|
|
|
|
|
| Latin America Segment | | | |
|
|
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 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 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 Landscape” 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 regulations affecting those rights is contained under the heading
| | | | | | | | |
| AT&T Inc. |
| Dollars in millions except per share amounts |
“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 licenses that permit other companies to utilize certain of our patents, trademarks, service marks, and technologies, in exchange for payments and subject to appropriate safeguards and restrictions. 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 license third-party patents and other intellectual rights in exchange for payments. We also receive claims from third parties asserting that our products, services, or technologies infringe on their patents or other intellectual property rights. These claims could require us to pay damages or acquire license rights, 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 2023, 2022 or 2021.
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 each of those providers’ 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.
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 and wireless broadband providers for high-speed internet and voice services.
Legacy Voice and Data We continue to lose legacy voice and data subscribers due to competitors (e.g., wireless, cable and VoIP providers) who can provide comparable services at lower prices because they are not subject to traditional telephone industry regulation (or the extent of regulation they are subject to is in dispute), utilize different technologies or promote a different business model (such as advertising-based). In most U.S. markets, we compete for customers with large cable companies and other smaller telecommunications companies for both long-distance and local services.
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 cybersecurity, 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 $954 in 2023, $1,236 in 2022, and $1,325 in 2021.
HUMAN CAPITAL
Number of Employees As of January 31, 2024, we employed approximately 149,900 persons.
| | | | | | | | |
| AT&T Inc. |
| Dollars in millions except per share amounts |
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 internal training organization.
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 set to expire in 2024 include the following: a contract covering approximately 5,000 Mobility employees in Arkansas, Kansas, Missouri, Oklahoma and Texas is set to expire in February; a wireline contract covering approximately 8,500 employees in California and Nevada is set to expire in April; and three wireline contracts covering approximately 15,000 employees in the southeastern United States are set to expire in August.
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, 2023, we had approximately 505,000 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 Wellness 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 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 one of the reasons 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.
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, faith, LGBTQ+ individuals, people with disabilities and veterans, but also around professionals who are experienced or interested in cybersecurity, engineering, innovation and project management. We believe that 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. Most, if not all, of these factors are beyond our ability to control.
Macro-Economic Factors:
Adverse changes in the U.S. securities markets, increasing 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.
| | | | | | | | |
| AT&T Inc. |
| Dollars in millions except per share amounts |
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 2024, the costs of these inputs and the costs of labor necessary to develop, deploy and maintain our networks and our products and services 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.
Adverse changes in global financial markets could limit our ability and our larger customers’ and suppliers’ ability to access capital or increase the cost of capital needed to fund business operations.
During 2023, uncertainty surrounding global growth rates, inflation, and an increasing interest rate environment 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 to 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.
A company’s cost of borrowing is 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
| | | | | | | | |
| AT&T Inc. |
| Dollars in millions except per share amounts |
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:
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, including the proposed rules regarding net neutrality, could impede our ability to manage our networks and recover costs and lessen incentives to invest in our networks. The continuing growth of IP-based services, especially when accessed by wireless devices, has created or potentially could create conflicting regulation between the FCC and various state and local authorities, which may involve lengthy litigation to resolve and may result in outcomes unfavorable to us. In addition, in response to the Federal Aviation Administration (FAA) questioning whether cell sites transmitting C-band spectrum could impact radio altimeter equipment on airplanes, we voluntarily committed to temporary, precautionary measures near certain airports through January 1, 2028, which may have limited impacts to deployments and services. 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 data 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. While we currently do not believe the potential losses or costs associated with the physical effects of climate change will be material, it is difficult to accurately and precisely calculate the future impacts of the physical effects of climate change given the dynamic nature of climate change’s impacts on the environment.
Further, customers, consumers, investors, governments 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 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
| | | | | | | | |
| AT&T Inc. |
| Dollars in millions except per share amounts |
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.
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 which may 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. Additionally, we may not be able to accurately predict future consumer demands or the success of new services in markets. Our ability to address these issues 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.
We may need to spend significant amounts of money to protect our intellectual property 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 or public assertions leading to damage to our reputation or questions about our business conduct, 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. 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 and increased regulatory scrutiny or litigation could result from actual or alleged conduct by us or those currently or formerly associated with us, and from any number of activities or circumstances, including operations, employment-related offenses (such as sexual harassment and discrimination), regulatory compliance and actions taken by regulators or others in response to such conduct.
We 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. In 2023, The Wall Street Journal published a series of articles alleging that lead-clad telecommunications cables are a public-health hazard or may pose environmental risks. We are currently subject to litigation and have received inquiries from government authorities as a result of these assertions. We may be subject to additional litigation, government investigations and potentially new regulation or legislation relating to lead-clad cables. Any damage to our reputation or payments of significant amounts as a result of any of these issues, even if reserved, could materially and adversely affect our business, ability to serve customers, reputation, financial condition, results of operations and cash flows.
| | | | | | | | |
| AT&T Inc. |
| Dollars in millions except per share amounts |
Our business is subject to risks related to public health crises.
Public health crises and resulting mitigation measures have in the past, and may in the future, 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 also have in the past, and may in the future, incur significantly higher expenses attributable to infrastructure investments and increased labor costs.
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 and are expanding 5G wireless technology to address these 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.
