation Our foreign subsidiaries and
foreign investments generally report their earnings in their local
currencies. We translate their foreign assets and liabilities at
exchange rates in effect at the balance sheet dates. We translate
their revenues and expenses using average rates during the year.
The resulting foreign currency translation adjustments are recorded
as a separate component of accumulated OCI in our consolidated
balance sheets (see Note 3).
We hedge a portion of the foreign currency exchange risk
involved in certain foreign currency-denominated transactions,
which we explain further in our discussion of our methods of
managing our foreign currency risk (see Note 12).
Pension and Other Postretirement Benefits See Note 14 for a
comprehensive discussion of our pension and postretirement
benefits, including a discussion of the actuarial assumptions, our
policy for recognizing the associated gains and losses and our
method used to estimate service and interest cost components.
52
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------
NOTE 2. EARNINGS PER SHARE
A reconciliation of the numerators and denominators of basic and
diluted earnings per share is shown in the table below:
Year Ended December 31, 2022 2021 2020
Numerators
Numerator for basic earnings per share:
Income (loss) from continuing operations, net
of tax $ (6,874) $23,776 $(1,522)
Net income from continuing operations attributable
to
noncontrolling interests (1,469) (1,485) (1,470)
Preferred Stock Dividends (203) (207) (193)
Income (loss) from continuing operations attributable
to
common stock (8,546) 22,084 (3,185)
Adjustment to carrying value of noncontrolling
interest 663 - -
Numerator for basic earnings per share from continuing
operations 1 (7,883) 22,084 (3,185)
Loss from discontinued operations, net of tax (181) (2,297) (2,299)
Loss from discontinued operations attributable
to noncontrolling interests - 87 115
Loss from discontinued operations
attributable to common stock (181) (2,210) (2,184)
Numerator for basic earnings per share 1 $ (8,064) $19,874 $(5,369)
Dilutive potential common shares:
Mobility preferred interests 2 526 560 560
Share-based payment 2 17 22 23
Numerator for diluted earnings per share $ (7,521) $20,456 $(4,786)
Denominators (000,000)
Denominator for basic earnings per share:
Weighted average number of common shares outstanding 7,166 7,168 7,157
Dilutive potential common shares:
Mobility preferred interests (in shares) 378 304 283
Share-based payment (in shares) 43 31 26
Denominator for diluted earnings per share 2 7,587 7,503 7,466
============ ======= ========
1 For 2022, in the calculation of basic earnings per share, income (loss) attributable
to common stock for continuing operations and total company has been increased
by $663 from adjustment to carrying value of noncontrolling interest. (See Note
16)
2 For 2022 and 2020, dilutive potential common shares are not included in the
computation of diluted earnings per share because their effect is antidilutive
as a result of the net loss.
Upon the adoption of ASU 2020-06 in the first quarter of 2022,
the ability to settle our Mobility preferred interests in stock is
reflected in our diluted earnings per share calculation, unless the
effect is antidilutive. While our intent is to settle the Mobility
preferred interests in cash, the ability to settle this instrument
in AT&T shares will result in additional dilutive impact, the
magnitude of which is influenced by the fair value of the Mobility
preferred interests and the average AT&T common stock price
during the reporting period, which could vary from
period-to-period. The numerator includes an adjustment to add back
to income from continuing operations the earned distributions on
the Mobility preferred interests, included in net income
attributable to noncontrolling interest, and the denominator
includes the potential issuance of AT&T common stock to settle
the Mobility preferred interests outstanding. (See Notes 1 and
16)
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AT&T Inc.
Dollars in millions except per share amounts
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NOTE 3. OTHER COMPREHENSIVE INCOME
Changes in the balances of each component included in
accumulated OCI are presented below. All amounts are net of tax and
exclude noncontrolling interest.
Net
Unrealized
Net Unrealized Gains
Foreign Gains (Losses) (Losses) Accumulated
Currency on on Defined Benefit Other
Translation Available-for-Sale Derivative Postretirement Comprehensive
Adjustment Securities Instruments Plans Income
Balance as of December
31, 2019 $ (3,056) $ 48 $ (37) $ 8,515 $ 5,470
Other comprehensive
income
(loss) before
reclassifications (870) 78 (811) 2,250 647
Amounts reclassified
from
accumulated OCI - 1 (15) 1 69 2 (1,841) 3 (1,787)
Net other
comprehensive
income (loss) (870) 63 (742) 409 (1,140)
Balance as of December
31, 2020 (3,926) 111 (779) 8,924 4,330
Other comprehensive
income
(loss) before
reclassifications (125) (63) (715) (34) (937)
Amounts reclassified
from
accumulated OCI 2,087 1,4 (3) 1 72 2 (2,020) 3 136
Net other
comprehensive
income (loss) 1,962 (66) (643) (2,054) (801)
Balance as of December
31, 2021 (1,964) 45 (1,422) 6,870 3,529
Other comprehensive
income
(loss) before
reclassifications 346 (143) (648) 1,787 1,342
Amounts reclassified
from
accumulated OCI - 1 8 1 96 2 (2,028) 3 (1,924)
Distribution of
WarnerMedia (182) - (24) 25 (181)
Net other
comprehensive
income (loss) 164 (135) (576) (216) (763)
Balance as of December
31, 2022 $ (1,800) $ (90) $ (1,998) $ 6,654 $ 2,766
1 (Gains) losses are included in "Other income (expense) - net" in the consolidated
statements of income.
2 (Gains) losses are primarily included in "Interest expense" in the consolidated
statements of income (see Note 12).
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 14).
4 Represents unrealized foreign currency translation adjustments at Vrio that
were released upon sale. (See Note 6)
NOTE 4. SEGMENT INFORMATION
Our segments are comprised of strategic business units or other
operations that offer products and services to different customer
segments over various technology platforms and/or in different
geographies that are managed accordingly. We have two reportable
segments: Communications and Latin America.
We also evaluate segment and business unit performance based on
EBITDA and/or EBITDA margin, which is defined as operating income
excluding depreciation and amortization. EBITDA is used as part of
our management reporting and we believe EBITDA to be a relevant and
useful measurement to our investors as it measures the cash
generation potential of our business units. EBITDA does not give
effect to depreciation and amortization expenses incurred in
operating income nor is it burdened by cash used for debt service
requirements and thus does not reflect available funds for
distributions, reinvestment or other discretionary uses. EBITDA
margin is EBITDA divided by total revenue.
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AT&T Inc.
Dollars in millions except per share amounts
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In the first quarter of 2022, we reclassified into "Corporate"
certain administrative costs borne by AT&T where the business
units do not influence decision making to conform with the current
period presentation. This recast increased Corporate operations and
support expenses by approximately $270 and $1,310 for full-year
2021 and 2020, respectively. Correspondingly, this recast lowered
administrative expenses for the Communications segment and Video
(our former U.S. video operations contributed to DIRECTV in July
2021), with no change on a consolidated basis.
The Communications segment provides wireless and wireline
telecom and broadband services to consumers located in the U.S. and
businesses globally. Our business strategies reflect bundled
product offerings that cut across product lines and utilize shared
assets. This segment contains the following business units:
--Mobility provides nationwide wireless service and
equipment.
--Business Wireline provides advanced ethernet-based fiber
services, IP Voice and managed professional services, as well as
traditional voice and data services and related equipment to
business customers.
--Consumer Wireline provides broadband services, including fiber
connections that provide our multi-gig services to residential
customers in select locations. Consumer Wireline also provides
legacy telephony voice communication services.
The Latin America segment provides wireless services and
equipment in Mexico.
Corporate and Other reconciles our segment results to
consolidated operating income and income before income taxes.
Corporate includes:
--DTV-related retained costs, which are costs previously
allocated to the Video business that were retained after the
transaction, net of reimbursements from DIRECTV under transition
service agreements.
--Parent administration support, which includes costs borne by
AT&T where the business units do not influence decision
making.
--Securitization fees associated with our sales of receivables
(see Note 17).
--Value portfolio, which are businesses no longer integral to
our operations or which we no longer actively market.
Other items consist of:
--Video, which includes our former U.S. video operations that
were contributed to DIRECTV on July 31, 2021, and our share of
DIRECTV's earnings as equity in net income of affiliates (see Note
19).
--Held-for-sale and other reclassifications, which includes our
former Crunchyroll, Government Solutions and wireless and wireline
operations in Puerto Rico and the U.S. Virgin Islands.
--Reclassification of prior service credits, which includes the
reclassification of prior service credit amortization, where we
present the impact of benefit plan amendments in our business unit
results. Prior service credit amortization is presented in "Other
income (expense) - net" in the consolidated statements of income
and therefore has no impact on consolidated operating income or
EBITDA.
--Certain significant items, which includes items associated
with the merger and integration of acquired or divested businesses,
including amortization of intangible assets, employee separation
charges associated with voluntary and/or strategic offers, asset
impairments and abandonments and restructuring, and other items for
which the segments are not being evaluated.
--Eliminations and consolidations , removed transactions
involving dealings between Mobility and our Video business, prior
to the July 31, 2021 separation of Video.
"Interest expense" and "Other income (expense) - net" are
managed only on a total company basis and are, accordingly,
reflected only in consolidated results.
55
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------
For the year ended December 31, 2022
Operations Depreciation Operating
and Support and Income
Revenues Expenses EBITDA Amortization (Loss)
Communications
Mobility $ 81,780 $ 49,054 $ 32,726 $ 8,198 $ 24,528
Business Wireline 22,538 13,972 8,566 5,314 3,252
Consumer Wireline 12,749 8,253 4,496 3,169 1,327
Total Communications 117,067 71,279 45,788 16,681 29,107
Latin America -
Mexico 3,144 2,812 332 658 (326)
Segment Total 120,211 74,091 46,120 17,339 28,781
Corporate and Other
Corporate:
DTV-related
retained costs 8 737 (729) 549 (1,278)
Parent
administration
support (32) 1,199 (1,231) 16 (1,247)
Securitization
fees 65 419 (354) - (354)
Value portfolio 489 139 350 41 309
Total Corporate 530 2,494 (1,964) 606 (2,570)
Reclassification of
prior
service credits - 2,691 (2,691) - (2,691)
Certain significant
items - 28,031 (28,031) 76 (28,107)
Total Corporate and
Other 530 33,216 (32,686) 682 (33,368)
AT&T Inc. $120,741 $ 107,307 $ 13,434 $ 18,021 $ (4,587)
56
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------
For the year ended December 31, 2021
Operations Depreciation Operating
and Support and Income
Revenues Expenses EBITDA Amortization (Loss)
Communications
Mobility $ 78,254 $ 46,762 $31,492 $ 8,122 $ 23,370
Business Wireline 23,937 14,718 9,219 5,192 4,027
Consumer Wireline 12,539 8,448 4,091 3,095 996
Total Communications 114,730 69,928 44,802 16,409 28,393
Latin America - Mexico 2,747 2,652 95 605 (510)
Segment Total 117,477 72,580 44,897 17,014 27,883
Corporate and Other
Corporate:
DTV-related
retained costs 49 243 (194) 236 (430)
Parent
administration
support (18) 1,523 (1,541) 36 (1,577)
Securitization
fees 61 89 (28) - (28)
Value portfolio 639 208 431 40 391
Total Corporate 731 2,063 (1,332) 312 (1,644)
Video 15,513 12,666 2,847 356 2,491
Held-for-sale and
other
reclassifications 453 310 143 - 143
Reclassification of
prior
service credits - 2,680 (2,680) - (2,680)
Certain significant
items - 126 (126) 170 (296)
Eliminations and
consolidations (136) (136) - - -
Total Corporate and
Other 16,561 17,709 (1,148) 838 (1,986)
AT&T Inc. $134,038 $ 90,289 $43,749 $ 17,852 $ 25,897
===
57
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------
For the year ended December 31, 2020
Operations Depreciation Operating
and Support and Income
Revenues Expenses EBITDA Amortization (Loss)
Communications
Mobility $ 72,564 $ 41,677 $ 30,887 $ 8,086 $ 22,801
Business Wireline 25,083 15,068 10,015 5,216 4,799
Consumer Wireline 12,318 7,942 4,376 2,914 1,462
Total Communications 109,965 64,687 45,278 16,216 29,062
Latin America - Mexico 2,562 2,636 (74) 513 (587)
Segment Total 112,527 67,323 45,204 16,729 28,475
Corporate and Other
Corporate:
Parent
administration
support (62) 1,681 (1,743) 12 (1,755)
Securitization
fees 53 72 (19) - (19)
Value portfolio 775 335 440 64 376
Total Corporate 766 2,088 (1,322) 76 (1,398)
Video 28,610 24,174 4,436 2,262 2,174
Held-for-sale and
other
reclassifications 1,414 718 696 15 681
Reclassification of
prior
service credits - 2,442 (2,442) - (2,442)
Certain significant
items - 15,677 (15,677) 3,441 (19,118)
Eliminations and
consolidations (267) (267) - - -
Total Corporate and
Other 30,523 44,832 (14,309) 5,794 (20,103)
AT&T Inc. $143,050 $ 112,155 $ 30,895 $ 22,523 $ 8,372
58
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------
The following table is a reconciliation of operating income
(loss) to "Income (Loss) from Continuing Operations Before Income
Taxes" reported in our consolidated statements of income:
2022 2021 2020
Communications $ 29,107 $28,393 $ 29,062
Latin America (326) (510) (587)
Segment Operating Income 28,781 27,883 28,475
Reconciling Items:
Corporate (2,570) (1,644) (1,398)
Video - 2,491 2,174
Held-for-sale and other reclassifications - 143 681
Transaction and other costs (425) (41) (1,064)
Amortization of intangibles acquired (76) (170) (3,427)
Asset impairments and abandonments and restructuring (27,498) (213) (15,687)
Gain on spectrum transaction 1 - - 900
Benefit-related gains (losses) (108) 128 160
Reclassification of prior service credits (2,691) (2,680) (2,442)
AT&T Operating Income (Loss) (4,587) 25,897 8,372
Interest Expense 6,108 6,716 7,727
Equity in net income of affiliates 1,791 603 89
Other income (expense) - net 5,810 9,387 (1,088)
Income (Loss) from Continuing Operations Before
Income Taxes $(3,094) $29,171 $ (354)
1 Included as a reduction of "Selling, general and administrative" expense in
the consolidated statements of income.
The following table sets forth revenues earned from customers,
and property, plant and equipment located in different geographic
areas:
2022 2021 2020
Net Net
Property, Property, Net Property,
Plant & Plant & Plant &
Revenues Equipment Revenues Equipment Revenues Equipment
United States $116,006 $ 123,305 $129,157 $ 117,690 $138,188 $ 116,926
Mexico 3,210 3,718 2,824 3,460 2,651 3,528
Asia/Pacific
Rim 592 124 747 136 816 170
Europe 584 201 907 249 1,022 347
Latin America 217 74 251 82 212 94
Other 132 23 152 32 161 39
Total $120,741 $ 127,445 $134,038 $ 121,649 $143,050 $ 121,104
59
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------
The following table presents assets, investments in equity
affiliates and capital expenditures by segment:
At or for the years 2022 2021
ended
December 31,
Investments Investments
in in
Equity Equity
Method Capital Method Capital
Assets Investees Expenditures Assets Investees Expenditures
Communications $471,444 $ - $ 18,962 $448,757 $ - $ 14,691
Latin America 8,408 - 360 8,874 - 319
Corporate and
eliminations
1 (76,999) 3,533 304 93,991 6,168 535
Total $402,853 $ 3,533 $ 19,626 $551,622 $ 6,168 $ 15,545
1 Includes $119,776 of assets from discontinued operations at December 31, 2021.
NOTE 5. REVENUE RECOGNITION
We report our revenues net of sales taxes and record certain
regulatory fees, primarily Universal Service Fund (USF) fees, on a
net basis. No customer accounted for more than 10% of consolidated
revenues in 2022, 2021 or 2020.
Wireless, Advanced Data, Legacy Voice & Data Services and
Equipment Revenue
We offer service-only contracts and contracts that bundle
equipment used to access the services and/or with other service
offerings. Some contracts have fixed terms and others are
cancellable on a short-term basis (i.e., month-to-month
arrangements).
Examples of service revenues include wireless, strategic
services (e.g., virtual private network service), and legacy voice
and data (e.g., traditional local and long-distance). These
services represent a series of distinct services that is considered
a separate performance obligation. Service revenue is recognized
when services are provided, based upon either usage (e.g., minutes
of traffic/bytes of data processed) or period of time (e.g.,
monthly service fees).
Some of our services require customer premises equipment that,
when combined and integrated with AT&T's specific network
infrastructure, facilitates the delivery of service to the
customer. In evaluating whether the equipment is a separate
performance obligation, we consider the customer's ability to
benefit from the equipment on its own or together with other
readily available resources and if so, whether the service and
equipment are separately identifiable (i.e., is the service highly
dependent on, or highly interrelated with the equipment). When
equipment is a separate performance obligation, we record the sale
of equipment when title has passed and the products are accepted by
the customer. For devices sold through indirect channels (e.g.,
national dealers), revenue is recognized when the dealer accepts
the device, not upon activation.
Our equipment and service revenues are predominantly recognized
on a gross basis, as most of our services do not involve a third
party and we typically control the equipment that is sold to our
customers.
Revenue recognized from fixed term contracts that bundle
services and/or equipment is allocated based on the standalone
selling price of all required performance obligations of the
contract (i.e., each item included in the bundle). Promotional
discounts are attributed to each required component of the
arrangement, resulting in recognition over the contract term.
Standalone selling prices are determined by assessing prices paid
for service-only contracts (e.g., arrangements where customers
bring their own devices) and standalone device pricing.
We offer the majority of our customers the option to purchase
certain wireless devices in installments over a specified period of
time, and, in many cases, they may be eligible to trade in the
original equipment for a new device and have the remaining unpaid
balance paid or settled. For customers that elect these equipment
installment payment programs, at the point of sale, we recognize
revenue for the entire amount of revenue allocated to the customer
receivable net of fair value of the trade-in right guarantee. The
difference between the revenue recognized and the consideration
received is recorded as a note receivable when the devices are not
discounted and our right to consideration is unconditional. When
installment sales include promotional discounts (e.g., "buy one get
one free" or equipment discounts with trade-in of a device), the
difference between revenue recognized and consideration received is
recorded as a contract asset to be amortized over the contract
term.
Less commonly, we offer certain customers highly discounted
devices when they enter into a minimum service agreement term. For
these contracts, we recognize equipment revenue at the point of
sale based on a standalone selling price allocation. The
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AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------
difference between the revenue recognized and the cash received
is recorded as a contract asset that will amortize over the
contract term.
Our contracts allow for customers to frequently modify their
arrangement, without incurring penalties in many cases. When a
contract is modified, we evaluate the change in scope or price of
the contract to determine if the modification should be treated as
a new contract or if it should be considered a change of the
existing contract. We generally do not have significant impacts
from contract modifications.
Revenues from transactions between us and our customers are
recorded net of revenue-based regulatory fees and taxes. Cash
incentives given to customers are recorded as a reduction of
revenue. Nonrefundable, upfront service activation and setup fees
associated with service arrangements are deferred and recognized
over the associated service contract period or customer
relationship life.
Revenue Categories
The following tables set forth reported revenue by category and
by business unit:
For the year ended December 31, 2022
Communications
Business Consumer Latin Corporate
Mobility Wireline Wireline America & Other Elim. Total
Wireless
service $ 60,499 $ - $ - $ 2,162 $ 13 $ - $ 62,674
Business
service - 21,891 - - - - 21,891
Broadband - - 9,669 - - - 9,669
Legacy voice
and data - - 1,746 - 323 - 2,069
Other - - 1,334 - 194 - 1,528
Total
Service 60,499 21,891 12,749 2,162 530 - 97,831
Equipment 21,281 647 - 982 - - 22,910
Total $ 81,780 $ 22,538 $ 12,749 $ 3,144 $ 530 $ - $120,741
For the year ended December 31, 2021
Communications
Business Consumer Latin Corporate
Mobility Wireline Wireline America & Other Elim. Total
Wireless
service $ 57,590 $ - $ - $ 1,834 $ 74 $ - $ 59,498
Video service - - - - 15,423 - 15,423
Business
service - 23,224 - - 70 - 23,294
Broadband - - 9,085 - - - 9,085
Legacy voice
and data - - 1,977 - 429 - 2,406
Other - - 1,384 - 611 (136) 1,859
Total
Service 57,590 23,224 12,446 1,834 16,607 (136) 111,565
Equipment 20,664 713 93 913 90 - 22,473
Total $ 78,254 $ 23,937 $ 12,539 $ 2,747 $ 16,697 $(136) $134,038
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AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------
For the year ended December 31, 2020
Communications
Business Consumer Latin Corporate
Mobility Wireline Wireline America & Other Elim. Total
Wireless
service $ 55,542 $ - $ - $ 1,656 $ 528 $ - $ 57,726
Video service - - - - 28,465 - 28,465
Business
service - 24,313 - - 314 - 24,627
Broadband - - 8,534 - - - 8,534
Legacy voice
and data - - 2,213 - 554 - 2,767
Other - - 1,564 - 641 (267) 1,938
Total
Service 55,542 24,313 12,311 1,656 30,502 (267) 124,057
Equipment 17,022 770 7 906 288 - 18,993
Total $ 72,564 $ 25,083 $ 12,318 $ 2,562 $ 30,790 $(267) $143,050
Deferred Customer Contract Acquisition and Fulfillment Costs
Costs to acquire and fulfill customer contracts, including
commissions on service activations, for our Mobility, Business
Wireline and Consumer Wireline services, are deferred and amortized
over the contract period or expected customer relationship life,
which typically ranges from three years to five years.
During the first quarter of 2022, we updated our analysis of
expected economic lives of customer relationships. As of January 1,
2022, we extended the amortization period for deferred acquisition
and fulfillment contract costs within Mobility, Consumer Wireline
and Business Wireline to better reflect the estimated economic
lives of the relationships. These changes in accounting estimate
decreased other cost of revenues approximately $395, or $0.04 per
diluted share from continuing operations for the year ended
December 31, 2022.
The following table presents the deferred customer contract
acquisition and fulfillment costs included on our consolidated
balance sheets at December 31:
Consolidated Balance Sheets 2022 2021
Deferred Acquisition Costs
Prepaid and other current assets $2,893 $2,551
Other Assets 3,913 3,247
Total deferred customer contract acquisition costs $6,806 $5,798
Deferred Fulfillment Costs
Prepaid and other current assets $2,481 $2,600
Other Assets 4,206 4,148
Total deferred customer contract fulfillment costs $6,687 $6,748
The following table presents deferred customer contract
acquisition and fulfillment cost amortization included in "Other
cost of revenue" for the years ended December 31:
Consolidated Statements of Income 2022 2021 1
Deferred acquisition cost amortization $ 2,935 $ 2,965
Deferred fulfillment cost amortization 2,688 4,014
1 Includes deferred acquisition amortization of $409 and deferred fulfillment
cost amortization of $1,162 from our separated Video business for the year ended
December 31, 2021.
Contract Assets and Liabilities
A contract asset is recorded when revenue is recognized in
advance of our right to bill and receive consideration. The
contract asset will decrease as services are provided and billed.
For example, when installment sales include promotional discounts
(e.g., "buy one get one free") the difference between revenue
recognized and consideration received is recorded as a contract
asset to be amortized over the contract term.
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AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------
Our contract assets primarily relate to our wireless businesses.
Promotional equipment sales where we offer handset credits, which
are allocated between equipment and service in proportion to their
standalone selling prices, when customers commit to a specified
service period result in additional contract assets recognized.
These contract assets will amortize over the service contract
period, resulting in lower future service revenue.
When consideration is received in advance of the delivery of
goods or services, a contract liability is recorded. Reductions in
the contract liability will be recorded as we satisfy the
performance obligations.
The following table presents contract assets and liabilities on
our consolidated balance sheets at December 31:
Consolidated Balance Sheets 2022 2021
Contract asset $5,512 $4,389
Current portion in "Prepaid and other current assets" 2,941 2,582
Contract liability 4,170 4,133
Current portion in "Advanced billings and customer deposits" 3,816 3,776
Our contract asset balance in 2022 reflects increased
promotional equipment sales in our wireless business. We expect the
amortization of these promotional costs to flatten in 2023.
Our beginning of period contract liabilities recorded as
customer contract revenue during 2022 was $3,795.
Remaining Performance Obligations
Remaining performance obligations represent services we are
required to provide to customers under bundled or discounted
arrangements, which are satisfied as services are provided over the
contract term. In determining the transaction price allocated, we
do not include non-recurring charges and estimates for usage, nor
do we consider arrangements with an original expected duration of
less than one year, which are primarily prepaid wireless and
residential internet agreements.
Remaining performance obligations associated with business
contracts reflect recurring charges billed, adjusted to reflect
estimates for sales incentives and revenue adjustments. Performance
obligations associated with wireless contracts are estimated using
a portfolio approach in which we review all relevant promotional
activities, calculating the remaining performance obligation using
the average service component for the portfolio and the average
device price. As of December 31, 2022, the aggregate amount of the
transaction price allocated to remaining performance obligations
was $35,800, of which we expect to recognize approximately 76% by
the end of 2024, with the balance recognized thereafter.
NOTE 6. ACQUISITIONS, DISPOSITIONS AND OTHER ADJUSTMENTS
Acquisitions
Spectrum Auctions On January 14, 2022, the Federal
Communications Commission (FCC) announced that we were the winning
bidder for 1,624 3.45 GHz licenses in Auction 110. We provided the
FCC an upfront deposit of $123 in the third quarter of 2021 and
paid the remaining $8,956 in the first quarter of 2022, for a total
of $9,079. We funded the purchase price using cash and short-term
investments. We received the licenses in May 2022 and classified
the auction deposits and related capitalized interest as "Licenses
- Net" on our December 31, 2022 consolidated balance sheet.
In February 2021, the FCC announced that AT&T was the
winning bidder for 1,621 C-Band licenses, comprised of a total of
80 MHz nationwide, including 40 MHz in Phase I. We provided to the
FCC an upfront deposit of $550 in 2020 and cash payments totaling
$22,856 in the first quarter of 2021, for a total of $23,406. We
received the licenses in July 2021 and classified the auction
deposits, related capitalized interest and billed relocation costs
as "Licenses - Net" on our December 31, 2021 consolidated balance
sheet. In December 2021, we paid $955 of Incentive Payments upon
clearing of Phase I spectrum and estimate that we will pay $2,112
upon clearing of Phase II spectrum, expected by the end of 2023.
Additionally, we are responsible for approximately $1,100 of
compensable relocation costs over the next several years as the
spectrum is being cleared by satellite operators, of which we paid
$650 in the fourth quarter of 2021 and $98 in the third quarter of
2022. Funding for the purchase price of the spectrum included a
combination of cash on hand and short-term investments, as well as
short- and long-term debt.
63
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------
Cash paid, including spectrum deposits (net of refunds),
capitalized interest, and any payments for incentive and relocation
costs are included in "Acquisitions, net of cash acquired" on our
consolidated statements of cash flows. Interest is capitalized
until the spectrum is ready for its intended use.
In June 2020, we completed the acquisition of $2,379 of 37/39
GHz spectrum in an FCC auction. Prior to the auction, we exchanged
the 39 GHz licenses with a book value of approximately $300 that
were previously acquired through FiberTower Corporation for
vouchers to be applied against the winning bids and recorded a $900
gain in the first quarter of 2020. These vouchers yielded a value
of approximately $1,200, which was applied toward our gross bids.
In the second quarter of 2020, we made the final cash payment of
$949, bringing the total cash payment to $1,186.
Dispositions
Video Business On July 31, 2021, we closed our transaction with
TPG to form a new company named DIRECTV, which is jointly governed
by a board with representation from both AT&T and TPG, with TPG
having tie-breaking authority on certain key decisions, most
significantly the appointment and removal of the CEO.
In connection with the transaction, we contributed our U.S.
Video business unit to DIRECTV for $4,250 of junior preferred
units, an additional distribution preference of $4,200 and a 70%
economic interest in common units (collectively "equity
considerations"). TPG contributed approximately $1,800 in cash to
DIRECTV for $1,800 of senior preferred units and a 30% economic
interest in common units. See Note 10 for additional information on
our accounting for our investment in DIRECTV.
Upon close of the transaction in the third quarter of 2021, we
received approximately $7,170 in cash from DIRECTV ($7,600, net of
$430 cash on hand) and transferred $195 of DIRECTV debt.
Approximately $1,800 of the cash received is reported as cash
received from financing activities in our consolidated statement of
cash flows, as it relates to a note payable to DIRECTV, for which
payment is tied to our agreement to cover net losses under the
remaining term of the NFL SUNDAY TICKET contract up to a cap of
$2,100 over the remaining period of the contract (see Note 19). The
remainder of the net proceeds is reported as cash from investing
activities. This transaction did not result in a material gain or
loss.
In the first quarter of 2021, we applied held-for-sale
accounting treatment to the assets and liabilities of the U.S.
video business, and, accordingly, included the assets in "Prepaid
and other current assets," and the related liabilities in "Accounts
payable and accrued liabilities," on our consolidated balance
sheet, up until the close of the transaction. The held-for-sale
classification also resulted in ceasing depreciation and
amortization on the designated assets.
The assets and liabilities of the Video operations, transferred
to DIRECTV upon close of the transaction, were as follows:
Current assets $ 4,893
Property, plant and equipment - net 2,673
Licenses - net 5,798
Other intangible assets - net 1,634
Other assets 1,787
Total Video assets $16,785
Current liabilities $ 4,267
Long-term debt 206
Other noncurrent liabilities 343
Total Video liabilities $ 4,816
Central European Media Enterprises Ltd. (CME) On October 13,
2020, we completed the sale of our 65.3% interest in CME, a
European broadcasting company, for approximately $1,100. This
disposition did not result in a material gain or loss.
Operations in Puerto Rico On October 31, 2020, we completed the
sale of our wireless and wireline operations in Puerto Rico and the
U.S. Virgin Islands for approximately $1,950 and recorded a pre-tax
loss of $82. The proceeds were used to redeem $1,950 of cumulative
preferred interests in a subsidiary that held notes secured by the
proceeds of this sale.
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Dispositions Reflected as Discontinued Operations
WarnerMedia On April 8, 2022, we completed the separation and
distribution of our WarnerMedia business, and merger of Spinco, an
AT&T subsidiary formed to hold the WarnerMedia business, with a
subsidiary of Discovery, Inc., which was renamed Warner Bros.
Discovery, Inc (WBD). Each AT&T shareholder was entitled to
receive 0.241917 shares of WBD common stock for each share of
AT&T common stock held as of the record date, which represented
approximately 71% of WBD. In connection with and in accordance with
the terms of the Separation and Distribution Agreement (SDA), prior
to the distribution and merger, AT&T received approximately
$40,400, which includes $38,800 of Spinco cash and $1,600 of debt
retained by WarnerMedia. During the second quarter of 2022, assets
of approximately $121,100 and liabilities of $70,600 were removed
from our balance sheet as well as $45,041 of retained earnings and
$5,632 of additional paid-in capital associated with the
transaction. Additionally, in August 2022, we and WBD finalized the
post-closing adjustment, pursuant to Section 1.3 of the SDA, which
resulted in a $1,200 payment to WBD in the third quarter of 2022
and was reflected in the balance sheet as an adjustment to
additional paid-in capital. (See Note 23)
AT&T, Spinco and Discovery entered into a Tax Matters
Agreement, which governs the parties' rights, responsibilities and
obligations with respect to tax liabilities and benefits, the
preservation of the expected tax-free status of the transactions
contemplated by the SDA, and other matters regarding taxes.
Xandr On June 6, 2022, we completed the sale of the marketplace
component of Xandr to Microsoft Corporation. Xandr was reflected in
our historical financial statements as discontinued operations.
Vrio On November 15, 2021, we completed the sale of our Latin
America video operations, Vrio, to Grupo Werthein and recorded a
note receivable of $610 to be paid over four years, of which $300
is in the form of seller financing and the remainder is related to
working capital adjustments. In the second quarter of 2021, we
classified the Vrio disposal group as held-for-sale and reported
the disposal group at fair value less cost to sell, which resulted
in a noncash, pre-tax impairment charge of $4,555, including
approximately $2,100 related to accumulated foreign currency
translation adjustments and $2,500 related to property, plant and
equipment and intangible assets. Approximately $80 of the
impairment was attributable to noncontrolling interest. The assets
and liabilities removed from our consolidated balance sheet
included $851 of Vrio held-for-sale assets primarily related to
deferred customer contract acquisition and fulfillment costs,
prepaids and other deferred charges, and $2,872 of related
liabilities primarily for reserves associated with accumulated
foreign currency translation adjustments, which reversed against
accumulated other comprehensive income upon close of the
transaction. This disposition did not result in a net material gain
or loss.
Otter Media During the third quarter of 2021, we disposed of
substantially all of the assets of Otter Media. We received
approximately $1,540 in cash and removed approximately $1,200 of
goodwill associated with these assets. The dispositions did not
result in a material gain or loss.
Playdemic Ltd. On September 20, 2021, we sold WarnerMedia's
mobile games app studio, Playdemic for approximately $1,370 in cash
and recognized a pre-tax gain of $706 in "Other income (expense) -
net," on our consolidated statement of income. Approximately $600
of goodwill was removed related to this business.
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NOTE 7. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is summarized as follows at
December 31:
Lives (years) 2022 2021
Land - $ 1,381 $ 1,401
Buildings and improvements 2-44 38,751 38,204
Central office equipment 1 3-10 98,468 97,070
Cable, wiring and conduit 15-50 84,447 79,961
Satellites 14-17 103 103
Other equipment 3-20 81,658 85,929
Software 3-7 17,640 16,520
Under construction - 7,182 5,425
329,630 324,613
Accumulated depreciation and amortization 202,185 202,964
Property, plant and equipment - net $127,445 $121,649
1 Includes certain network software.
Our depreciation expense was $17,852 in 2022, $17,634 in 2021,
and $19,028 in 2020. Depreciation expense included amortization of
software totaling $2,972 in 2022, $2,909 in 2021 and $3,343 in
2020.
In December 2022, we recorded a noncash pre-tax charge of $1,413
to abandon conduits that will not be utilized to support future
network activity. The abandonment was considered outside the
ordinary course of business.