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. In some instances, we depend on key single-source suppliers to provide important inputs where there are few alternative suppliers available. 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. 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 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.
| | | | | | | | |
| AT&T Inc. |
| Dollars in millions except per share amounts |
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, enable legacy rationalization, 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. Further, we intend to use artificial intelligence (AI)-driven efficiencies in our network design, software development and customer support services. The models used in those products, particularly generative AI models, may produce output or take action that is incorrect, release private or confidential information, reflect biases included in the data on which they are trained, infringe on the intellectual property rights of others, or be otherwise harmful. Any of these risks could expose us to liability or adverse legal or regulatory consequences and harm our reputation and the public perception of our business or the effectiveness of our security measures.
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, environmental, customer privacy violations, cyberattacks, 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 and wireline 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 effect 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 current or future customers and reputational damage. As our networks evolve, they are becoming increasingly reliant on software to handle growing demands for data consumption. 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. Further, the use of artificial intelligence and machine learning by cybercriminals may increase the frequency and severity of cybersecurity attacks against us or our suppliers, vendors and other service providers. Additionally, as cyberattacks become increasingly sophisticated, a post-attack investigation may not be able to ascertain the entire scope of the attack’s impact. Extensive and costly efforts are undertaken to develop and test systems before deployment and to conduct ongoing monitoring and updating to prevent and withstand such attacks. 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, including acts of war, 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.
| | | | | | | | |
| AT&T Inc. |
| Dollars in millions except per share amounts |
Increases in our debt levels to fund spectrum purchases, or other strategic decisions could adversely affect our ability to finance future debt at attractive rates and reduce our ability to respond to competition and adverse economic trends.
We have incurred debt to fund significant acquisitions, as well as spectrum purchases needed to compete in our industry. While we believe such decisions were prudent and necessary to take advantage of both growth opportunities and respond to industry developments, we did experience credit-rating downgrades from historical levels. Banks and potential purchasers of our publicly traded debt may decide that these strategic decisions and similar actions we may take in the future, as well as expected trends in the industry, will continue to increase the risk of investing in our debt and may demand a higher rate of interest, impose restrictive covenants or otherwise limit the amount of potential borrowing. Additionally, our capital allocation plan is focused on, among other things, managing our debt level going forward. Any failure to successfully execute this plan could adversely affect our cost of funds, liquidity, competitive position and access to capital markets.
Our business may be impacted by changes in tax laws and regulations, judicial interpretations of 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 Internal Revenue Service (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.
| | | | | | | | |
| AT&T Inc. |
| Dollars in millions except per share amounts |
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:
•Adverse economic and political changes, including inflation and rising interest rates, war or other hostilities, and public health emergencies, and our ability to access financial markets at favorable rates and terms.
•Increases in our benefit plans’ costs, including due to worse-than-assumed investment returns and discount rates, mortality assumptions, medical cost trends, or healthcare laws or regulations.
•The final outcome of FCC and other federal, state or foreign government agency proceedings (including judicial review of such proceedings) and legislative and regulatory efforts involving issues 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, and our response to such legislative and regulatory efforts.
•Enactment of or changes to state, local, federal and/or foreign tax laws and regulations, and actions by tax agencies and judicial authorities that reduce our incentive to invest in our networks, and the resolution of disputes with any taxing jurisdictions, pertaining to our subsidiaries and foreign investments.
•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.
•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, and our response to such competition and emerging technologies.
•Disruption in our supply chain for a number of reasons, including, difficulties in obtaining export licenses for certain technology, inability to secure component parts, lack of suppliers, general business disruption, workforce shortage, natural disasters, safety issues, vendor fraud, economic and political instability, including disruptions in the capital markets, the outbreak of war or other hostilities, and public health emergencies.
•The development and delivery of attractive and profitable wireless and broadband offerings and devices, including our ability to match speeds offered by competitors; the impact of regulatory and build-out requirements; and the availability, cost and/or reliability of technologies required to provide such offerings.
•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 and arbitration, 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, public health emergencies, energy shortages, wars or terrorist attacks.
•The issuance by the FASB or other accounting oversight bodies of new or revised accounting standards.
•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, enable legacy rationalization, 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.
| | | | | | | | |
| AT&T Inc. |
| Dollars in millions except per share amounts |
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 1C. CYBERSECURITY
Governance
Board and Audit Committee Oversight
Our Board of Directors has delegated to the Audit Committee the oversight responsibility to review and discuss with management the Company’s privacy and data security, including cybersecurity, risk exposures, policies and practices, and the steps management has taken to detect, monitor and control such risks and the potential impact of those exposures on our business, financial results, operations and reputation. The full Board and Audit Committee regularly receives reports and presentations on privacy and data security, which address relevant cybersecurity issues and risks and span a wide range of topics. These reports and presentations are provided by officers with responsibility for privacy and data security, who include our Chief Information Security Officer (CISO), Chief Technology Officer (CTO) and AT&T’s Legal team. In addition to regular reports to the Audit Committee, we have protocols by which certain security incidents are escalated within the Company and, where appropriate, reported in a timely manner to the Audit Committee.