During the first quarter of 2022, we updated our analysis of
economic lives of AT&T owned fiber network assets. As of
January 1, 2022, we extended the estimated economic life and
depreciation period of such costs to better reflect the physical
life of the assets that we had been experiencing and absence of
technological changes that would replace fiber as the best
broadband technology in the industry. The change in accounting
estimate decreased depreciation expense $280, or $0.03 per diluted
share from continuing operations for the year ended December 31,
2022.
In December 2020, we reassessed our grouping of long-lived
assets and identified certain impairment indicators, requiring us
to evaluate the recoverability of the long-lived assets of our
former Video business. Based on this evaluation, we determined that
these assets were not fully recoverable and recognized pre-tax
impairment charges totaling $7,255, of which $1,681 related to
property, plant and equipment, including satellites. The reduced
carrying amounts of the impaired assets became their new cost
basis.
NOTE 8. LEASES
We have operating and finance leases for certain facilities and
equipment used in our operations. Our leases generally have
remaining lease terms of up to 15 years. Some of our real estate
operating leases contain renewal options that may be exercised, and
some of our leases include options to terminate the leases within
one year.
We have recognized a right-of-use asset for both operating and
finance leases, and a corresponding lease liability that represents
the present value of our obligation to make payments over the lease
term. The present value of the lease payments is calculated using
the incremental borrowing rate for operating and finance leases,
which was determined using a portfolio approach based on the rate
of interest that we would have to pay to borrow an amount equal to
the lease payments on a collateralized basis over a similar term.
We use the unsecured borrowing rate and risk-adjust that rate to
approximate a collateralized rate in the currency of the lease,
which will be updated on a quarterly basis for measurement of new
lease liabilities.
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The components of lease expense were as follows:
2022 2021 2020
Operating lease cost $ 5,437 $ 5,363 $ 5,331
Finance lease cost:
Amortization of right-of-use assets $ 204 $ 179 $ 185
Interest on lease obligation 159 145 133
Total finance lease cost $ 363 $ 324 $ 318
The following table provides supplemental cash flows information
related to leases:
2022 2021 2020
Cash Flows from Operating Activities
Cash paid for amounts included in lease obligations:
Operating cash flows from operating leases $ 4,679 $ 4,580 $ 4,496
Supplemental Lease Cash Flow Disclosures
Operating lease right-of-use assets obtained
in exchange for
new operating lease obligations 3,751 3,396 4,057
The following tables set forth supplemental balance sheet
information related to leases at December 31:
2022 2021
Operating Leases
Operating lease right-of-use assets $21,814 $21,824
Accounts payable and accrued liabilities $ 3,547 $ 3,393
Operating lease obligation 18,659 18,956
Total operating lease obligation $22,206 $22,349
Finance Leases
Property, plant and equipment, at cost $ 2,770 $ 2,494
Accumulated depreciation and amortization (1,224) (1,053)
Property, plant and equipment - net $ 1,546 $ 1,441
Current portion of long-term debt $ 170 $ 127
Long-term debt 1,647 1,442
Total finance lease obligation $ 1,817 $ 1,569
2022 2021
Weighted-Average Remaining Lease Term (years)
Operating leases 8.1 8.2
Finance leases 7.9 8.9
Weighted-Average Discount Rate
Operating leases 3.7% 3.7%
Finance leases 8.0% 8.2%
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The following table provides the expected future minimum
maturities of lease obligations:
Operating Finance
At December 31, 2022 Leases Leases
2023 $ 4,657 $ 315
2024 4,203 306
2025 3,543 315
2026 2,830 291
2027 2,302 290
Thereafter 8,933 1,032
Total lease payments 26,468 2,549
Less: imputed interest (4,262) (732)
Total $ 22,206 $ 1,817
NOTE 9. GOODWILL AND OTHER INTANGIBLE ASSETS
We test goodwill for impairment at a reporting unit level, which
is deemed to be our principal operating segments or one level
below. With our annual impairment testing as of October 1, 2022,
the calculated fair value of the Mobility reporting unit exceeded
its book value; we recorded noncash impairment charges of $13,478
in our Business Wireline reporting unit, $10,508 in our Consumer
Wireline reporting unit and $826 in our Mexico reporting unit. The
decline in fair values was primarily due to changes in the
macroeconomic environment, namely increased weighted-average cost
of capital. Also, inflation pressure and lower projected cash flows
driven by secular declines, predominantly at Business Wireline,
impacted the fair values. A combination of discounted cash flow and
market multiple approaches was used to determine the fair values.
In the Communications segment, if all other assumptions were to
remain unchanged, we expect the impairment charge would increase by
approximately $3,400 if the weighted average cost of capital
increased by 25 basis points, or $2,100 if the projected terminal
growth rate declined by 25 basis points, or $2,800 if the projected
long-term EBITDA margin declined 100 basis points.
Changes to our goodwill in 2022 primarily resulted from noncash
impairments. Changes to our goodwill in 2021 primarily resulted
from the sale of our Government Solutions business.
At December 31, 2022, our Communications segment has three
reporting units: Mobility, Business Wireline and Consumer Wireline.
The reporting unit is deemed to be the operating segment for Latin
America.
The following table sets forth the changes in the carrying
amounts of goodwill by operating segment:
2022 2021
Dispositions, Dispositions,
Balance currency Balance Balance currency Balance
at exchange at at exchange at
Jan. 1 Impairments and other Dec. 31 Jan. 1 and other Dec. 31
Communications
Goodwill $91,924 $ - $ (43) $ 91,881 $91,976 $ (52) $91,924
Impairments - (23,986) - (23,986) - - -
Net goodwill 91,924 (23,986) (43) 67,895 91,976 (52) 91,924
Latin America 816 (826) 10 - 836 (20) 816
Total $92,740 $ (24,812) $ (33) $ 67,895 $92,812 $ (72) $92,740
We review amortizing intangible assets for impairment whenever
events or circumstances indicate that the carrying amount may not
be recoverable over the remaining life of the asset or asset
group.
Indefinite-lived wireless licenses increased in 2022 primarily
due to recent auction activity and $1,120 of capitalized interest
(see Note 6).
In 2021, as a result of the separation of our U.S. video
business (see Note 6), we removed $5,798 of orbital slot licenses
and $1,585 of customer lists that were transferred to DIRECTV.
Indefinite-lived wireless licenses increased in 2021 primarily due
to auction activity, compensable relocation and incentive payments,
and capitalized interest (see Notes 6 and 22).
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Our other intangible assets at December 31 are summarized as
follows:
2022 2021
Gross Currency Gross Currency
Other Intangible Weighted-Average Carrying Accumulated Translation Carrying Accumulated Translation
Assets Life Amount Amortization Adjustment Amount Amortization Adjustment
Amortized
intangible
assets:
Wireless
licenses 21.6 years $ 3,045 $ 425 $ (297) $ 3,083 $ 307 $ (440)
Trademarks and
trade names 15.0 years 26 11 (6) 27 11 (7)
Customer lists
and
relationships 12.6 years 413 304 (75) 577 429 (98)
Other 8.5 years 304 234 - 349 258 -
Total 21.1 years $ 3,788 $ 974 $ (378) $ 4,036 $ 1,005 $ (545)
Indefinite-lived intangible assets not subject to
amortization:
Wireless licenses $121,769 $111,494
Trade names 5,241 5,241
Total $127,010 $116,735
Amortized intangible assets are definite-life assets, and, as
such, we record amortization expense based on a method that most
appropriately reflects our expected cash flows from these assets.
Amortization expense for definite-life intangible assets was $169
for the year ended December 31, 2022, $218 for the year ended
December 31, 2021 (reflecting the separation of our U.S. video
business) and $3,495 for the year ended December 31, 2020.
Estimated amortization expense for the next five years is: $161 for
2023, $154 for 2024, $142 for 2025, $142 for 2026 and $142 for
2027.
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NOTE 10. EQUITY METHOD INVESTMENTS
Investments in partnerships, joint ventures and less than
majority-owned subsidiaries in which we have significant influence
are accounted for under the equity method.
On July 31, 2021, we closed our transaction with TPG to form a
new company named DIRECTV (see Note 6). The transaction resulted in
our deconsolidation of the Video business, with DIRECTV being
accounted for under the equity method beginning August 1, 2021.
Our investments in equity affiliates at December 31, 2022
primarily included our interests in DIRECTV and SKY Mexico.
DIRECTV We account for our investment in DIRECTV under the
equity method of accounting. DIRECTV is considered a variable
interest entity for accounting purposes. As DIRECTV is jointly
governed by a board with representation from both AT&T and TPG,
with TPG having tie-breaking authority on certain key decisions,
most significantly the appointment and removal of the CEO, we have
concluded that we are not the primary beneficiary of DIRECTV.
The ownership interests in DIRECTV, based on seniority are as
follows:
--Preferred units with distribution rights of $1,800 held by
TPG, which were fully distributed in 2021.
--Junior preferred units with distribution rights of $4,250 held
by AT&T, of which $702 of distribution rights remain as of
December 31, 2022.
--Distribution preference associated with Common units of $4,200
held by AT&T.
--Common units, with 70% held by AT&T and 30% held by
TPG.
The initial fair value of the equity considerations on July 31,
2021 was $6,852, which was determined using a discounted cash flow
model reflecting distribution rights and preference of the
individual instruments. During 2022 and 2021, we recognized $1,808
and $619 of equity in net income of affiliates and received total
distributions of $4,457 and $1,942, respectively, from DIRECTV. The
book value of our investment in DIRECTV was $2,911 and $5,539 at
December 31, 2022 and 2021.
Our share of net income or loss may differ from the stated
ownership percentage interest of DIRECTV as the terms of the
arrangement prescribe substantive non-proportionate cash
distributions, both from operations and in liquidation, that are
based on classes of interests held by investors. In the event that
DIRECTV records a loss, that loss will be allocated to ownership
interests based on their seniority, beginning with the most
subordinated interests.
SKY Mexico We hold a 41.3% interest in SKY Mexico, which is a
leading pay-TV provider in Mexico.
The following table presents summarized financial information
for DIRECTV and our other equity method investments, consisting
primarily of SKY Mexico and certain sports-related programming
investments, at December 31, or for the year then ended:
2022 2021 2020
Income Statements 1
Operating revenues $ 25,794 $ 12,220 $ 1,282
Operating income 3,175 1,179 157
Net income 2,581 938 91
Balance Sheets
Current assets 4,240 5,295
Noncurrent assets 14,211 17,022
Current liabilities 6,681 7,191
Noncurrent liabilities 7,951 8,614
1 Does not include DIRECTV for periods prior to August 1, 2021.
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The following table is a reconciliation of our investments in
equity affiliates as presented on our consolidated balance
sheets:
2022 2021
Beginning of year $ 6,168 $ 742
Additional investments 3 -
Receipt of equity interest in DIRECTV - 6,852
Distributions from DIRECTV in excess of cumulative equity
in earnings (2,649) (1,323)
Other capital distributions - (6)
Dividends and distributions of cumulative earnings received (1,815) (701)
Equity in net income of affiliates 1,791 603
Currency translation adjustments 25 (14)
Other adjustments 10 15
End of year $ 3,533 $ 6,168
NOTE 11. DEBT
Long-term debt of AT&T and its subsidiaries, including
interest rates and maturities, is summarized as follows at December
31:
2022 2021
Notes and debentures
Interest Rates
1 Maturities
0.00% -2.99% 2022 -2039 $ 24,603 $ 31,612
3.00% -4.99% 2022 -2061 91,201 107,635
5.00% -6.99% 2022 -2095 20,083 23,023
7.00% -12.00% 2022 -2097 4,884 5,056
Credit agreement borrowings 2,500 10,400
Fair value of interest rate swaps recorded
in debt 13 16
143,284 177,742
Unamortized (discount) premium - net (9,650) (9,758)
Unamortized issuance costs (427) (508)
Total notes and debentures 133,207 167,476
Finance lease obligations 1,817 1,569
Total long-term debt, including current
maturities 135,024 169,045
Current maturities of long-term debt (6,601) (7,934)
Current maturities of credit agreement
borrowings - (10,100)
Total long-term debt $128,423 $151,011
1 Foreign debt includes the impact from hedges, when applicable.
We had outstanding Euro, British pound sterling, Canadian
dollar, Mexican peso, Australian dollar, and Swiss franc
denominated debt of approximately $35,525 and $41,063 at December
31, 2022 and 2021, respectively.
The weighted-average interest rate of our long-term debt
portfolio, including credit agreement borrowings and the impact of
derivatives, was approximately 4.1% as of December 31, 2022 and
3.8% as of December 31, 2021.
Debt maturing within one year consisted of the following at
December 31:
2022 2021
Current maturities of long-term debt $6,601 $ 7,934
Commercial paper 866 6,586
Credit agreement borrowings - 10,100
Total $7,467 $24,620
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Financing Activities
During 2022, we received net proceeds of $479 on the issuance of
$479 in long-term debt and proceeds of $3,250 on the issuance of
credit agreement borrowings in various markets, with an average
weighted maturity of approximately 2.0 years and a weighted average
interest rate of 5.2%. We repaid $34,835 of long-term debt and
credit agreement borrowings with a weighted average interest rate
of 3.1%. Our debt activity during 2022 primarily consisted of the
following:
First Second Third Fourth Full Year
Quarter Quarter Quarter Quarter 2022
Net commercial paper borrowings $ 1,471 $ (5,219) $ (724) $(1,337) $ (5,809)
Issuance of Notes and Debentures:
Private Financing $ - $ - $ 750 $ - $ 750
2025 Term Loan - - - 2,500 2,500
Other 479 - - - 479
Debt Issuances $ 479 $ - $ 750 $ 2,500 $ 3,729
Repayments:
2021 Syndicated Term Loan $ - $ (7,350) $ - $ - $ (7,350)
BAML Bilateral Term Loan - Tranche A - (1,000) - - (1,000)
Private financing - (750) - (750) (1,500)
Repayment of other short-term borrowings $ - $ (9,100) $ - $ (750) $ (9,850)
USD notes 1,2,3 $ (123) $(18,957) $ - $ (287) $(19,367)
Euro notes - (3,343) - - (3,343)
BAML Bilateral Term Loan - Tranche B - (1,000) - - (1,000)
Other (667) (123) (199) (419) (1,408)
Repayments of long-term debt $ (790) $(23,423) $ (199) $ (706) $(25,118)
1 On April 11, 2022, we issued notices for the redemption in full of all of
the outstanding approximately $9,042 aggregate principal amount of various global
notes due 2022 to 2026 with coupon rates ranging from 2.625% to 4.450% (Make-Whole
Notes). The Make-Whole Notes were redeemed on the redemption dates set forth
in the notices of redemption, at "make whole" redemption prices calculated as
set forth in the respective redemption notices in the second quarter.
2 Includes $7,954 of cash paid toward the $8,822 aggregate principal amount
of various notes that were tendered for cash in May 2022. The notes had interest
rates ranging between 3.100% and 8.750% and original maturities ranging from
2026 to 2061.
3 Includes $287 of principal repayment on a $592 zero coupon note that matured
in November 2022. The other $305 was applied to operating cash flows related
to interest expense that accreted to the note over its life.
As of December 31, 2022 and 2021, we were in compliance with all
covenants and conditions of instruments governing our debt.
Substantially all of our outstanding long-term debt is unsecured.
Maturities of outstanding long-term notes and debentures, as of
December 31, 2022, and the corresponding weighted-average interest
rate scheduled for repayment are as follows:
2023 2024 2025 2026 2027 Thereafter
Debt repayments 1 $6,929 $8,950 $5,948 $8,619 $6,278 $110,949
Weighted-average
interest
rate 2 3.7% 4.1% 5.5% 3.1% 3.7% 4.2%
1 Debt repayments represent maturity value. Foreign debt includes the impact
from hedges, when applicable. Includes credit agreement borrowings.
2 Includes credit agreement borrowings.
Credit Facilities
General
On January 29, 2021, we entered into a $14,700 Term Loan Credit
Agreement (2021 Syndicated Term Loan), with Bank of America, N.A.,
as agent. On March 23, 2021, we borrowed $7,350 under the 2021
Syndicated Term Loan and the remaining $7,350 of lenders'
commitments was terminated. In the first quarter of 2022, the
maturity date of the 2021 Syndicated Term Loan was extended to
December 31, 2022. On April 13, 2022, the 2021 Syndicated Term Loan
was paid off and terminated.
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In March 2021, we entered into and drew on a $2,000 term loan
credit agreement (BAML Bilateral Term Loan) consisting of (i) a
$1,000 facility originally due December 31, 2021 (BAML Tranche A
Facility) and subsequently extended to December 31, 2022 in the
fourth quarter of 2021, and (ii) a $1,000 facility due December 31,
2022 (BAML Tranche B Facility), with Bank of America, N.A., as
agent. On April 13, 2022, the BAML Bilateral Term Loan was paid off
and terminated.
In November 2022, we entered into and drew on a $2,500 term loan
agreement due February 16, 2025 (2025 Term Loan), with Mizuho Bank,
Ltd., as agent. As of December 31, 2022, $2,500 was outstanding
under this agreement.
Revolving Credit Agreements
In November 2022, we terminated one of our revolving credit
agreements and amended and restated the other. We currently have
one $12,000 revolving credit agreement that terminates on November
18, 2027 (Revolving Credit Agreement). No amounts were outstanding
as of December 31, 2022.
Each of our credit and loan agreements contains covenants that
are customary for an issuer with an investment grade senior debt
credit rating. Our Revolving Credit Agreement and 2025 Term Loan
include a net debt-to-EBITDA financial ratio covenant requiring
AT&T to maintain, as of the last day of each fiscal quarter, a
ratio of not more than 3.75-to-1. Other loan agreements include a
net debt-to-EBITDA financial ratio covenant requiring AT&T to
maintain, as of the last day of each fiscal quarter through June
30, 2023 a ratio of not more than 4.0-to-1, and a ratio of not more
than 3.5-to-1 for any fiscal quarter thereafter.
The events of default are customary for agreements of this type
and such events would result in the acceleration of, or would
permit the lenders to accelerate, as applicable, required payments
and would increase each agreement's relevant Applicable Margin by
2.00% per annum.
The obligations of the lenders under the Revolving Credit
Agreement to provide advances will terminate on November 18, 2027,
unless the commitments are terminated in whole prior to that date.
All advances must be repaid no later than the date on which lenders
are no longer obligated to make any advances under the Revolving
Credit Agreement.
The Revolving Credit Agreement provides that we and lenders
representing more than 50% of the facility amount may agree to
extend their commitments under the credit agreement for two
one-year periods beyond the initial termination date. We have the
right to terminate, in whole or in part, amounts committed by the
lenders under the credit agreement in excess of any outstanding
advances; however, any such terminated commitments may not be
reinstated.
Advances under the Revolving Credit Agreement would bear
interest, at our option, either:
--at a variable annual rate equal to: (1) the highest of (but
not less than zero) (a) the rate of interest announced publicly by
Citibank in New York, New York, from time to time, as Citibank's
base rate, (b) 0.5% per annum above the federal funds rate, and (c)
the forward-looking term rate based on the secured overnight
financing rate ("Term SOFR") for a period of one month plus a
credit spread adjustment of 0.10% plus 1.00%, plus (2) an
applicable margin, as set forth in the credit agreement (the
"Applicable Margin for Base Advances"); or
--at a rate equal to: (i) Term SOFR for a period of one, three
or six months, as applicable, plus (ii) a credit spread adjustment
of 0.10% plus (iii) an applicable margin, as set forth in the
Revolving Credit Agreement (the "Applicable Margin for Benchmark
Rate Advances").
We pay a facility fee of 0.060%, 0.070%, 0.080% or 0.100% per
annum of the amount of the lender commitments, depending on
AT&T's credit rating.
NOTE 12. FAIR VALUE MEASUREMENTS AND DISCLOSURE
The Fair Value Measurement and Disclosure framework in ASC 820,
"Fair Value Measurement," provides a three-tiered fair value
hierarchy based on the reliability of the inputs used to determine
fair value. Level 1 refers to fair values determined based on
quoted prices in active markets for identical assets. Level 2
refers to fair values estimated using significant other observable
inputs and Level 3 includes fair values estimated using significant
unobservable inputs.
The level of an asset or liability within the fair value
hierarchy is based on the lowest level of any input that is
significant to the fair value measurement. Our valuation techniques
maximize the use of observable inputs and minimize the use of
unobservable inputs.
The valuation methodologies described above may produce a fair
value calculation that may not be indicative of future net
realizable value or reflective of future fair values. We believe
our valuation methods are appropriate and consistent with other
market participants. The use of different methodologies or
assumptions to determine the fair value of certain financial
73
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------
instruments could result in a different fair value measurement
at the reporting date. There have been no changes in the
methodologies used since December 31, 2021.
Long-Term Debt and Other Financial Instruments
The carrying amounts and estimated fair values of our long-term
debt, including current maturities, and other financial
instruments, are summarized as follows:
December 31, 2022 December 31, 2021
Carrying Fair Carrying Fair
Amount Value Amount Value
Notes and debentures 1 $ 133,207 $122,524 $ 167,476 $193,068
Commercial paper 866 866 6,586 6,586
Investment securities 2 2,692 2,692 3,214 3,214
1 Includes credit agreement borrowings. Excludes note payable to
DIRECTV.
2 Excludes investments accounted for under the equity
method.
The carrying amount of debt with an original maturity of less
than one year approximates fair value. The fair value measurements
used for notes and debentures are considered Level 2 and are
determined using various methods, including quoted prices for
identical or similar securities in both active and inactive
markets.
Following is the fair value leveling for investment securities
that are measured at fair value and derivatives as of December 31,
2022 and December 31, 2021. Derivatives designated as hedging
instruments are reflected as "Other Assets," "Other noncurrent
liabilities," "Prepaid and other current assets" and "Accounts
payable and accrued liabilities" on our consolidated balance
sheets.
December 31, 2022
Level 1 Level 2 Level 3 Total
Equity Securities
Domestic equities $ 995 $ - $ - $ 995
International equities 198 - - 198
Fixed income equities 189 - - 189
Available-for-Sale Debt Securities - 1,132 - 1,132
Asset Derivatives
Cross-currency swaps - 28 - 28
Liability Derivatives
Cross-currency swaps - (6,010) - (6,010)
Foreign exchange contracts - (23) - (23)
December 31, 2021
Level 1 Level 2 Level 3 Total
Equity Securities
Domestic equities $ 1,213 $ - $ - $ 1,213
International equities 221 - - 221
Fixed income equities 219 - - 219
Available-for-Sale Debt Securities - 1,380 - 1,380
Asset Derivatives
Cross-currency swaps - 211 - 211
Liability Derivatives
Cross-currency swaps - (3,170) - (3,170)
Investment Securities
Our investment securities include both equity and debt
securities that are measured at fair value, as well as equity
securities without readily determinable fair values. A substantial
portion of the fair values of our investment securities is
estimated based on quoted market prices. Investments in equity
securities not traded on a national securities exchange are valued
at cost, less
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Dollars in millions except per share amounts
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any impairment, and adjusted for changes resulting from
observable, orderly transactions for identical or similar
securities. Investments in debt securities not traded on a national
securities exchange are valued using pricing models, quoted prices
of securities with similar characteristics or discounted cash
flows.
The components comprising total gains and losses in the period
on equity securities are as follows:
For the years ended December 31, 2022 2021 2020
Total gains (losses) recognized on equity securities $(309) $293 $171
Gains (Losses) recognized on equity securities
sold (80) (5) (25)
Unrealized gains (losses) recognized on equity
securities held at end of period $(229) $298 $196
At December 31, 2022, available-for-sale debt securities
totaling $1,132 have maturities as follows - less than one year:
$38; one to three years: $158; three to five years: $170; five or
more years: $766.
Our cash equivalents (money market securities), short-term
investments (certificate and time deposits) and nonrefundable
customer deposits are recorded at amortized cost, and the
respective carrying amounts approximate fair values. Short-term
investments and nonrefundable customer deposits are recorded in
"Prepaid and other current assets" and our investment securities
are recorded in "Other Assets" on the consolidated balance
sheets.
Derivative Financial Instruments
We enter into derivative transactions to manage certain market
risks, primarily interest rate risk and foreign currency exchange
risk. This includes the use of interest rate swaps, interest rate
locks, foreign exchange forward contracts and combined interest
rate foreign exchange contracts (cross-currency swaps). We do not
use derivatives for trading or speculative purposes. We record
derivatives on our consolidated balance sheets at fair value that
is derived from observable market data, including yield curves and
foreign exchange rates (all of our derivatives are Level 2). Cash
flows associated with derivative instruments are presented in the
same category on the consolidated statements of cash flows as the
item being hedged.
Fair Value Hedging Periodically, we enter into and designate
fixed-to-floating interest rate swaps as fair value hedges. The
purpose of these swaps is to manage interest rate risk by managing
our mix of fixed-rate and floating-rate debt. These swaps involve
the receipt of fixed-rate amounts for floating interest rate
payments over the life of the swaps without exchange of the
underlying principal amount.
We also designate most of our cross-currency swaps and foreign
exchange contracts as fair value hedges. The purpose of these
contracts is to hedge foreign currency risk associated with changes
in spot rates on foreign denominated debt. For cross-currency
hedges, we have elected to exclude the change in fair value of the
swap related to both time value and cross-currency basis spread
from the assessment of hedge effectiveness. For foreign exchange
contracts, we have elected to exclude the change in fair value of
forward points from the assessment of hedge effectiveness.
Unrealized and realized gains or losses from fair value hedges
impact the same category on the consolidated statements of income
as the item being hedged, including the earnings impact of excluded
components. In instances where we have elected to exclude
components from the assessment of hedge effectiveness related to
fair value hedges, unrealized gains or losses on such excluded
components are recorded as a component of accumulated OCI and
recognized into earnings over the life of the hedging instrument.
Unrealized gains on derivatives designated as fair value hedges are
recorded at fair value as assets, and unrealized losses are
recorded at fair market value as liabilities. Except for excluded
components, changes in the fair value of derivative instruments
designated as fair value hedges are offset against the change in
fair value of the hedged assets or liabilities through earnings. In
the years ended December 31, 2022 and 2021, no ineffectiveness was
measured on fair value hedges.
Cash Flow Hedging We designated some of our cross-currency swaps
as cash flow hedges to hedge our exposure to variability in
expected future cash flows that are attributable to foreign
currency risk generated from our foreign-denominated debt. These
agreements include initial and final exchanges of principal from
fixed foreign currency denominated amounts to fixed U.S. dollar
denominated amounts, to be exchanged at a specified rate that is
usually determined by the market spot rate upon issuance. They also
include an interest rate swap of a fixed or floating foreign
currency-denominated interest rate to a fixed U.S. dollar
denominated interest rate.
On September 30, 2022, we de-designated most of our
cross-currency swaps from cash flow hedges and re-designated these
swaps as fair value hedges. The amount remaining in accumulated
other comprehensive loss related to cash flow hedges on the
de-designation date was $1,857. The amount will be reclassified to
earnings when the hedged item is recognized in earnings or
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Dollars in millions except per share amounts
------------------------------------------------
when it becomes probable that the forecasted transactions will
not occur. The election of fair value hedge designation for
cross-currency swaps does not have an impact on our financial
results.
Unrealized gains on derivatives designated as cash flow hedges
are recorded at fair value as assets, and unrealized losses are
recorded at fair value as liabilities. For derivative instruments
designated as cash flow hedges, changes in fair value are reported
as a component of accumulated OCI and are reclassified into the
consolidated statements of income in the same period the hedged
transaction affects earnings.
Periodically, we enter into and designate interest rate locks to
partially hedge the risk of changes in interest payments
attributable to increases in the benchmark interest rate during the
period leading up to the probable issuance of fixed-rate debt. We
designate our interest rate locks as cash flow hedges. Gains and
losses when we settle our interest rate locks are amortized into
income over the life of the related debt. Over the next 12 months,
we expect to reclassify $59 from accumulated OCI to "Interest
expense" due to the amortization of net losses on historical
interest rate locks.
Collateral and Credit-Risk Contingency We have entered into
agreements with our derivative counterparties establishing
collateral thresholds based on respective credit ratings and
netting agreements. At December 31, 2022, we had posted collateral
of $886 (a deposit asset) and held collateral of $0 (a receipt
liability). Under the agreements, if AT&T's credit rating had
been downgraded two ratings levels by Fitch Ratings, one level by
S&P and one level by Moody's, before the final collateral
exchange in December, we would have been required to post
additional collateral of $42. If AT&T's credit rating had been
downgraded three ratings levels by Fitch Ratings, two levels by
S&P, and two levels by Moody's, we would have been required to
post additional collateral of $5,728. At December 31, 2021, we had
posted collateral of $135 (a deposit asset) and held collateral of
$7 (a receipt liability). We do not offset the fair value of
collateral, whether the right to reclaim cash collateral (a
receivable) or the obligation to return cash collateral (a payable)
exists, against the fair value of the derivative instruments.
Following are the notional amounts of our outstanding derivative
positions at December 31:
2022 2021
Cross-currency swaps $38,213 $40,737
Foreign exchange contracts 617 -
Total $38,830 $40,737
Following are the related hedged items affecting our financial
position and performance:
Effect of Derivatives on the Consolidated Statements
of Income
Fair Value Hedging Relationships
For the years ended December 31, 2022 2021 2020
Interest rate swaps (Interest expense):
Gain (Loss) on interest rate swaps $ (3) $(4) $(6)
Gain (Loss) on long-term debt 3 4 6
Cross-currency swaps:
Gain (Loss) on cross-currency swaps 2,195 (91) -
Gain (Loss) on long-term debt (2,195) 91 -
Gain (Loss) recognized in accumulated OCI 297 (17) -
Foreign exchange contracts:
Gain (Loss) on foreign exchange contracts (12) - -
Gain (Loss) on long-term debt 12 - -
Gain (Loss) recognized in accumulated OCI (12) - -
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AT&T Inc.
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In addition, the net swap settlements that accrued and settled
in the periods above were offset against "Interest expense."
Cash Flow Hedging Relationships
For the years ended December 31, 2022 2021 2020
Cross-currency swaps:
Gain (Loss) recognized in accumulated OCI $(1,119) $(873) $(378)
Foreign exchange contracts:
Gain (Loss) recognized in accumulated OCI 3 (17) 3
Other income (expense) - net reclassified from
accumulated OCI into income 1 1 (3)
Interest rate locks:
Gain (Loss) recognized in accumulated OCI - - (648)
Interest income (expense) reclassified from
accumulated OCI into income (65) (92) (84)
Other income (expense) reclassified from
accumulated OCI into income (45) - -
Distribution of WarnerMedia (12) - -
Nonrecurring Fair Value Measurements
In addition to assets and liabilities that are recorded at fair
value on a recurring basis, impairment indicators may subject
goodwill and long-lived assets to nonrecurring fair value
measurements. The implied fair values of the Business Wireline,
Consumer Wireline and Mexico reporting units and the former U.S.
video business were estimated using both the discounted cash flow
as well as market multiple approaches (see Note 9). The inputs to
these models are considered Level 3.
NOTE 13. INCOME TAXES
Significant components of our deferred tax liabilities (assets)
are as follows at December 31:
2022 2021
Depreciation and amortization $36,570 $35,894
Licenses and nonamortizable intangibles 19,339 15,573
Employee benefits (2,251) (3,178)
Deferred fulfillment costs 1,989 1,797
Equity in partnership 3,284 3,285
Net operating loss and other carryforwards (5,817) (6,109)
Other - net (343) 2,153
Subtotal 52,771 49,415
Deferred tax assets valuation allowance 4,175 4,343
Net deferred tax liabilities $56,946 $53,758
Noncurrent deferred tax liabilities $57,032 $53,767
Less: Noncurrent deferred tax assets (86) (9)
Net deferred tax liabilities $56,946 $53,758
At December 31, 2022, we had combined net operating and capital
loss carryforwards (tax effected) for federal income tax purposes
of $892, state of $747 and foreign of $2,441, expiring through
2042. Additionally, we had federal credit carryforwards of $293 and
state credit carryforwards of $1,444, expiring primarily through
2042.
We recognize a valuation allowance if, based on the weight of
available evidence, it is more likely than not that some portion,
or all, of a deferred tax asset will not be realized. Our valuation
allowances at December 31, 2022 and 2021 related primarily to state
and foreign net operating losses and state credit
carryforwards.
We consider post-1986 unremitted foreign earnings subjected to
the one-time transition tax not to be indefinitely reinvested as
such earnings can be repatriated without any significant
incremental tax costs. We consider other types of unremitted
foreign earnings to be indefinitely reinvested. U.S. income and
foreign withholding taxes have not been recorded on temporary
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AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------
differences related to investments in certain foreign
subsidiaries as such differences are considered indefinitely
reinvested. Determination of the amount of unrecognized deferred
tax liability is not practicable.
We recognize the financial statement effects of a tax return
position when it is more likely than not, based on the technical
merits, that the position will ultimately be sustained. For tax
positions that meet this recognition threshold, we apply our
judgment, taking into account applicable tax laws, our experience
in managing tax audits and relevant GAAP, to determine the amount
of tax benefits to recognize in our financial statements. For each
position, the difference between the benefit realized on our tax
return and the benefit reflected in our financial statements is
recorded on our consolidated balance sheets as an unrecognized tax
benefit (UTB). We update our UTBs at each financial statement date
to reflect the impacts of audit settlements and other resolutions
of audit issues, the expiration of statutes of limitation,
developments in tax law and ongoing discussions with taxing
authorities. A reconciliation of the change in our UTB balance from
January 1 to December 31 for 2022 and 2021 is as follows:
Federal, State and Foreign Tax 2022 2021
Balance at beginning of year $ 8,954 $ 9,415
Increases for tax positions related to the current year 1,389 677
Increases for tax positions related to prior years 577 332
Decreases for tax positions related to prior years (1,079) (1,169)
Lapse of statute of limitations (2) (6)
Settlements (182) (295)
Balance at end of year 9,657 8,954
Accrued interest and penalties 1,930 2,054
Gross unrecognized income tax benefits 11,587 11,008
Less: Deferred federal and state income tax benefits (723) (728)
Less: Tax attributable to timing items included above (4,640) (3,428)
Total UTB that, if recognized, would impact the
effective income tax rate as of the end of the year $ 6,224 $ 6,852
Periodically we make deposits to taxing jurisdictions which
reduce our UTB balance but are not included in the reconciliation
above. The amount of deposits that reduced our UTB balance was
$1,767 at December 31, 2022 and $377 at December 31, 2021.