Chief Security Office/CISO
We maintain a Chief Security Office (CSO), which is charged with management-level responsibility for all aspects of network and information security within the Company. Led by our CISO and comprised of a large team of highly trained security professionals across multiple countries, the CSO is responsible for:
a.establishing the policies, standards and requirements for the security of AT&T’s computing and network environments;
b.protecting AT&T-owned and -managed assets and resources against unauthorized access by monitoring potential security threats, correlating network events, and overseeing the execution of corrective actions;
c.promoting compliance with AT&T’s security policies and network and information security program in a consistent manner on network systems and applications; and
d.providing security thought leadership in the global security arena.
Our CISO plays the key management role in assessing and managing our material risks from cybersecurity threats. The CISO also works closely with AT&T Legal to oversee compliance with legal, regulatory and contractual security requirements. The CISO has extensive technical leadership experience and cybersecurity expertise, gained from approximately 20 years of experience, including serving as the Chief Information Security Officer and Director of the Office of Cybersecurity at a U.S. government agency, in addition to serving as the Chief Information Security Officer of two large public companies. Prior to that, he served for 20 years in the U.S. military, in various information technology roles of increasing seniority. The security professionals in the CSO have cybersecurity backgrounds and expertise relevant to their roles, including, in certain circumstances, relevant industry certifications.
Risk Management and Strategy
We maintain a network and information security program that is reasonably designed to protect our information, and that of our customers, from unauthorized risks to their confidentiality, integrity, or availability. Our program encompasses the CSO and its policies, platforms, procedures, and processes for assessing, identifying, and managing risks from cybersecurity threats, including third-party risk from vendors and suppliers; and the program is generally designed to identify and respond to security incidents and threats in a timely manner to minimize the loss or compromise of information assets and to facilitate incident resolution.
We maintain continuous and near-real-time security monitoring of the AT&T network for investigation, action and response to network security events. This security monitoring leverages tools, where available, such as near-real-time data correlation, situational awareness reporting, active incident investigation, case management, trend analysis and predictive security alerting. We assess, identify, and manage risks from cybersecurity threats through various mechanisms, which from time to time may include tabletop exercises to test our preparedness and incident response process, business unit assessments, control gap analyses, threat modeling, impact analyses, internal audits, external audits, penetration tests and engaging third parties to conduct analyses of our information security program. We conduct vulnerability testing and assess identified vulnerabilities for severity, the potential impact to AT&T and our customers, and likelihood of occurrence. We regularly evaluate security controls to maintain their functionality in accordance with security policy. We also obtain cybersecurity threat intelligence from recognized forums, third parties, and other sources as part of our risk assessment process. In addition, as a critical infrastructure entity, we collaborate with numerous agencies in the U.S. government to help protect U.S. communications networks and critical infrastructure, which, in turn, informs our cybersecurity threat intelligence.
| | | | | | | | |
| AT&T Inc. |
| Dollars in millions except per share amounts |
With respect to incident response, the Company has adopted a Cybersecurity Incident Response Plan, as well as a Data Privacy Incident Response Plan that applies if customer information has been compromised (together, the “IRPs”), to provide a common framework for responding to security incidents. This framework establishes procedures for identifying, validating, categorizing, documenting and responding to security events that are identified by or reported to the CSO. The IRPs apply to all AT&T personnel (including contractors and partners) that perform functions or services that require securing AT&T information and computing assets, and to all devices and network services that are owned or managed by the Company.
The IRPs set out a coordinated, multi-functional approach for investigating, containing, and mitigating incidents, including reporting findings to senior management and other key stakeholders and keeping them informed and involved as appropriate. In general, our incident response process follows the NIST (National Institute of Standards and Technology) framework and focuses on four phases: preparation; detection and analysis; containment, eradication and recovery; and post-incident remediation.
Impact of Cybersecurity Risk
In 2023, we did not identify and were not aware of any cybersecurity breaches that we believe have materially affected or are reasonably likely to materially affect our business strategy, results of operations, or financial condition. For a discussion of cybersecurity risk, please see the information contained under the heading “Cyberattacks impacting our networks or systems may have a material adverse effect on our operations” of Item 1A.
ITEM 2. PROPERTIES
Our properties do not lend themselves to description by character and location of principal units. At December 31, 2023, of our total property, plant and equipment, central office equipment represented 29%; outside plant (including cable, wiring and other non-central office network equipment) represented 27%; 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.
| | | | | | | | |
| AT&T Inc. |
| Dollars in millions except per share amounts |
INFORMATION ABOUT OUR EXECUTIVE OFFICERS
As of February 1, 2024
| | | | | | | | | | | |
| Name | Age | Position | Held Since |
| | | |
| John T. Stankey | 61 | Chief Executive Officer and President | 7/2020 |
| F. Thaddeus Arroyo | 60 | Chief Strategy and Development Officer | 5/2022 |
| Pascal Desroches | 59 | Senior Executive Vice President and Chief Financial Officer | 4/2021 |
Edward W. Gillespie | 62 | Senior Executive Vice President - External and Legislative Affairs, AT&T Services, Inc. | 4/2020 |
|
| Kellyn S. Kenny | 46 | Chief Marketing and Growth Officer | 5/2022 |
| Lori M. Lee | 58 | Global Marketing Officer and Senior Executive Vice President - Human Resources and International | 8/2023 |
| Jeremy Legg | 54 | Chief Technology Officer, AT&T Services, Inc. | 5/2022 |
| David R. McAtee II | 55 | Senior Executive Vice President and General Counsel | 10/2015 |
| Jeffery S. McElfresh | 53 | Chief Operating Officer | 5/2022 |
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 and Mr. Legg. 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.
| | | | | | | | |
| AT&T Inc. |
| Dollars in millions except per share amounts |
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, 2023 and 2022 was 749,207 and 784,110. The number of stockholders of record as of February 7, 2024, was 746,395. We declared dividends on common stock, on a quarterly basis, totaling $1.11 per share in 2023 and $1.11 per share in 2022.