Accrued interest and penalties included in UTBs were $1,930 as
of December 31, 2022 and $2,054 as of December 31, 2021. We record
interest and penalties related to federal, state and foreign UTBs
in income tax expense. The net interest and penalty expense
(benefit) included in income tax expense was $(86) for 2022, $(129)
for 2021 and $127 for 2020.
We file income tax returns in the U.S. federal jurisdiction and
various state, local and foreign jurisdictions. As a large
taxpayer, our income tax returns are regularly audited by the
Internal Revenue Service (IRS) and other taxing authorities.
The IRS has completed field examinations of our tax returns
through 2015. All audit periods prior to 2005 are closed for
federal examination purposes and we have effectively resolved all
outstanding audit issues for years through 2010 with the IRS
Appeals Division. Those years will be closed as the final paperwork
is processed in the coming months.
While we do not expect material changes, we are generally unable
to estimate the range of impacts on the balance of the remaining
uncertain tax positions or the impact on the effective tax rate
from the resolution of these issues until each year is closed; and
it is possible that the amount of unrecognized benefit with respect
to our uncertain tax positions could increase or decrease within
the next 12 months.
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AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------
The components of income tax (benefit) expense are as
follows:
2022 2021 2020
Federal:
Current $ 579 $(2,400) $(346)
Deferred 2,206 6,872 858
2,785 4,472 512
State and local:
Current 21 289 338
Deferred 912 648 272
933 937 610
Foreign:
Current 106 (66) 14
Deferred (44) 52 32
62 (14) 46
Total $3,780 $ 5,395 $1,168
"Income (Loss) from Continuing Operations Before Income Taxes"
in the Consolidated Statements of Income included the following
components for the years ended December 31:
2022 2021 2020
U.S. income (loss) before income taxes $(1,480) $29,678 $ 510
Foreign income (loss) before income taxes (1,614) (507) (864)
Total $(3,094) $29,171 $(354)
A reconciliation of income tax expense (benefit) on continuing
operations and the amount computed by applying the statutory
federal income tax rate of 21% to income from continuing operations
before income taxes is as follows:
2022 2021 2020
Taxes computed at federal statutory rate $ (650) $6,126 $ (74)
Increases (decreases) in income taxes resulting
from:
State and local income taxes - net of federal
income tax benefit 795 936 170
CARES Act federal NOL carryback - (471) -
Tax on foreign investments 43 47 (124)
Noncontrolling interest (308) (291) (286)
Permanent items and R&D credit (121) (153) (195)
Audit resolutions (642) (220) (112)
Divestitures (481) (558) 107
Goodwill impairment 1 5,210 16 1,702
Other - net (66) (37) (20)
Total $ 3,780 $5,395 $ 1,168
Effective Tax Rate (122.2)% 18.5% (329.9)%
1 Goodwill impairments are not deductible for tax purposes.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic
Security (CARES) Act was enacted, which allows for a Net Operating
Loss (NOL) generated in 2020 to be carried back to a year with a
federal rate of 35%. During 2021, we recorded a $471 tax benefit
for the rate impact of the 2020 NOL carryback adjusted for the
domestic manufacturing deduction limitation in the carryback year
and applicable unrecognized tax benefits.
AT&T is subject to the Global Intangible Low Taxed Income
(GILTI) provisions created under the Tax Cuts and Jobs Act of 2017.
We report the tax impact of GILTI as a period cost when
incurred.
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AT&T Inc.
Dollars in millions except per share amounts
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NOTE 14. PENSION AND POSTRETIREMENT BENEFITS
We offer noncontributory pension programs covering the majority
of domestic nonmanagement employees in our Communications business.
Nonmanagement employees' pension benefits are generally calculated
using one of two formulas: a flat dollar amount applied to years of
service according to job classification or a cash balance plan with
negotiated annual pension band credits as well as interest credits.
Most employees can elect to receive their pension benefits in
either a lump sum payment or an annuity.
Pension programs covering U.S. management employees are closed
to new entrants. These programs continue to provide benefits to
participants that were generally hired before January 1, 2015, who
receive benefits under either cash balance pension programs that
include annual or monthly credits based on salary as well as
interest credits, or a traditional pension formula (i.e., a stated
percentage of employees' adjusted career income).
We also provide a variety of medical, dental and life insurance
benefits to certain retired employees under various plans and
accrue actuarially determined postretirement benefit costs as
active employees earn these benefits.
During the third quarter of 2022, we committed to, and reflected
in our results, plan changes impacting postretirement health and
welfare benefits. This plan change aligns our benefit plans to
market level.
Obligations and Funded Status
For defined benefit pension plans, the benefit obligation is the
projected benefit obligation, the actuarial present value, as of
our December 31 measurement date, of all benefits attributed by the
pension benefit formula to employee service rendered to that date.
The amount of benefit to be paid depends on a number of future
events incorporated into the pension benefit formula, including
estimates of the average life of employees and their beneficiaries
and average years of service rendered. It is measured based on
assumptions concerning future interest rates and future employee
compensation levels as applicable.
For postretirement benefit plans, the benefit obligation is the
accumulated postretirement benefit obligation, the actuarial
present value as of the measurement date of all future benefits
attributed under the terms of the postretirement benefit plans to
employee service.
The following table presents the change in the projected benefit
obligation for the years ended December 31:
Pension Benefits Postretirement Benefits
2022 2021 2022 2021
Benefit obligation at beginning
of
year $ 57,212 $62,158 $ 12,552 $ 13,928
Service cost - benefits earned
during
the period 617 957 32 45
Interest cost on projected
benefit
obligation 1,747 1,276 277 210
Amendments - - (2,370) -
Actuarial (gain) loss (10,894) (1,237) (1,919) (275)
Benefits paid, including
settlements (5,854) (5,942) (1,292) (1,356)
Benefit obligation at end of year $ 42,828 $57,212 $ 7,280 $ 12,552
=== =========
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AT&T Inc.
Dollars in millions except per share amounts
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The following table presents the change in the fair value of
plan assets for the years ended December 31 and the plans' funded
status at December 31:
Pension Benefits Postretirement Benefits
2022 2021 2022 2021
Fair value of plan assets at
beginning
of year $ 54,401 $ 54,606 $ 3,198 $ 3,843
Actual return on plan assets (7,673) 5,737 (370) 210
Benefits paid, including
settlements
1 (5,854) (5,942) (788) (1,163)
Contributions - - 120 308
Fair value of plan assets at
end of
year 40,874 54,401 2,160 3,198
Unfunded status at end of year
2 $ (1,954) $ (2,811) $ (5,120) $ (9,354)
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
2022 2021 2022 2021
Current portion of employee
benefit
obligation 1 $ - $ - $ (1,058) $ (1,106)
Employee benefit obligation 2 (1,954) (2,811) (4,062) (8,248)
Net amount recognized $ (1,954) $ (2,811) $ (5,120) $ (9,354)
1 Included in "Accounts payable and accrued liabilities."
2 Included in "Postemployment benefit obligation," combined with international
pension obligations and other postemployment obligations of $161 and $1,083
at December 31, 2022, and $364 and $1,226 at December 31, 2021, respectively.
The accumulated benefit obligation for our pension plans
represents the actuarial present value of benefits based on
employee service and compensation as of a certain date and does not
include an assumption about future compensation levels. The
accumulated benefit obligation for our pension plans was $42,137 at
December 31, 2022, and $56,159 at December 31, 2021.
Net Periodic Benefit Cost and Other Amounts Recognized in Other
Comprehensive Income
Periodic Benefit Costs
The service cost component of net periodic pension cost (credit)
is recorded in operating expenses in the consolidated statements of
income while the remaining components are recorded in "Other income
(expense) - net." Our combined net pension and postretirement cost
(credit) recognized in our consolidated statements of income was
$(4,789), $(7,652) and $711 for the years ended December 31, 2022,
2021 and 2020.
The following table presents the components of net periodic
benefit cost (credit):
Pension Benefits Postretirement Benefits
2022 2021 2020 2022 2021 2020
Service cost -
benefits earned
during the
period $ 617 $ 957 $ 1,029 $ 32 $ 45 $ 53
Interest cost on
projected
benefit
obligation 1,747 1,276 1,687 277 210 416
Expected return on
assets (3,107) (3,513) (3,557) (112) (151) (178)
Amortization of
prior service
credit (133) (144) (113) (2,558) (2,537) (2,329)
Net periodic
benefit cost
(credit) before
remeasurement (876) (1,424) (954) (2,361) (2,433) (2,038)
Actuarial (gain)
loss (115) (3,461) 2,404 (1,437) (334) 1,299
Net pension and
postretirement
cost (credit) $ (991) $(4,885) $ 1,450 $(3,798) $(2,767) $ (739)
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Other Changes in Benefit Obligations Recognized in Other
Comprehensive Income
The following table presents the after-tax changes in benefit
obligations recognized in OCI and the after-tax prior service
credits that were amortized from OCI into net periodic benefit
costs:
Pension Benefits Postretirement Benefits
2022 2021 2020 2022 2021 2020
Balance at
beginning of year $ 416 $ 525 $361 $ 6,496 $ 8,408 $ 8,163
Prior service
(cost) credit - - 250 1,786 - 2,001
Amortization of
prior service
credit (100) (109) (86) (1,928) (1,912) (1,756)
Total recognized
in other
comprehensive
(income) loss (100) (109) 164 (142) (1,912) 245
Balance at end of
year $ 316 $ 416 $525 $ 6,354 $ 6,496 $ 8,408
Assumptions
In determining the projected benefit obligation and the net
pension and postretirement benefit cost, we used the following
significant weighted-average assumptions:
Pension Benefits Postretirement Benefits
2022 2021 2020 2022 2021 2020
Weighted-average
discount
rate for
determining
benefit
obligation at
December
31 5.20% 3.00% 2.70% 5.20% 2.80% 2.40%
Discount rate in
effect
for determining
service cost 1 4.40% 3.30% 3.60% 4.00% 2.90% 3.50%
Discount rate in
effect
for determining
interest
cost 1 3.90% 2.30% 2.90% 3.20% 1.60% 2.70%
Weighted-average
interest
credit rate for
cash balance
pension programs 2 4.10% 3.20% 3.10% -% -% -%
Long-term rate of
return
on plan assets 6.75% 6.75% 7.00% 4.50% 4.50% 4.75%
Composite rate of
compensation
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
(credit) 3.00% 3.00% 3.00% 3.00% 3.00% 3.00%
=== === === === === ===
1 Weighted-average discount rates shown for years with interim remeasurements:
2022 and 2021 for pension benefits and 2022 for postretirement benefits.
2 Weighted-average interest crediting rates for cash balance pension programs
relate only to the cash balance portion of total pension benefits. A 0.50% increase
in the weighted-average interest crediting rate would increase the pension benefit
obligation by $135.
We recognize gains and losses on pension and postretirement plan
assets and obligations immediately in "Other income (expense) -
net" in our consolidated statements of income. These gains and
losses are generally measured annually as of December 31 and
accordingly, will normally be recorded during the fourth quarter,
unless an earlier remeasurement is required. Should actual
experience differ from actuarial assumptions, the projected pension
benefit obligation and net pension cost and accumulated
postretirement benefit obligation and postretirement benefit cost
would be affected in future years.
Discount Rate Our assumed weighted-average discount rates for
both pension and postretirement benefits of 5.20%, at December 31,
2022, reflect the hypothetical rate at which the projected benefit
obligation could be effectively settled or paid out to
participants. We determined our discount rate based on a range of
factors, including a yield curve composed of the rates of return on
several hundred high-quality, fixed income corporate bonds
available at the measurement date and corresponding to the related
expected durations of future cash outflows. These bonds had an
average rating of at least Aa3 or AA- by the nationally recognized
statistical rating organizations, denominated in U.S. dollars, and
generally not callable, convertible or index linked. For the year
ended December 31, 2022, when compared to the year ended December
31, 2021, we increased our pension discount rate by 2.20%,
resulting in a decrease in our pension plan benefit obligation of
$11,738 and increased our postretirement discount rate by 2.40%,
resulting in a decrease in our postretirement benefit obligation of
$2,102. For the year ended December 31, 2021, we increased our
pension discount rate by 0.30%, resulting in a decrease in our
pension plan benefit
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obligation of $1,645 and increased our postretirement discount
rate by 0.40%, resulting in a decrease in our postretirement
benefit obligation of $341.
We utilize a full yield curve approach in the estimation of the
service and interest components of net periodic benefit costs for
pension and other postretirement benefits. Under this approach, we
apply discounting using individual spot rates from a yield curve
composed of the rates of return on several hundred high-quality,
fixed income corporate bonds available at the measurement date.
These spot rates align to each of the projected benefit obligations
and service cost cash flows. The service cost component relates to
the active participants in the plan, so the relevant cash flows on
which to apply the yield curve are considerably longer in duration
on average than the total projected benefit obligation cash flows,
which also include benefit payments to retirees. Interest cost is
computed by multiplying each spot rate by the corresponding
discounted projected benefit obligation cash flows. The full yield
curve approach reduces any actuarial gains and losses based upon
interest rate expectations (e.g., built-in gains in interest cost
in an upward sloping yield curve scenario), or gains and losses
merely resulting from the timing and magnitude of cash outflows
associated with our benefit obligations. Neither the annual
measurement of our total benefit obligations nor annual net benefit
cost is affected by the full yield curve approach.
Expected Long-Term Rate of Return In 2023, our expected
long-term rate of return is 7.50% on pension plan assets and 6.50%
on postretirement plan assets, an increase of 0.75% for pension
plan assets and 2.00% for postretirement plan assets. This update
to our asset return assumptions was due to economic forecasts and
changes in the asset mix. Our long-term rates of return reflect the
average rate of earnings expected on the funds invested, or to be
invested, to provide for the benefits included in the projected
benefit obligations. In setting the long-term assumed rate of
return, management considers capital markets' future expectations,
the asset mix of the plans' investment and average historical asset
return. Actual long-term returns can, in relatively stable markets,
also serve as a factor in determining future expectations. We
consider many factors that include, but are not limited to,
historical returns on plan assets, current market information on
long-term returns (e.g., long-term bond rates) and current and
target asset allocations between asset categories. The target asset
allocation is determined based on consultations with external
investment advisers. If all other factors were to remain unchanged,
we expect that a 0.50% decrease in the expected long-term rate of
return would cause 2023 combined pension and postretirement cost to
increase $201. However, any differences in the rate and actual
returns will be included with the actuarial gain or loss recorded
in the fourth quarter when our plans are remeasured.
Composite Rate of Compensation Increase Our expected composite
rate of compensation increase cost of 3.00% in 2022 and 2021
reflects the long-term average rate of salary increases.
Healthcare Cost Trend Our healthcare cost trend assumptions are
developed based on historical cost data, the near-term outlook and
an assessment of likely long-term trends. Based on our assessment
of expectations of healthcare industry inflation, our 2023 assumed
annual healthcare prescription drug cost trend and medical cost
trend for eligible participants will increase from an annual and
ultimate trend rate of 4.25% to an annual and ultimate trend rate
of 4.50%. This change in assumption increased our obligation by
$19. For 2022, our assumed annual healthcare prescription drug cost
trend and medical cost trend for eligible participants increased
from an annual and ultimate trend rate of 4.00% to an annual and
ultimate trend rate of 4.25%. This change in assumption increased
our obligation by $31.
Plan Assets
Plan assets consist primarily of private and public equity,
government and corporate bonds, and real assets (real estate and
natural resources). The asset allocations of the pension plans are
maintained to meet ERISA requirements. Any plan contributions, as
determined by ERISA regulations, are made to a pension trust for
the benefit of plan participants. We do not have significant ERISA
required contributions to our pension plans for 2023.
We maintain VEBA trusts to partially fund postretirement
benefits; however, there are no ERISA or regulatory requirements
that these postretirement benefit plans be funded annually. We made
discretionary contributions of $120 in December 2022 and $308 in
December 2021 to our postretirement plan.
The principal investment objectives are to ensure the
availability of funds to pay pension and postretirement benefits as
they become due under a broad range of future economic scenarios,
maximize long-term investment return with an acceptable level of
risk based on our pension and postretirement obligations, and
diversify broadly across and within the capital markets to insulate
asset values against adverse experience in any one market. Each
asset class has broadly diversified characteristics. Substantial
biases toward any particular investing style or type of security
are sought to be avoided by managing the aggregation of all
accounts with portfolio benchmarks. Asset and benefit obligation
forecasting studies are conducted periodically, generally every two
to three years, or when significant changes have occurred in market
conditions, benefits, participant demographics or funded status.
Decisions regarding investment policy are made with an
understanding of the effect of asset allocation on funded status,
future contributions and projected expenses.
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AT&T Inc.