STOCK PERFORMANCE GRAPH
The comparison above assumes $100 invested on December 31, 2018, in AT&T common stock and the following Standard & Poor’s (S&P) Indices: S&P 500 Index and S&P 500 Communication Services Index. Total return equals stock price appreciation plus reinvestment of dividends.
| | | | | | | | |
| AT&T Inc. |
| Dollars in millions except per share amounts |
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, 2023. To implement this authorization, we have used open market repurchases, relying on Rule 10b5-1 of the Securities Exchange Act of 1934, where feasible. We have 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 2024 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 2023 is as follows:
ISSUER PURCHASES OF EQUITY SECURITIES
| | | | | | | | | | | | | | |
| (a) | (b) | (c) | (d) |
| Period | Total Number of Shares (or Units) Purchased1,2 |
Average Price Paid Per Share (or Unit) | Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs1 | Maximum Number (or Approximate Dollar Value) of Shares (or Units) That May Yet Be Purchased Under The Plans or Programs |
October 1, 2023 – | | | | |
October 31, 2023 | 185,638 | | $ | 14.99 | | — | | 143,731,972 |
November 1, 2023 – | | | | |
November 30, 2023 | 2,674 | | $ | 15.81 | | — | | 143,731,972 |
December 1, 2023 – | | | | |
December 31, 2023 | 76,151 | | $ | 16.55 | | — | | 143,731,972 |
| Total | 264,463 | | $ | 15.45 | | — | | |
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, 264,463 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. |
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 2023 and 2022 items and year-to-year comparisons between 2023 and 2022. Discussions of 2021 items and year-to-year comparisons between 2022 and 2021 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, 2022.
| | | | | | | | |
| AT&T Inc. |
| Dollars in millions except per share amounts |
On April 8, 2022, we closed our transaction to combine substantially all of our previous 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 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 24)
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 |
| Operating Revenues | 2023 | 2022 | 2021 | 2023 vs. 2022 | 2022 vs. 2021 |
| | | | | |
| Communications | $ | 118,038 | | $ | 117,067 | | $ | 114,730 | | 0.8 | % | 2.0 | % |
| Latin America | 3,932 | | 3,144 | | 2,747 | | 25.1 | | 14.5 | |
| Corporate and Other: | | | | | |
| Corporate | 458 | | 530 | | 731 | | (13.6) | | (27.5) | |
| Video | — | | — | | 15,513 | | — | | — | |
| Held-for-sale and other reclassifications | — | | — | | 453 | | — | | — | |
| Eliminations and consolidations | — | | — | | (136) | | — | | — | |
| AT&T Operating Revenues | $ | 122,428 | | $ | 120,741 | | $ | 134,038 | | 1.4 | % | (9.9) | % |
| | | | | |
| Operating Income | | | | | |
| Communications | $ | 27,801 | | $ | 26,736 | | $ | 26,293 | | 4.0 | % | 1.7 | % |
| Latin America | (141) | | (326) | | (510) | | 56.7 | | 36.1 | |
| Segment Operating Income | 27,660 | | 26,410 | | 25,783 | | 4.7 | | 2.4 | |
| Corporate | (2,961) | | (2,890) | | (1,990) | | (2.5) | | (45.2) | |
| Video | — | | — | | 2,257 | | — | | — | |
| Held-for-sale and other reclassifications | — | | — | | 143 | | — | | — | |
| Certain significant items | (1,238) | | (28,107) | | (296) | | 95.6 | | — | |
| AT&T Operating Income (Loss) | $ | 23,461 | | $ | (4,587) | | $ | 25,897 | | — | % | — | % |
The Communications segment accounted for approximately 97% of our 2023 and 2022 total segment operating revenues and accounted for all segment operating income in 2023 and 2022. This segment provides services to businesses and consumers located in the U.S. and businesses globally. Our business strategies reflect integrated 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 multi-gig services to residential customers in select locations and our fixed wireless access product that provides home internet services delivered over our 5G wireless network where available. Consumer Wireline also provides legacy telephony voice communication services.
The Latin America segment accounted for approximately 3% of our 2023 and 2022 total segment operating revenues. This segment provides wireless services and equipment in Mexico.
| | | | | | | | |
| AT&T Inc. |
| Dollars in millions except per share amounts |
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 2024 in the “Operating Environment and Trends of the Business” section.
| | | | | | | | | | | | | | | | | |
| | | | Percent Change |
| 2023 | 2022 | 2021 | 2023 vs. 2022 | 2022 vs. 2021 |
| Operating revenues | | | | | |
| Service | $ | 99,649 | | $ | 97,831 | | $ | 111,565 | | 1.9 | % | (12.3) | % |
| Equipment | 22,779 | | 22,910 | | 22,473 | | (0.6) | | 1.9 | |
| Total Operating Revenues | 122,428 | | 120,741 | | 134,038 | | 1.4 | | (9.9) | |
| | | | | |
| Operating expenses | | | | | |
| Operations and support | 78,997 | | 79,809 | | 90,076 | | (1.0) | | (11.4) | |
| Asset impairments and abandonments and restructuring | 1,193 | | 27,498 | | 213 | | (95.7) | | — | |
| Depreciation and amortization | 18,777 | | 18,021 | | 17,852 | | 4.2 | | 0.9 | |
| Total Operating Expenses | 98,967 | | 125,328 | | 108,141 | | (21.0) | | 15.9 | |
| Operating Income (Loss) | 23,461 | | (4,587) | | 25,897 | | — | | — | |
| Interest expense | 6,704 | | 6,108 | | 6,716 | | 9.8 | | (9.1) | |
| Equity in net income of affiliates | 1,675 | | 1,791 | | 603 | | (6.5) | | — | |
| Other income (expense) – net | 1,416 | | 5,810 | | 9,387 | | (75.6) | | (38.1) | |
| Income (Loss) from Continuing Operations Before Income Taxes | 19,848 | | (3,094) | | 29,171 | | — | | — | |
| Income (Loss) from Continuing Operations | $ | 15,623 | | $ | (6,874) | | $ | 23,776 | | — | % | — | % |
| |
| |
|
|
|
|
|
|
|
|
|
1Includes data-centric devices such as session-based tablets, monitoring devices and primarily wholesale automobile systems. |
2Wireless subscribers at December 31, 2023 includes an increase of 295 subscribers and connections (206 postpaid, including 74 phone, and 89 connected devices) resulting from our 3G network shutdown in February 2022. Wireless subscribers at December 31, 2022 excludes the impact of 10,176 subscriber and connected device disconnections resulting from our 3G network shutdown. Postpaid disconnections were 897, including 437 phone, 234 prepaid, 749 reseller subscribers, and 8,296 connected devices. |
| | | | | | | | | | | | | | | | | |
Mobility Net Additions | | | | | |
| | | | Percent Change |
| (in 000s) | 2023 | 2022 | 2021 | 2023 vs. 2022 | 2022 vs. 2021 |
| Postpaid Phone Net Additions | 1,744 | 2,868 | 3,196 | (39.2) | % | (10.3) | % |
| Total Phone Net Additions | 1,801 | 3,272 | 3,850 | (45.0) | | (15.0) | |
| | | | | |
Postpaid2 | 2,315 | 4,091 | 4,482 | (43.4) | | (8.7) | |
| Prepaid | 128 | 479 | 956 | (73.3) | | (49.9) | |
| Reseller | 1,279 | 462 | (534) | — | | — | |
Connected devices3 | 20,118 | 20,594 | 14,328 | (2.3) | | 43.7 | |
Mobility Net Subscriber Additions1 | 23,840 | 25,626 | 19,232 | (7.0) | % | 33.2 | % |
| | | | | |
Postpaid Churn4 | 0.98 | % | 0.97 | % | 0.94 | % | 1 | BP | 3 | BP |
Postpaid Phone-Only Churn4 | 0.81 | % | 0.81 | % | 0.76 | % | — | BP | 5 | BP |
1Excludes migrations and acquisition-related activity during the period. |
2In addition to postpaid phones, includes tablets and wearables and other. Tablet net adds (losses) were (68), 203 and 28 for the years ended December 31, 2023, 2022 and 2021, respectively. Wearables and other net adds were 639, 1,020 and 1,258 for the years ended December 31, 2023, 2022 and 2021, respectively. |
3Includes data-centric devices such as session-based tablets, monitoring devices and primarily wholesale automobile systems. Excludes postpaid tablets and other postpaid data devices. Wholesale connected car net adds were approximately 11,570, 9,980 and 7,875 for the years ended December 31, 2023, 2022 and 2021, respectively. |
4Calculated by dividing the aggregate number of wireless subscribers who canceled service during a month by the total number of wireless subscribers at the beginning of that month. The churn rate for the period is equal to the average of the churn rate for each month of that period, excluding the impact of disconnections resulting from our 3G network shutdown in February 2022. |
| | | | | | | | |
| AT&T Inc. |
| Dollars in millions except per share amounts |
Service revenue increased during 2023, largely due to growth from subscriber gains and higher postpaid average revenue per subscriber (ARPU).
ARPU
ARPU increased in 2023 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 consistent with 2022.
Equipment revenue decreased in 2023, primarily driven by a lower volume of devices sold.
Operations and support expenses decreased in 2023, largely due to lower equipment costs, driven by lower device sales and associated selling costs, and 3G network shutdown costs in the first quarter of 2022. These decreases were offset by increased network expenses and higher amortization of deferred customer acquisition costs.
Depreciation expense increased in 2023, primarily due to ongoing capital spending for network upgrades and expansion. We expect increased depreciation expense in 2024 due to the expected shortening of estimated economic lives of wireless equipment that will be replaced earlier than originally anticipated with our Open RAN deployment and our network transformation and continued 5G investment.