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The plans' weighted-average asset targets and actual allocations
as a percentage of plan assets, including the notional exposure of
future contracts by asset categories at December 31 are as
follows:
Pension Assets Postretirement (VEBA) Assets
Target 2022 2021 Target 2022 2021
Equity securities:
Domestic 5 % -25 % 7 % 16 % 16 % -26 % 21 % 19 %
International 1 % -21 % 4 13 16 % -26 % 21 19
Fixed income
securities 40 % -50 % 45 38 42 % -52 % 47 39
Real assets - % -20 % 16 10 - % - 6 % 1 1
Private equity - % -16 % 14 12 - % - 6 % 1 1
Preferred
interests 8 % -18 % 13 10 - % - - % - -
Other - % - 5 % 1 1 5 % -15 % 9 21
Total 100% 100% 100% 100%
The pension trust holds preferred equity interests valued at
$5,427 in AT&T Mobility II LLC (Mobility II), the primary
holding company for our wireless business. The preferred equity
interests were valued at $5,562 as of December 31, 2021. On
December 27, 2022, the pension trust provided written notice of its
right to require AT&T to purchase Mobility preferred interests
outstanding. (See Note 16)
At December 31, 2022, AT&T securities represented 14% of
assets held by our pension trust, including the preferred interests
in Mobility II. The VEBA trusts included in these financial
statements no longer hold AT&T securities.
Investment Valuation
Investments are stated at fair value. Fair value is the price
that would be received to sell an asset or paid to transfer a
liability at the measurement date.
Investments in securities traded on a national securities
exchange are valued at the last reported sales price on the final
business day of the year. If no sale was reported on that date,
they are valued at the last reported bid price. Investments in
securities not traded on a national securities exchange are valued
using pricing models, quoted prices of securities with similar
characteristics or discounted cash flows. Shares of registered
investment companies are valued based on quoted market prices,
which represent the net asset value of shares held at year-end.
Other commingled investment entities are valued at quoted
redemption values that represent the net asset values of units held
at year-end which management has determined approximates fair
value.
Real estate and natural resource direct investments are valued
at amounts based upon appraisal reports. Fixed income securities
valuation is based upon observable prices for comparable assets,
broker/dealer quotes (spreads or prices), or a pricing matrix that
derives spreads for each bond based on external market data,
including the current credit rating for the bonds, credit spreads
to Treasuries for each credit rating, sector add-ons or credits,
issue-specific add-ons or credits as well as call or other
options.
The preferred interests in Mobility II are valued by an
independent fiduciary using an income approach.
Purchases and sales of securities are recorded as of the trade
date. Realized gains and losses on sales of securities are
determined on the basis of average cost. Interest income is
recognized on the accrual basis. Dividend income is recognized on
the ex-dividend date.
Non-interest bearing cash and overdrafts are valued at cost,
which approximates fair value.
Fair Value Measurements
See Note 12 for a discussion of the fair value hierarchy that
prioritizes the inputs to valuation techniques used to measure fair
value.
84
AT&T Inc.
Dollars in millions except per share amounts
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The following tables set forth by level, within the fair value
hierarchy, the pension and postretirement assets and liabilities at
fair value as of December 31, 2022:
Pension Assets and Liabilities at Fair Value as of December 31, 2022
Level 1 Level 2 Level 3 Total
Non-interest bearing cash $ 158 $ - $ - $ 158
Interest bearing cash 5 - - 5
Foreign currency contracts - 4 - 4
Equity securities:
Domestic equities 2,312 - 2 2,314
International equities 1,251 - - 1,251
Preferred interests - - 5,427 5,427
Fixed income securities:
Corporate bonds and other investments - 9,366 1 9,367
Government and municipal bonds - 5,450 - 5,450
Mortgage-backed securities - 220 - 220
Real estate and real assets - - 4,343 4,343
Securities lending collateral 1,137 1,407 - 2,544
Receivable for variation margin 5 - - 5
Assets at fair value 4,868 16,447 9,773 31,088
Investments sold short and other
liabilities
at fair value (261) (5) - (266)
Total plan net assets at fair value $ 4,607 $16,442 $ 9,773 $30,822
Assets held at net asset value practical
expedient
Private equity funds 5,866
Real estate funds 1,907
Commingled funds 5,045
Total assets held at net asset value
practical expedient 12,818
Other assets (liabilities) 1 (2,766)
Total Plan Net Assets $40,874
1 Other assets (liabilities) include amounts receivable, accounts payable and
net adjustment for securities lending payable.
Postretirement Assets and Liabilities at Fair Value as of December 31, 2022
Level 1 Level 2 Level 3 Total
Interest bearing cash $ 191 $ 4 $ - $ 195
Equity securities:
Domestic equities 258 - - 258
International equities 233 - 1 234
Securities lending collateral - 12 - 12
Assets at fair value 682 16 1 699
Securities lending payable and other
liabilities - (12) - (12)
Total plan net assets at fair value $ 682 $ 4 $ 1 $ 687
Assets held at net asset value practical
expedient
Private equity funds 13
Real estate funds 13
Commingled funds 1,445
Total assets held at net asset value
practical expedient 1,471
Other assets (liabilities) 1 2
Total Plan Net Assets $ 2,160
1 Other assets (liabilities) include amounts receivable and accounts payable.
85
AT&T Inc.
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The following tables set forth by level, within the fair value
hierarchy, the pension and postretirement assets and liabilities at
fair value as of December 31, 2021:
Pension Assets and Liabilities at Fair Value as of December 31, 2021
Level 1 Level 2 Level 3 Total
Non-interest bearing cash $ 167 $ - $ - $ 167
Interest bearing cash 11 - - 11
Foreign currency contracts - 5 - 5
Equity securities:
Domestic equities 7,693 - 1 7,694
International equities 4,117 - 7 4,124
Preferred interests - - 5,562 5,562
Fixed income securities:
Corporate bonds and other investments - 11,168 2 11,170
Government and municipal bonds - 6,977 - 6,977
Mortgage-backed securities - 268 - 268
Real estate and real assets - - 3,318 3,318
Securities lending collateral 1,645 1,285 - 2,930
Receivable for variation margin 8 - - 8
Assets at fair value 13,641 19,703 8,890 42,234
Investments sold short and other
liabilities
at fair value (529) (3) (1) (533)
Total plan net assets at fair value $ 13,112 $19,700 $ 8,889 $41,701
Assets held at net asset value practical
expedient
Private equity funds 6,454
Real estate funds 2,329
Commingled funds 6,780
Total assets held at net asset value
practical expedient 15,563
Other assets (liabilities) 1 (2,863)
Total Plan Net Assets $54,401
1 Other assets (liabilities) include amounts receivable, accounts payable and
net adjustment for securities lending payable.
Postretirement Assets and Liabilities at Fair Value as of December 31, 2021
Level 1 Level 2 Level 3 Total
Interest bearing cash $ 371 $ 295 $ - $ 666
Equity securities:
Domestic equities 323 - - 323
International equities 287 - 1 288
Fixed income securities:
Corporate bonds and other investments 1 - - 1
Securities lending collateral - 9 - 9
Assets at fair value 982 304 1 1,287
Securities lending payable and other
liabilities - (9) - (9)
Total plan net assets at fair value $ 982 $ 295 $ 1 $ 1,278
Assets held at net asset value practical
expedient
Commingled funds 1,883
Private equity funds 19
Real estate funds 16
Total assets held at net asset value
practical expedient 1,918
Other assets (liabilities) 1 2
Total Plan Net Assets $ 3,198
1 Other assets (liabilities) include amounts receivable and accounts payable.
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AT&T Inc.
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For the years ended December 31, 2022 and 2021, our
postretirement assets did not include significant investments in
Level 3 assets, nor were there significant changes in fair value of
those assets during the period. The tables below set forth a
summary of changes in the fair value of the Level 3 pension assets
for the years ended:
Fixed Income Real Estate
Equities Funds and Real Assets Total
Balance as of December 31,
2021 $ 5,569 $ 2 $ 3,318 $8,889
Realized gains (losses) 1 - 22 23
Unrealized gains (losses) (139) - 802 663
Transfers in 1 1 20 22
Transfers out - (2) (29) (31)
Purchases - - 716 716
Sales (3) - (506) (509)
Balance as of December 31,
2022 $ 5,429 $ 1 $ 4,343 $9,773
===
Fixed Income Real Estate
Equities Funds and Real Assets Total
Balance as of December 31,
2020 $ 5,793 $ 53 $ 2,544 $8,390
Realized gains (losses) 2 - (31) (29)
Unrealized gains (losses) (203) - 558 355
Transfers in - 1 - 1
Transfers out (7) (8) - (15)
Purchases 7 1 425 433
Sales (23) (45) (178) (246)
Balance as of December 31,
2021 $ 5,569 $ 2 $ 3,318 $8,889
===
Estimated Future Benefit Payments
Expected benefit payments are estimated using the same
assumptions used in determining our benefit obligation at December
31, 2022. Because benefit payments will depend on future employment
and compensation levels; average years employed; average life
spans; and payment elections, among other factors, changes in any
of these assumptions could significantly affect these expected
amounts. The following table provides expected benefit payments
under our pension and postretirement plans:
Postretirement
Pension Benefits Benefits
2023 $ 5,612 $ 1,211
2024 3,734 801
2025 3,747 640
2026 3,632 598
2027 3,561 568
Years 2028 - 2032 16,688 2,322
Supplemental Retirement Plans
We also provide certain senior- and middle-management employees
with nonqualified, unfunded supplemental retirement and savings
plans. While these plans are unfunded, we have assets in a
designated non-bankruptcy remote trust that are independently
managed and used to provide for certain of these benefits. These
plans include supplemental pension benefits as well as
compensation-deferral plans, some of which include a corresponding
match by us based on a percentage of the compensation deferral. For
our supplemental retirement plans, the projected benefit obligation
was $1,544 and the net supplemental retirement pension credit was
$234 at and for the year ended December 31, 2022. The projected
benefit obligation was $2,326 and the net supplemental retirement
pension credit was $41 at and for the year ended December 31,
2021.
We use the same significant assumptions for the composite rate
of compensation increase in determining our projected benefit
obligation and the net pension and postemployment benefit cost. Our
discount rates of 5.10% at December 31, 2022 and 2.70% at December
31, 2021 were calculated using the same methodologies used in
calculating the discount rates for our qualified pension and
postretirement benefit plans.
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AT&T Inc.
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Deferred compensation expense was $94 in 2022, $171 in 2021 and
$183 in 2020.
Contributory Savings Plans
We maintain contributory savings plans that cover substantially
all employees. Under the savings plans, we match in cash or company
stock a stated percentage of eligible employee contributions,
subject to a specified ceiling. There are no debt-financed shares
held by the Employee Stock Ownership Plans, allocated or
unallocated.
Our match of employee contributions to the savings plans is
fulfilled with purchases of our stock on the open market or company
cash. Benefit cost, which is based on the cost of shares or units
allocated to participating employees' accounts or the cash
contributed to participant accounts, was $611, $614 and $646 for
the years ended December 31, 2022, 2021 and 2020.
NOTE 15. SHARE-BASED PAYMENTS
Under our various plans, senior and other management employees
and nonemployee directors have received nonvested stock and stock
units. The shares will vest over a period of one to four years in
accordance with the terms of those plans.
We grant performance stock units, which are nonvested stock
units, based upon our stock price at the date of grant and award
them in the form of AT&T common stock and cash at the end of a
three-year period, subject to the achievement of certain
performance goals. We treat the cash settled portion of these
awards as a liability. Effective with the 2021 plan year, for the
majority of employees, performance shares were replaced with
restricted stock units that do not have any performance conditions.
These new restricted stock units vest ratably over a three-year
period. We grant forfeitable restricted stock and stock units,
which are valued at the market price of our common stock at the
date of grant and predominantly vest over a three- to five-year
period. We also grant other nonvested stock units and award them in
cash at the end of a three-year period, subject to the achievement
of certain market-based conditions. As of December 31, 2022, we
were authorized to issue up to approximately 128 million shares of
common stock (in addition to shares that may be issued upon
exercise of outstanding options or upon vesting of performance
stock units or other nonvested stock units) to officers, employees
and directors pursuant to these various plans.
We account for our share-based payment arrangements based on the
fair value of the awards on their respective grant date, which may
affect our ability to fully realize the value shown on our
consolidated balance sheets of deferred tax assets associated with
compensation expense. We record a valuation allowance when our
future taxable income is not expected to be sufficient to recover
the asset. Accordingly, there can be no assurance that the current
stock price of our common shares will rise to levels sufficient to
realize the entire tax benefit currently reflected on our
consolidated balance sheets. However, to the extent we generate
excess tax benefits (i.e., those additional tax benefits in excess
of the deferred taxes associated with compensation expense
previously recognized) the potential future impact on income would
be reduced.
Our consolidated statements of income include the compensation
cost recognized for those plans as operating expenses, as well as
the associated tax benefits, which are reflected in the table
below:
2022 2021 2020
Performance stock units $168 $248 $348
Restricted stock and stock units 350 199 74
Other nonvested stock units - - -
Stock options - - -
Total $518 $447 $422
Income tax benefit $127 $110 $104
88
AT&T Inc.
Dollars in millions except per share amounts
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A summary of the status of our nonvested stock units as of
December 31, 2022, and changes during the year then ended is
presented as follows (shares in millions):
Weighted-Average
Grant-
Nonvested Stock Units Shares Date Fair Value
Nonvested at January 1, 2022 35 $ 32.33
Granted 21 23.64
Vested (28) 27.64
Forfeited (5) 23.76
Spin-off Adjustment 1 13 NA
Nonvested at December 31, 2022 36 $ 22.07
1 In connection with the WarnerMedia transaction, AT&T made certain adjustments
to the number of stock awards to maintain the
intrinsic value prior to the spin-off.
As of December 31, 2022, there was $547 of total unrecognized
compensation cost related to nonvested share-based payment
arrangements granted. That cost is expected to be recognized over a
weighted-average period of 1.69 years. The total fair value of
shares vested during the year was $783 for 2022, compared to $608
for 2021 and $471 for 2020.
It is our intent to satisfy share option exercises using our
treasury stock. Cash received from stock option exercises was $2
for 2022, $11 for 2021 and $21 for 2020.
NOTE 16. STOCKHOLDERS' EQUITY
Authorized Shares We have authorized 14 billion common shares of
AT&T stock and 10 million preferred shares of AT&T stock,
each with a par value of $1.00 per share. Cumulative perpetual
preferred shares consist of the following:
--Series A: 48 thousand shares outstanding at December 31, 2022
and December 31, 2021, with a $25,000 per share liquidation
preference and a dividend rate of 5.000%.
--Series B: 20 thousand shares outstanding at December 31, 2022
and December 31, 2021, with a 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, 2022
and December 31, 2021, with a $25,000 per share liquidation
preference, and a dividend rate of 4.75%.
So long as the quarterly preferred dividends are declared and
paid on a timely basis on each series of preferred shares, there
are no limitations on our ability to declare a dividend on or
repurchase AT&T common shares. The preferred shares are
optionally redeemable by AT&T at the liquidation price on or
after five years from the issuance date, or upon certain other
contingent events.
Stock Repurchase Program From time to time, we repurchase shares
of common stock for distribution through our employee benefit plans
or in connection with certain acquisitions. Our Board of Directors
has approved the following authorization to repurchase common
stock: (1) March 2013 authorization program of 300 million shares,
which was completed in 2020 and (2) March 2014 authorization
program for 300 million shares, with approximately 144 million
outstanding at December 31, 2022.
To implement these authorizations, we used open market
repurchases, relying on Rule 10b5-1 of the Securities Exchange Act
of 1934, where feasible. We also used accelerated share repurchase
agreements with large financial institutions to repurchase our
stock. During 2021, there were no shares repurchased under the
March 2014 authorization. During 2022, we repurchased approximately
34 million shares totaling $662 under the March 2014
authorization.
Dividend Declarations In December 2022 and December 2021,
AT&T declared a quarterly preferred dividend of $36. In
December 2022 and December 2021, AT&T declared a common
dividend of $0.2775 and $0.52 per share of common stock,
respectively.
Preferred Interests Issued by Subsidiaries We have issued
cumulative perpetual preferred membership interests in certain
subsidiaries. The preferred interests are entitled to cash
distributions, subject to declaration. The preferred interests are
included in "Noncontrolling interest" on the consolidated balance
sheets.
89
AT&T Inc.
Dollars in millions except per share amounts
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Mobility II
In 2018, we issued 320 million Series A Cumulative Perpetual
Preferred Membership Interests in Mobility II (Mobility preferred
interests), which pay cash distributions of 7% per annum, subject
to declaration. So long as the distributions are declared and paid,
the terms of the Mobility preferred equity interests will not
impose any limitations on cash movements between affiliates, or our
ability to declare a dividend on or repurchase AT&T shares.
A holder of the Mobility preferred interests may put the
interests to Mobility II. Mobility II may redeem the interests upon
a change in control of Mobility II or on or after September 9,
2022. When either option arises due to a passage of time, that
option may be exercised only during certain periods.
The price at which a put option or a redemption option can be
exercised is the greater of (1) the market value of the interests
as of the last date of the quarter preceding the date of the
exercise of a put or redemption option and (2) the sum of (a)
twenty-five dollars plus (b) any accrued and unpaid distributions.
The redemption price may be paid with cash, AT&T common stock,
or a combination of cash and AT&T common stock, at Mobility
II's sole election. In no event shall Mobility II be required to
deliver more than 250 million shares of AT&T common stock to
settle put and redemption options. We have the intent and ability
to settle the Mobility preferred equity interests with cash.
On October 24, 2022, approximately 105 million Mobility
preferred interests were put to AT&T by a third-party investor,
for which we paid approximately $2,600 cash to redeem. On December
27, 2022, the AT&T pension trust provided written notice of its
right to require us to purchase the remaining 213 million, or
approximately $5,340, of Mobility preferred interests outstanding.