Operating income increased in 2023 and 2022. Our Mobility operating income margin was 30.8% in 2023, 29.1% in 2022 and 29.0% in 2021. Our Mobility EBITDA margin was 40.9% in 2023, 39.1% in 2022 and 39.4% in 2021.
| | | | | | | | | | | | | | | | | |
Business Wireline Results | | | | | |
| | | | Percent Change |
| 2023 | 2022 | 2021 | 2023 vs. 2022 | 2022 vs. 2021 |
| Operating revenues | | | | | |
| Service | $ | 20,274 | | $ | 21,891 | | $ | 23,224 | | (7.4) | % | (5.7) | % |
| Equipment | 609 | | 647 | | 713 | | (5.9) | | (9.3) | |
| Total Operating Revenues | 20,883 | | 22,538 | | 23,937 | | (7.3) | | (5.8) | |
| | | | | |
| Operating expenses | | | | | |
| Operations and support | 14,217 | | 14,934 | | 15,653 | | (4.8) | | (4.6) | |
| Depreciation and amortization | 5,377 | | 5,314 | | 5,192 | | 1.2 | | 2.3 | |
| Total Operating Expenses | 19,594 | | 20,248 | | 20,845 | | (3.2) | | (2.9) | |
| Operating Income | $ | 1,289 | | $ | 2,290 | | $ | 3,092 | | (43.7) | % | (25.9) | % |
Service revenues decreased in 2023, driven by lower demand for legacy voice, data and network services along with product simplification, partially offset by growth in connectivity services. We expect these trends to continue.
Equipment revenues decreased in 2023, driven by declines in legacy and non-core services, which we expect to continue.
Operations and support expenses decreased in 2023, 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. Expense declines were also driven by lower personnel costs, lower network access, customer support and marketing costs. The decrease in network access costs also included approximately $75 of benefit related to settlement of a dispute in the second quarter of 2023. As part of our transformation activities, we expect operations and support expense improvements through 2024, as we further right size our operations in alignment with the strategic direction of the business.
Depreciation expense increased in 2023, primarily due to ongoing capital investment for strategic initiatives such as fiber, which we expect to further increase in 2024.
Operating income decreased in 2023 and 2022. Our Business Wireline operating income margin was 6.2% in 2023, 10.2% in 2022 and 12.9% in 2021. Our Business Wireline EBITDA margin was 31.9% in 2023, 33.7% in 2022 and 34.6% in 2021.
| | | | | | | | |
| AT&T Inc. |
| Dollars in millions except per share amounts |
| | | | | | | | | | | | | | | | | |
Consumer Wireline Results | | | | | |
| | | | Percent Change |
| 2023 | 2022 | 2021 | 2023 vs. 2022 | 2022 vs. 2021 |
| Operating revenues | | | | | |
| Broadband | $ | 10,455 | | $ | 9,669 | | $ | 9,085 | | 8.1 | % | 6.4 | % |
| Legacy voice and data services | 1,508 | | 1,746 | | 1,977 | | (13.6) | | (11.7) | |
| Other service and equipment | 1,210 | | 1,334 | | 1,477 | | (9.3) | | (9.7) | |
| Total Operating Revenues | 13,173 | | 12,749 | | 12,539 | | 3.3 | | 1.7 | |
| | | | | |
| Operating expenses | | | | | |
| Operations and support | 9,053 | | 8,946 | | 8,922 | | 1.2 | | 0.3 | |
| Depreciation and amortization | 3,469 | | 3,169 | | 3,095 | | 9.5 | | 2.4 | |
| Total Operating Expenses | 12,522 | | 12,115 | | 12,017 | | 3.4 | | 0.8 | |
| Operating Income | $ | 651 | | $ | 634 | | $ | 522 | | 2.7 | % | 21.5 | % |
The following tables highlight other key measures of performance for Consumer Wireline:
| | | | | | | | | | | | | | | | | |
Connections | | | | | |
| | | | Percent Change |
| (in 000s) | 2023 | 2022 | 2021 | 2023 vs. 2022 | 2022 vs. 2021 |
| Broadband Connections | | | | | |
| Total Broadband and DSL Connections | 13,890 | | 13,991 | | 14,160 | (0.7) | % | (1.2) | % |
Broadband1 | 13,729 | | 13,753 | | 13,845 | | (0.2) | | (0.7) | |
| Fiber Broadband Connections | 8,307 | | 7,215 | | 5,992 | | 15.1 | | 20.4 | |
| | | | | |
| Voice Connections | | | | | |
| Retail Consumer Switched Access Lines | 1,651 | 2,028 | 2,423 | (18.6) | | (16.3) | |
Consumer VoIP Connections | 1,953 | 2,311 | 2,736 | (15.5) | | (15.5) | |
| Total Retail Consumer Voice Connections | 3,604 | 4,339 | 5,159 | (16.9) | % | (15.9) | % |
1Includes AT&T Internet Air. |
| | | | | | | | | | | | | | | | | |
Broadband Net Additions | | | | | |
| | | | Percent Change |
| (in 000s) | 2023 | 2022 | 2021 | 2023 vs. 2022 | 2022 vs. 2021 |
| |
| Total Broadband and DSL Net Additions | (101) | (169) | 60 | 40.2 | % | — | % |
Broadband Net Additions1 | (24) | (92) | | 152 | | 73.9 | | — | |
| Fiber Broadband Net Additions | 1,092 | 1,223 | 1,041 | (10.7) | % | 17.5 | % |
1Includes AT&T Internet Air. |
Broadband revenues increased in 2023, driven by an increase in fiber customers, which we expect to continue as we invest further in building our fiber footprint, and higher ARPU due to prior-year promotional pricing, partially offset by declines in copper-based broadband services.