The terms of the instruments limit the amount we are required to
redeem in any 12-month period to approximately 107 million shares,
or $2,670. We expect to redeem approximately $2,670 of the Mobility
preferred interests primarily in October 2023 and $2,670 in October
2024, unless the interests are called or the puts are accepted by
AT&T prior to those dates. With the certainty of redemption,
the remaining Mobility preferred interests were reclassified from
equity to a liability at fair value, with approximately $2,670
recorded in current liabilities as "Accounts payable and accrued
liabilities" and $2,670 recorded in "Other noncurrent liabilities."
The liabilities associated with the Mobility preferred interests
are considered Level 3 under the Fair Value Measurement and
Disclosure framework (see Notes 12 and 14). The difference between
the carrying value of the Mobility preferred interest, which
represented fair value at contribution, and the fair value of the
instrument upon settlement and/or balance sheet reclassification
was recorded as an adjustment to additional paid-in capital.
As of December 31, 2022, we have approximately 213 million
Mobility preferred interests outstanding, which have a redemption
value of approximately $5,340 and pay cash distributions of $373
per annum, subject to declaration.
Tower Holdings
In 2019, we issued $6,000 nonconvertible cumulative preferred
interests in a wireless subsidiary (Tower Holdings) that holds
interests in various tower assets and have the right to receive
approximately $6,000 if the purchase options from the tower
companies are exercised.
The membership interests in Tower Holdings consist of (1) common
interests, which are held by a consolidated subsidiary of AT&T,
and (2) two series of preferred interests (collectively the "Tower
preferred interests"). The September series (Class A-1) of the
preferred interests totals $1,500 and pays an initial preferred
distribution of 5.0%, and the December series (Class A-2) totals
$4,500 and pays an initial preferred distribution of 4.75%.
Distributions are paid quarterly, subject to declaration, and reset
every five years. Any failure to declare or pay distributions on
the Tower preferred interests would not impose any limitation on
cash movements between affiliates, or our ability to declare a
dividend on or repurchase AT&T shares. We can call the Tower
preferred interests at the issue price beginning five years from
the issuance date or upon the receipt of proceeds from the sale of
the underlying assets.
The holders of the Tower preferred interests have the option to
require redemption upon the occurrence of certain contingent
events, such as the failure of AT&T to pay the preferred
distribution for two or more periods or to meet certain other
requirements, including a minimum credit rating. If notice is given
upon such an event, all other holders of equal or more subordinate
classes of membership interests in Tower Holdings are entitled to
receive the same form of consideration payable to the holders of
the preferred interests, resulting in a deemed liquidation for
accounting purposes.
Telco LLC
In September 2020, we issued $2,000 nonconvertible cumulative
preferred interests out of a newly created limited liability
company (Telco LLC) that was formed to hold
telecommunication-related assets.
Members' equity in Telco LLC consist of (1) member's interests,
which are held by a consolidated subsidiary of AT&T, and (2)
preferred interests (Telco preferred interests), which pay an
initial preferred distribution of 4.25% annually, subject to
declaration, and subject to reset every seven years. Failure to pay
distributions on the Telco preferred interests would not limit
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AT&T Inc.
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cash movements between affiliates, or our ability to declare a
dividend on or repurchase AT&T shares. We can call the Telco
preferred interests at the issue price beginning seven years from
the issuance date.
The holders of the Telco preferred interests have the option to
require redemption upon the occurrence of certain contingent
events, such as the failure of Telco LLC to pay the preferred
distribution for two or more periods or to meet certain other
requirements, including a minimum credit rating. If notice is
given, all other holders of equal or more subordinate classes of
members' equity are entitled to receive the same form of
consideration payable to the holders of the preferred interests,
resulting in a deemed liquidation for accounting purposes.
PR Holdings
In 2019, we issued $1,950 nonconvertible cumulative preferred
interests in a subsidiary (PR Holdings) that held notes secured by
the proceeds from our agreement to sell wireless and wireline
operations in Puerto Rico and the U.S. Virgin Islands. These
preferred interests were redeemed on November 6, 2020. (See Note
6)
The membership interests in PR Holdings consisted of (1) common
interests, which were held by consolidated subsidiaries of
AT&T, and (2) preferred interests (PR preferred interests). The
PR preferred interests paid an initial preferred distribution at an
annual rate of 4.75%. Distributions were paid quarterly, subject to
declaration.
NOTE 17. SALES OF RECEIVABLES
We have agreements with various third-party financial
institutions pertaining to the sales of certain types of our
accounts receivable. The most significant of these programs
consists of receivables arising from equipment installment plans,
which are sold for cash and a deferred purchase price. Under this
program, we transfer receivables to purchasers in exchange for cash
and additional consideration upon settlement of the receivables.
Under the terms of our agreement for this program, we continue to
service the transferred receivables on behalf of the financial
institutions.
The following table sets forth a summary of cash proceeds
received, net of remittances paid, from sales of receivables for
the years ended December 31:
2022 2021 2020
Net cash received (paid) from equipment installment
receivables 1 $ 1,875 $1,000 $(1,565)
Net cash received (paid) from other programs 620 (295) 295
Total net cash impact to cash flows from operating
activities $ 2,495 $ 705 $(1,270)
1 Net cash from initial sales of $11,129, $9,740 and $6,089 for the years ended
December 31, 2022, 2021 and 2020, respectively.
The sales of receivables did not have a material impact on our
consolidated statements of income or to "Total Assets" reported on
our consolidated balance sheets. We reflect cash receipts on sold
receivables as cash flows from operations in our consolidated
statements of cash flows. Cash receipts on the deferred purchase
price are classified as cash flows from investing activities, when
applicable.
The following table sets forth a summary of the equipment
installment receivables and accounts being serviced at December
31:
2022 2021
Gross receivables: $ 4,165 $4,361
Balance sheet classification
Accounts receivable
Notes receivable 1,789 1,846
Trade receivables 522 606
Other Assets
Noncurrent notes and trade receivables 1,854 1,909
Outstanding portfolio of receivables derecognized from
our consolidated balance sheets $ 11,030 $9,767
Cash proceeds received, net of remittances 1 8,519 6,644
1 Represents amounts to which financial institutions remain entitled, excluding
the deferred purchase price.
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We offer our customers the option to purchase certain wireless
devices in installments over a specified period of time and, in
many cases, once certain conditions are met, they may be eligible
to trade in the original equipment for a new device and have the
remaining unpaid balance paid or settled.
We maintain a program under which we transfer a portion of these
receivables through our bankruptcy-remote subsidiary in exchange
for cash and additional consideration upon settlement of the
receivables, referred to as the deferred purchase price. In the
event a customer trades in a device prior to the end of the
installment contract period, we agree to make a payment to the
financial institutions equal to any outstanding remaining
installment receivable balance. Accordingly, we record a guarantee
obligation for this estimated amount at the time the receivables
are transferred.
The following table sets forth a summary of equipment
installment receivables sold under this program:
2022 2021 2020
Gross receivables sold $ 11,510 $ 10,793 $ 7,270
Net receivables sold 1 11,061 10,502 7,026
Cash proceeds received 11,129 9,740 6,089
Deferred purchase price recorded 245 1,080 1,021
Guarantee obligation recorded 703 434 157
1 Receivables net of allowance, imputed interest and equipment trade-in right
guarantees.
The deferred purchase price and guarantee obligation are
initially recorded at estimated fair value and subsequently
adjusted for changes in present value of expected cash flows. The
estimation of their fair values is based on remaining installment
payments expected to be collected and the expected timing and value
of device trade-ins. The estimated value of the device trade-ins
considers prices offered to us by independent third parties and
contemplate changes in value after the launch of a device model.
The fair value measurements used for the deferred purchase price
and the guarantee obligation are considered Level 3 under the Fair
Value Measurement and Disclosure framework (see Note 12).
The following table presents the previously transferred
equipment installment receivables, which we repurchased in exchange
for the associated deferred purchase price:
2022 2021 2020
Fair value of repurchased receivables $ 3,314 $ 1,424 $ 1,271
Carrying value of deferred purchase price 3,335 1,334 1,235
Gain (loss) on repurchases 1 $ (21) $ 90 $ 36
1 These gains (losses) are included in "Selling, general and administrative"
expense in the consolidated statements of income.
At December 31, 2022 and December 31, 2021, our deferred
purchase price receivable was $2,318 and $3,177, respectively, of
which $1,278 and $2,123 are included in "Prepaid and other current
assets" on our consolidated balance sheets, with the remainder in
"Other Assets." The guarantee obligation at December 31, 2022 and
December 31, 2021 was $419 and $371, respectively, of which $73 and
$101 are included in "Accounts payable and accrued liabilities" on
our consolidated balance sheets, with the remainder in "Other
noncurrent liabilities." Our maximum exposure to loss as a result
of selling these equipment installment receivables is limited to
the total amount of our deferred purchase price and guarantee
obligation.
NOTE 18. TOWER TRANSACTION
In December 2013, we closed our transaction with Crown Castle
International Corp. (Crown Castle) in which Crown Castle gained the
exclusive rights to lease and operate 9,048 wireless towers and
purchased 627 of our wireless towers for $4,827 in cash. The leases
have various terms with an average length of approximately 28
years. As the leases expire, Crown Castle will have fixed price
purchase options for these towers totaling approximately $4,200,
based on their estimated fair market values at the end of the lease
terms. We sublease space on the towers from Crown Castle for an
initial term of ten years at current market rates, subject to
optional renewals in the future.
We determined that we did not transfer control of the tower
assets, which prevented us from achieving sale-leaseback accounting
for the transaction, and we accounted for the cash proceeds from
Crown Castle as a financing obligation on our consolidated balance
sheets. We record interest on the financing obligation using the
effective interest method at a rate of approximately 3.9%. The
financing obligation is increased by interest expense and estimated
future net cash flows generated and retained by Crown Castle from
operation of the tower sites, and reduced by our contractual
payments. We continue to include the tower assets in "Property,
Plant and Equipment - Net" on our consolidated balance sheets and
depreciate them
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accordingly. At December 31, 2022 and 2021, the tower assets had
a balance of $686 and $725, respectively. Our depreciation expense
for these assets was $39 for each of 2022, 2021 and 2020.
Payments made to Crown Castle under this arrangement were $258
for 2022. At December 31, 2022, the future minimum payments under
the sublease arrangement are $264 for 2023, $269 for 2024, $274 for
2025, $280 for 2026, $285 for 2027 and $421 thereafter.
NOTE 19. TRANSACTIONS WITH DIRECTV
Effective August 1, 2021, we began accounting for our investment
in DIRECTV under the equity method and recorded our share of
DIRECTV earnings as equity in net income of affiliates, with
DIRECTV considered a related party (see Note 10).
For the year ended December 31, 2022, our share of DIRECTV's
earnings included in equity in net income of affiliates was $1,808.
Cash distributions from DIRECTV totaled $4,457, with $1,808
classified as operating activities and $2,649 classified as
investing activities in our consolidated statement of cash flows.
Our investment in DIRECTV at December 31, 2022 was $2,911.
In addition to the assets and liabilities contributed to
DIRECTV, we recorded total obligations of $2,100 to cover certain
net losses under the NFL SUNDAY TICKET contract, of which $1,800 is
in the form of a note payable to DIRECTV. For the year ended
December 31, 2022, cash payments to DIRECTV on the note totaled
$1,211 and were classified as financing activities in our
consolidated statement of cash flows. Amounts due under the DIRECTV
note were $130 at December 31, 2022.
We also provide DIRECTV with network transport for U-verse
products and sales services under commercial arrangements for up to
five years. Under separate transition services agreements, we
provide DIRECTV certain operational support, including servicing of
certain of their customer receivables for up to three years. For
the year ended December 31, 2022, we billed DIRECTV approximately
$1,260 for these costs, which were primarily recorded as a
reduction to the operations and support expenses incurred and
resulted in net retained costs to AT&T of approximately
$737.
At December 31, 2022, we had accounts receivable from DIRECTV of
$360 and accounts payable to DIRECTV of $120.
We are not committed, implicitly or explicitly, to provide
financial or other support, other than noted above, as our
involvement with DIRECTV is limited to the carrying amount of the
assets and liabilities recognized on our balance sheet.
NOTE 20. FIRSTNET
In 2017, the First Responder Network Authority (FirstNet)
selected AT&T to build and manage the first nationwide
broadband network dedicated to America's first responders. Under
the 25-year agreement, FirstNet provides 20 MHz of valuable
telecommunications spectrum and success-based payments of $6,500
over the first five years to support network buildout. We are
required to construct a network that achieves coverage and
nationwide interoperability requirements and have a contractual
commitment to make sustainability payments of $18,000 over the
25-year contract. These sustainability payments represent our
commitment to fund FirstNet's operating expenses and future
reinvestments in the network which we own and operate, which we
estimate in the $3,000 or less range over the life of the 25-year
contract. After FirstNet's operating expenses are paid, we
anticipate the remaining amount, expected to be in the $15,000
range, will be reinvested into the network.
During 2022, we submitted $195 in sustainability payments, with
future payments under the agreement of $195 for 2023, 2024 and
2025; $1,590 for 2026, $1,665 for 2027; and $13,365 thereafter.
Amounts paid to FirstNet, which are not expected to be returned to
AT&T to be reinvested into our network, will be expensed in the
period paid. In the event FirstNet does not reinvest any funds to
construct, operate, improve and maintain this network, our maximum
exposure to loss is the total amount of the sustainability
payments, which would be reflected in higher expense.
The $6,500 of initial funding from FirstNet is contingent on the
achievement of six operating capability milestones and certain
first responder subscriber adoption targets. These milestones are
based on coverage objectives of the first responder network during
the construction period, which is expected to be over five years,
and subscriber adoption targets. Funding payments received from
FirstNet are reflected as a reduction from the costs capitalized in
the construction of the network and, as appropriate, a reduction of
associated operating expenses. As of December 31, 2022, we have
collected approximately $6,120 for the completion of certain tasks
and anticipate collecting nearly all of the remainder of the $6,500
as we fulfill contractual deliveries set out by FirstNet in
2023.
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NOTE 21. CONTINGENT LIABILITIES
We are party to numerous lawsuits, regulatory proceedings and
other matters arising in the ordinary course of business. In
evaluating these matters on an ongoing basis, we take into account
amounts already accrued on the balance sheet. In our opinion,
although the outcomes of these proceedings are uncertain, they
should not have a material adverse effect on our financial
position, results of operations or cash flows.
We have contractual obligations to purchase certain goods or
services from various other parties. Our purchase obligations are
expected to be approximately $12,313 in 2023, $11,424 in total for
2024 and 2025, $2,457 in total for 2026 and 2027 and $821 in total
for years thereafter.
See Note 12 for a discussion of collateral and credit-risk
contingencies.
NOTE 22. ADDITIONAL FINANCIAL INFORMATION
December 31,
Consolidated Balance Sheets 2022 2021
Accounts payable and accrued liabilities:
Accounts payable $31,101 $29,511
Accrued payroll and commissions 1,605 2,082
Current portion of employee benefit obligation 1,173 1,234
Current portion of Mobility preferred interests 1 2,670 -
Accrued interest 2,160 2,438
Accrued taxes 798 1,148
Other 3,137 2,682
Total accounts payable and accrued liabilities $42,644 $39,095
1 Reported as noncontrolling interest in 2021. (See Note 16)
Consolidated Statements of Income 2022 2021 2020
Advertising expense $ 2,462 $ 2,732 $ 2,705
Interest expense incurred $ 7,402 $ 7,670 $ 7,850
Capitalized interest - capital expenditures (174) (173) (123)
Capitalized interest - spectrum 1 (1,120) (781) -
Total interest expense $ 6,108 $ 6,716 $ 7,727
1 Included in "Acquisitions, net of cash acquired" on our consolidated statements
of cash flows.
Cash and Cash Flows We typically maintain our restricted cash
balances for purchases and sales of certain investment securities
and funding of certain deferred compensation benefit payments.
The following table summarizes cash and cash equivalents and
restricted cash balances contained on our consolidated balance
sheets:
December 31,
Cash and Cash Equivalents and Restricted
Cash 2022 2021 2020 2019
Cash and cash equivalents from continuing
operations $3,701 $19,223 $7,924 $ 9,702
Cash and cash equivalents from discontinued
operations - 1,946 1,816 2,428
Restricted cash in Prepaid and other
current assets 1 3 9 69
Restricted cash in Other Assets 91 144 121 96
Cash and cash equivalents and restricted
cash $3,793 $21,316 $9,870 $12,295
=====
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The following tables summarize certain cash flow activities from
continuing operations:
Consolidated Statements of Cash Flows 2022 2021 2020
Cash paid (received) during the year for:
Interest $ 7,772 $ 7,485 $ 8,010
Income taxes, net of refunds 1 592 252 577
1 Total cash income taxes paid, net of refunds, by AT&T was $696, $700 and $993
for 2022, 2021 and 2020, respectively.
Purchase of property and equipment $ 19,452 $15,372 $14,567
Interest during construction - capital expenditures
1 174 173 123
Total Capital expenditures $ 19,626 $15,545 $14,690
Business acquisitions $ - $ - $ 12
Spectrum acquisitions 9,080 24,672 1,613
Interest during construction - spectrum 1 1,120 781 -
Total Acquisitions, net of cash acquired $ 10,200 $25,453 $ 1,625
1 Total capitalized interest was $1,294, $954 and $123 for 2022, 2021 and 2020,
respectively.
Noncash Investing and Financing Activities In connection with
capital improvements and the acquisition of other productive
assets, we negotiate favorable payment terms (referred to as vendor
financing), which are reported as financing activities in our
statements of cash flows when paid. We recorded $5,817 of vendor
financing commitments related to capital investments in 2022,
$5,282 in 2021 and $4,664 in 2020.
Total vendor financing payables included in our December 31,
2022 consolidated balance sheet were approximately $6,147, with
$4,592 due within one year (in "Accounts payable and accrued
liabilities") and the remainder predominantly due within five years
(in "Other noncurrent liabilities").
Labor Contracts As of January 31, 2023, we employed
approximately 160,700 persons. Approximately 42% of our employees
are represented by the Communications Workers of America (CWA), the
International Brotherhood of Electrical Workers (IBEW) or other
unions. After expiration of in place agreements with these groups,
work stoppages or labor disruptions may occur in the absence of new
contracts or other agreements being reached. The main contracts
included the following:
--A contract covering approximately 7,000 Mobility employees in
nine states, for which we reached tentative agreement in February
2023.
--A contract covering approximately 400 employees supporting
internet-based products is set to expire in July 2023.
--A contract covering approximately 200 Mobility employees in
Illinois is set to expire in May 2023.
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------------------------------------------------
NOTE 23. DISCONTINUED OPERATIONS
Upon the separation and distribution, the WarnerMedia business
met the criteria for discontinued operations. For discontinued
operations, we also evaluated transactions that were components of
AT&T's single plan of a strategic shift, including dispositions
that previously did not individually meet the criteria due to
materiality, and have determined discontinued operations to be
comprised of WarnerMedia, Vrio, Xandr and Playdemic.
The following is a summary of operating results included in
income (loss) from discontinued operations for the years ended:
2022 2021 2020
Revenues $ 9,454 $ 34,826 $ 28,710
Operating Expenses
Cost of revenues 5,481 19,400 14,269
Selling, general and administrative 2,791 8,275 7,222
Asset abandonments and impairments 1 - 4,691 3,193
Depreciation and amortization 1,172 5,010 5,993
Total operating expenses 9,444 37,376 30,677
Interest expense 131 168 198
Equity in net income (loss) of affiliates (27) 28 6
Other income (expense) - net 2 (87) 466 (343)
Total other income (expense) (245) 326 (535)
Net loss before income taxes (235) (2,224) (2,502)
Income tax expense (benefit) (54) 73 (203)
Net loss from discontinued operations $ (181) $ (2,297) $ (2,299)
1 2021 includes $4,555 impairment resulting from our assessment of the recoverability
of Vrio's net assets. 2020 includes approximately $2,200 of goodwill impairment
at Vrio and $1,000 from production, content and other impairment at WarnerMedia.
The implied fair value of the Vrio business was estimated using both the discounted
cash flow as well as market multiple approaches. The fair values of film productions
were estimated using a discounted cash flow approach. The inputs to all of these
approaches are considered Level 3.
2 "Other income (expense) - net" includes the gain of $706 from Playdemic for
the year ended 2021.
The following is a summary of assets and liabilities
attributable to discontinued operations, which were included in our
historical Consolidated Balance Sheet at December 31:
2021
Assets:
Current assets $ 9,005
Noncurrent Inventories and Theatrical Film and Television Production
Costs 18,983
Property, Plant and Equipment - Net 4,255
Goodwill 40,484
Other Intangibles - Net 40,273
Other Assets 6,776
Total Assets, discontinued operations $119,776
Liabilities:
Current liabilities $ 12,912
Other liabilities 20,643
Total Liabilities, discontinued operations $ 33,555
In preparation for close of the separation and distribution, on
April 7, 2022, Spinco drew $10,000 on its $10,000 term loan credit
agreement (Spinco Term Loan), which conveyed to WBD. Total debt
conveyed was approximately $41,600, which included $1,600 of
existing WarnerMedia debt, $30,000 of Spinco senior notes issued in
March 2022 and the $10,000 Spinco Term Loan. WarnerMedia cash
transfer to Discovery was approximately $2,660.
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NOTE 24. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following tables represent our quarterly financial
results:
2022 Calendar Quarter
First 1 Second 1 Third 1 Fourth 1,2 Annual
Total Operating
Revenues $ 29,712 $ 29,643 $30,043 $ 31,343 $120,741
Operating Income
(Loss) 5,537 4,956 6,012 (21,092) (4,587)
Net Income
(Loss) from
Continuing
Operations 5,149 4,751 6,346 (23,120) (6,874)
Net Income
(Loss) from
Continuing
Operations
Attributable
to Common
Stock 4,747 4,319 5,924 (23,536) (8,546)
Basic Earnings
(Loss) Per Share
Attributable to
Common Stock
from
Continuing
Operations 3 $ 0.66 $ 0.60 $ 0.82 $ (3.20) $ (1.10)
Diluted Earnings
(Loss) Per
Share
Attributable to
Common Stock
from
Continuing
Operations 3 $ 0.65 $ 0.59 $ 0.79 $ (3.20) $ (1.10)
===
1 Includes actuarial gains and losses on pension and postretirement benefit
plans (Note 14).
2 Includes goodwill impairments (Note 9) and an asset abandonment charge (Note
7).
3 Quarterly earnings per share impacts may not add to full-year earnings per
share impacts due to the difference in weighted-average common shares for the
quarters versus the weighted-average common shares for the year.
2021 Calendar Quarter
First 1 Second 1 Third 1 Fourth 1 Annual
Total Operating
Revenues $ 35,877 $ 35,740 $31,326 $ 31,095 $134,038
Operating Income 7,194 7,572 6,237 4,894 25,897
Net Income from
Continuing
Operations 7,586 5,969 5,019 5,202 23,776
Net Income from
Continuing
Operations
Attributable to
Common
Stock 7,143 5,526 4,613 4,802 22,084
Basic Earnings Per
Share
Attributable to
Common Stock
from Continuing
Operations 2 $ 0.99 $ 0.77 $ 0.64 $ 0.67 $ 3.07
Diluted Earnings Per
Share
Attributable to
Common Stock
from
Continuing
Operations 2 $ 0.97 $ 0.76 $ 0.63 $ 0.66 $ 3.02
1 Includes actuarial gains and losses on pension and postretirement benefit
plans (Note 14).
2 Quarterly earnings per share impacts may not add to full-year earnings per
share impacts due to the difference in weighted-average common shares for the
quarters versus the weighted-average common shares for the year.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
During our two most recent fiscal years, there has been no
change in the independent accountant engaged as the principal
accountant to audit our financial statements, and the independent
accountant has not expressed reliance on other independent
accountants in its reports during such time period.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
The registrant maintains disclosure controls and procedures that
are designed to ensure that information required to be disclosed by
the registrant is recorded, processed, summarized, accumulated and
communicated to its management, including its principal executive
and principal financial officers, to allow timely decisions
regarding required disclosure, and reported within the time periods
specified in the SEC's rules and forms. The Chief Executive Officer
and Chief Financial Officer have performed an evaluation of the
effectiveness of the design and operation of the registrant's
disclosure controls and procedures as of December 31, 2022. Based
on that evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that the registrant's disclosure controls and
procedures were effective as of December 31, 2022.
There have not been any changes in our internal control over
financial reporting during our most recent fiscal quarter that have
materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
Internal Control Over Financial Reporting
a.Management's Annual Report on Internal Control over Financial
Reporting
The management of AT&T is responsible for establishing and
maintaining adequate internal control over financial reporting.
AT&T's internal control system was designed to provide
reasonable assurance as to the integrity and reliability of the
published financial statements. AT&T management assessed the
effectiveness of the company's internal control over financial
reporting as of December 31, 2022. In making this assessment, it
used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in Internal Control
- Integrated Framework (2013 framework). Based on its assessment,
AT&T management believes that, as of December 31, 2022, the
Company's internal control over financial reporting is effective
based on those criteria.
b.Attestation Report of the Independent Registered Public
Accounting Firm
The independent registered public accounting firm that audited
the financial statements included in the Annual Report containing
the disclosure required by this Item, Ernst & Young LLP, has
issued an attestation report on the Company's internal control over
financial reporting.
ITEM 9B. OTHER INFORMATION
There is no information that was required to be disclosed in a
report on Form 8-K during the fourth quarter of 2022 but was not
reported.
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------------------------------------------------
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE
Information regarding executive officers required by Item 401 of
Regulation S-K is furnished in a separate disclosure at the end of
Part I of this report entitled "Information about our Executive
Officers." Information regarding directors required by Item 401 of
Regulation S-K is incorporated herein by reference pursuant to
General Instruction G(3) from the registrant's 2023 definitive
proxy statement (Proxy Statement) under the heading "Management
Proposal Item No. 1. Election of Directors."
Information required by Item 405 of Regulation S-K is
incorporated herein by reference pursuant to General Instruction
G(3) from the registrant's Proxy Statement under the heading
"Delinquent Section 16(a) Reports."
The registrant has a separately-designated standing audit
committee established in accordance with Section 3(a)(58)(A) of the
Securities Exchange Act of 1934. The members of the committee are
Messrs. Luczo, McCallister and Ubiñas, and Ms. Taylor. The
additional information required by Item 407(d)(5) of Regulation S-K
is incorporated herein by reference pursuant to General Instruction
G(3) from the registrant's Proxy Statement under the heading "Audit
Committee."
The registrant has adopted a code of ethics entitled "Code of
Ethics" that applies to the registrant's principal executive
officer, principal financial officer, principal accounting officer,
or controller or persons performing similar functions. The
additional information required by Item 406 of Regulation S-K is
provided in this report under the heading "General" under Part I,
Item 1. Business.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this Item is incorporated herein by
reference pursuant to General Instruction G(3) from the
registrant's Proxy Statement under the headings "Director
Compensation," "CEO Pay Ratio," and the pages beginning with the
heading "Compensation Discussion and Analysis" and ending with, and
including, the pages under the heading "Potential Payments upon
Change in Control."
Information required by Item 407(e)(5) of Regulation S-K is
included in the registrant's Proxy Statement under the heading
"Compensation Committee Report" and is incorporated herein by
reference pursuant to General Instruction G(3) and shall be deemed
furnished in this Annual Report on Form 10-K and will not be deemed
incorporated by reference into any filing under the Securities Act
of 1933 or the Securities Exchange Act of 1934.
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------------------------------------------------
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Information required by Item 403 of Regulation S-K is included
in the registrant's Proxy Statement under the heading "Common Stock
Ownership," which is incorporated herein by reference pursuant to
General Instruction G(3).
Equity Compensation Plan Information
The following table provides information as of December 31,
2022, 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 of under equity compensation
exercise 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 76,927,549 (1) $ - 102,240,827 (2)
Equity compensation plans
not approved by security
holders - - -
Total 76,927,549 (3) $ - 102,240,827 (2)
(1) Includes the issuance of stock in connection with the
following stockholder approved plans: (a) 0 stock options under the
Stock Purchase and Deferral Plan (SPDP), (b) 945,111 phantom stock
units under the Stock Savings Plan (SSP), 18,492,845 phantom stock
units under the SPDP, 0 restricted stock units under the 2011
Incentive Plan, 0 restricted stock units under the 2016 Incentive
Plan and 35,383,614 restricted stock units under the 2018 Incentive
Plan, (c) 0 target number of stock-settled performance shares under
the 2011 Incentive Plan, 0 target number of stock-settled
performance shares under the 2016 Incentive Plan, and 19,478,272
target number of stock-settled performance shares under the 2018
Incentive Plan. At payout, the target number of performance shares
may be reduced to zero or increased by up to 150%. Each phantom
stock unit and performance share is settleable in stock on a 1-to-1
basis. The weighted-average exercise price in the table does not
include outstanding performance shares or phantom stock units.
The SSP was approved by stockholders in 1994 and then was
amended by the Board of Directors in 2000 to increase the number of
shares available for purchase under the plan (including shares from
the Company match and reinvested dividend equivalents). Stockholder
approval was not required for the amendment. To the extent
applicable, the amount shown for approved plans in column (a), in
addition to the above amounts, includes 2,648,162 phantom stock
units (computed on a first-in-first-out basis) that were approved
by the Board in 2000. Under the SSP, shares could be purchased with
payroll deductions and reinvested dividend equivalents by mid-level
and above managers and limited Company partial matching
contributions. No new contributions may be made to the plan.
(2) Includes 19,493,387 shares that may be issued under the
SPDP, 80,375,750 shares that may be issued under the 2018 Incentive
Plan, and up to 2,371,691 shares that may be purchased through
reinvestment of dividends on phantom shares held in the SSP.
(3) Does not include certain stock options issued by companies
acquired by AT&T that were converted into options to acquire
AT&T stock. As of December 31, 2022, there were 2,861,614
shares of AT&T common stock subject to the converted options,
having a weighted-average exercise price of $20.18. Also, does not
include 346,157 outstanding phantom stock units that were issued by
companies acquired by AT&T that are convertible into stock on a
1-to-1 basis, along with an estimated 135,365 shares that may be
purchased with reinvested dividend equivalents paid on the
outstanding phantom stock units. No further phantom stock units,
other than reinvested dividends, may be issued under the assumed
plans. The weighted-average exercise price in the table does not
include outstanding performance shares or phantom stock units.
100
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE
Information required by Item 404 of Regulation S-K is included
in the registrant's Proxy Statement under the heading "Related
Person Transactions," which is incorporated herein by reference
pursuant to General Instruction G(3). Information required by Item
407(a) of Regulation S-K is included in the registrant's Proxy
Statement under the heading "Director Independence," which is
incorporated herein by reference pursuant to General Instruction
G(3).
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information required by this Item is included in the
registrant's Proxy Statement under the heading "Principal
Accountant Fees and Services," which is incorporated herein by
reference pursuant to General Instruction G(3).
Part IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)Documents filed as a part of the report:
Page
(1) Report of Independent Registered Public Accounting Firm (PCAOB
ID: 42) 40
Financial Statements covered by Report of Independent Registered
Public Accounting Firm: 42
Consolidated Statements of Income 43
Consolidated Statements of Comprehensive Income 44
Consolidated Balance Sheets 45
Consolidated Statements of Cash Flows 46
Consolidated Statements of Changes in Stockholders' Equity 47
Notes to Consolidated Financial Statements 49
(2) Financial Statement Schedules:
II - Valuation and Qualifying Accounts 105
Financial statement schedules other than those listed above have
been omitted because the required information is contained in the
financial statements and notes thereto, or because such schedules
are not required or applicable.
101
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------
102
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------
103
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------
104
AT&T Inc.
Dollars in millions except per share amounts
------------------------------------------------
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Allowance for Credit Losses
COL. A COL. B COL. C COL. D COL. E
Additions
(1) (2) (3)
Charged to Balance at
Balance at Charged to Other End
Beginning Costs and Accounts Deductions of Period
of Period Expenses (a) (b) Acquisitions (c) (d)
Year 2022 $ 1,163 $ 1,865 $ - $ - $ 2,017 $ 1,011
Year 2021 $ 1,457 $ 1,241 $ - $ - $ 1,535 $ 1,163
Year 2020 $ 1,150 $ 1,798 $ 405 $ - $ 1,896 $ 1,457
(a)Includes amounts previously written off which were credited
directly to this account when recovered.
Excludes direct charges and credits to expense for nontrade
receivables in the consolidated statements of income.
Includes the impact to operating expenses, for the year ended
December 31, 2020, after adoption of ASC 326.
(b)Opening adjustments upon adoption of ASC 326, with modified
retrospective application, as of January 1, 2020 (see Note 1).
(c)Amounts written off as uncollectible, or related to divested
entities.
(d)Includes balances applicable to trade receivables, loans,
contract assets and other assets subject to credit loss measurement
(see Note 1).
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Allowance for Deferred Tax Assets
COL. A COL. B COL. C COL. D COL. E
Additions
(1) (2) (3)
Balance at Charged to Charged to Balance at
Beginning Costs and Other End
of Period Expenses Accounts Acquisitions Deductions of Period
Year 2022 $ 4,343 (168) - - - $ 4,175
Year 2021 $ 4,557 (214) - - - $ 4,343
Year 2020 $ 4,715 (158) - - - $ 4,557
105
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized, on the 14th day of February, 2023.
AT&T INC.
/s/ Pascal Desroches
Pascal Desroches
Senior Executive Vice
President
and Chief Financial
Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the date
indicated.
Principal Executive Officer:
John T. Stankey*
Chief Executive Officer
and President
Principal Financial Officer:
Pascal Desroches
Senior Executive Vice President
and Chief Financial Officer
/s/ Pascal Desroches
Pascal Desroches, as attorney-in-fact
and on his own behalf as
Principal
Financial Officer
Principal Accounting Officer:
Debra L. Dial
Senior Vice President, Chief
Accounting Officer and Controller
/s/ Debra L. Dial
February 13, 2023
Directors:
William E. Kennard* Beth E. Mooney*
Scott T. Ford* Matthew K. Rose*
Glenn H. Hutchins* John T. Stankey*
Stephen J. Luczo* Cynthia B. Taylor*
Michael B. McCallister* Luis A. Ubiñas*
* by power of attorney
106
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END
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April 17, 2023 02:00 ET (06:00 GMT)
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