Legacy voice and data service revenues decreased in 2023, reflecting the continued decline in the number of customers.
Other service and equipment revenues decreased in 2023, reflecting the continued decline in the number of VoIP customers.
Operations and support expenses increased in 2023, primarily due to higher network-related costs as our fiber build scales, partially offset by lower customer support costs, lower Max licensing fees in the first half of 2023, and approximately $35 of benefit from a vendor dispute resolution in the second quarter of 2023.
| | | | | | | | |
| AT&T Inc. |
| Dollars in millions except per share amounts |
Depreciation expense increased in 2023, primarily due to ongoing capital spending for strategic initiatives such as fiber and network upgrades and expansion, which we expect to further increase in 2024.
Operating income increased in 2023 and 2022. Our Consumer Wireline operating income margin was 4.9% in 2023, 5.0% in 2022 and 4.2% in 2021. Our Consumer Wireline EBITDA margin was 31.3% in 2023, 29.8% in 2022 and 28.8% in 2021.
| | | | | | | | | | | | | | | | | |
LATIN AMERICA SEGMENT | | | | Percent Change |
| 2023 | 2022 | 2021 | 2023 vs. 2022 | 2022 vs. 2021 |
Segment Operating revenues | | | | | |
| Service | $ | 2,569 | | $ | 2,162 | | $ | 1,834 | | 18.8 | % | 17.9 | % |
| Equipment | 1,363 | | 982 | | 913 | | 38.8 | | 7.6 | |
Total Segment Operating Revenues | 3,932 | | 3,144 | | 2,747 | | 25.1 | | 14.5 | |
| | | | | |
Segment Operating expenses | | | | | |
| Operations and support | 3,349 | | 2,812 | | 2,652 | | 19.1 | | 6.0 | |
| Depreciation and amortization | 724 | | 658 | | 605 | | 10.0 | | 8.8 | |
Total Segment Operating Expenses | 4,073 | | 3,470 | | 3,257 | | 17.4 | | 6.5 | |
| Operating Income (Loss) | $ | (141) | | $ | (326) | | $ | (510) | | 56.7 | % | 36.1 | % |
The following tables highlight other key measures of performance for Mexico:
| | | | | | | | | | | | | | | | | |
| Subscribers | | | | | |
| | | | Percent Change |
| (in 000s) | 2023 | 2022 | 2021 | 2023 vs. 2022 | 2022 vs. 2021 |
| |
| Postpaid | 5,236 | | 4,925 | | 4,807 | | 6.3 | % | 2.5 | % |
| Prepaid | 16,663 | | 16,204 | | 15,057 | | 2.8 | | 7.6 | |
| Reseller | 417 | | 474 | | 498 | | (12.0) | | (4.8) | |
| Mexico Wireless Subscribers | 22,316 | | 21,603 | | 20,362 | | 3.3 | % | 6.1 | % |
| | | | | |
Mexico Wireless Net Additions | | | | | |
| | | | Percent Change |
| (in 000s) | 2023 | 2022 | 2021 | 2023 vs. 2022 | 2022 vs. 2021 |
| |
| Postpaid | 311 | | 118 | | 111 | | — | % | 6.3 | % |
| Prepaid | 459 | | 1,147 | | 1,299 | | (60.0) | | (11.7) | |
| Reseller | (57) | | (24) | | 9 | | — | | — | |
| Mexico Wireless Net Additions | 713 | | 1,241 | | 1,419 | | (42.5) | % | (12.5) | % |
|
Service revenues increased in 2023, reflecting favorable foreign exchange impacts, growth in subscribers and higher wholesale revenues.
Equipment revenues increased in 2023, driven by higher equipment sales and favorable foreign exchange impacts.
Operations and support expenses increased in 2023, driven by unfavorable impact of foreign exchange and increased equipment costs resulting from higher sales. Approximately 5% of Mexico expenses are U.S. dollar-based, with the remainder in the local currency.
Depreciation expense increased in 2023, driven by unfavorable impact of foreign exchange partially offset by lower in-service assets.
Operating income improved in 2023 and 2022. Our Mexico operating income margin was (3.6)% in 2023, (10.4)% in 2022 and (18.6)% in 2021. Our Mexico EBITDA margin was 14.8% in 2023, 10.6% in 2022 and 3.5% in 2021.
| | | | | | | | |
| AT&T Inc. |
| Dollars in millions except per share amounts |
OPERATING ENVIRONMENT AND TRENDS OF THE BUSINESS
2024 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 integrated 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.
2024 Expense Trends During 2024, we will continue to focus on efficiency, led by our cost transformation initiative. We expect the spending required to support growth and efficiency initiatives, primarily our continued deployment of fiber and 5G, including our deployment of Open RAN, and associated accelerated depreciation, to pressure expense trends in 2024. 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. Furthermore, to the extent customers upgrade their handsets in 2024, the expenses associated with those device sales are expected to contribute to higher costs.
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. We also expect cost savings through AI-driven efficiencies in our network design, software development and customer support services.
Market Conditions During 2023, uncertainty surrounding global growth rates, inflation, and an increasing interest rate environment continued to produce volatility in the credit, currency and equity markets. Additionally, several factors, including changes in workplace behavior that have continued since the COVID-19 pandemic, have resulted in changes in demand in business communication services. The global pandemic caused, and future public health emergencies 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 inflationary impacts. 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 2024 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 2024. 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 2024 (see “Critical Accounting Policies and Estimates”).
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 a converged telecommunications network utilizing different technological platforms. In 2024, our key initiatives include:
•Continuing our wireless subscriber momentum and 5G deployment, with expansion of 5G service, including to underpenetrated markets.
•Continuing our fiber deployment, improving fiber penetration, accelerating subscriber growth and increasing broadband revenues.
•Deploying Open RAN to build a more robust ecosystem of network infrastructure providers and suppliers, fostering lower network costs, improved operational efficiencies and allowing for continued investment in our fast-growing broadband network.
•Continuing to drive efficiencies and a competitive advantage through cost transformation initiatives and product simplification.
| | | | | | | | |
| AT&T Inc. |
| Dollars in millions except per share amounts |
Wireless We expect to continue to deliver revenue growth in the coming years. We are in a period of rapid growth in wireless video and data usage and believe that there are substantial opportunities available for next-generation integrated services that combine technologies and services. As of December 31, 2023, we served 264 million wireless subscribers in North America, with 242 million in the United States.
Our LTE technology covers over 438 million people in North America, and in the United States, we cover all major metropolitan areas and over 334 million people. 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, 2023, our network covers more than 302 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, 2023, we provided LTE coverage to over 104 million people in Mexico.
Integration of Wireless and Fiber Services The communications industry has evolved into internet-based technologies capable of converging the offering of wireline and wireless services. As the owner and operator of scaled wireless and fiber networks, we plan to focus on expanding our wireless network capabilities and providing 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 in select locations with symmetrical 2 gig and 5 gig tiers. We intend to continue to develop and provide unique integrated mobile and broadband/fiber solutions.
REGULATORY LANDSCAPE
AT&T subsidiaries operating within the United States are subject to federal and state regulatory authorities. 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. This regulation created a range of new compliance obligations and significantly increased financial penalties for noncompliance. AT&T processes and handles personal data of its customers and subscribers, employees of its enterprise customers and its employees.
Federal Regulation
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 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. We have organized the following discussion by service impacted.
Internet The FCC currently classifies fixed and mobile consumer broadband services as information services, subject to light-touch regulation. In response to a challenge to the FCC’s classification, in 2019, the D.C. Circuit upheld the FCC’s current classification, although it remanded three discrete issues related to the effect of the classification on public safety, the regulation of pole attachments, and universal service support for low-income consumers through the Lifeline program to the FCC for further consideration. Since 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.
| | | | | | | | |
| AT&T Inc. |
| Dollars in millions except per share amounts |
On September 28, 2023, the FCC released a draft Notice of Proposed Rulemaking (NPRM) that was adopted at the FCC’s open meeting on October 19, 2023. The NPRM proposes to again reclassify broadband internet access service as a telecommunications service under Title II of the Communications Act of 1934 and reestablish conduct rules for internet service providers.
In the interim, 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 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, 2023, the FCC adopted rules to “facilitate” equal access to broadband and prevent digital discrimination in broadband access. The rules, which will become effective March 22, 2024, prohibit covered entities from implementing policies or practices not justified by genuine issues of technical or economic feasibility, that differentially impact consumers’ access to broadband internet access service based on prohibited characteristics (including income level, race, and ethnicity) or that have such differential impact, whether intentional or not. The rules broadly apply prospectively to all aspects of an ISP’s service that could impact a consumer’s ability to access broadband, including deployment, marketing, and credit checks, among other things. We may be required to answer complaints alleging that the company has violated the FCC rules and those complaints may seek relief, including changes to our business practices or civil forfeitures that could result in significant costs or reputational harm. It is currently uncertain how the FCC will implement and enforce these new rules. Several business associations have filed appeals challenging the rules and several of those appeals have been consolidated in the Eighth Circuit.
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.
Infrastructure Investment 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. 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. Absent additional funding, on January 11, 2024 the FCC announced that it currently projects April 2024 to be the last month providers will be fully reimbursed for the ACP benefit provided to enrolled households and established February 7, 2024 as the last date for new enrollments into the program.
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 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. Additional spectrum will be needed industrywide for 5G and future services. In 2023, the federal government released a national spectrum strategy that focused on spectrum sharing and did not include specific timelines to make additional spectrum bands available for 5G and future generations of service. As a result, the federal government’s ability and intent to make sufficient spectrum available to the industry in needed timeframes remains uncertain.
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. 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. In 2022, we began deploying 5G nationwide on “low band” spectrum on macro towers.
| | | | | | | | |
| AT&T Inc. |
| Dollars in millions except per share amounts |
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 launched 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. In 2023, we and all other C-band licensees entered into a voluntarily commitment to extend precautionary measures near certain airports through January 1, 2028, which may have limited impacts to deployments and services.
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. The FCC also made 150 MHz of mid-band CBRS spectrum available, to be shared with Federal incumbents, which enjoy priority. In addition, in 2022, the FCC completed Auction 110, in which AT&T won 40 MHz of 3.45 GHz spectrum nationwide at a cost of $9,079. (See Note 6)
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 5.00%, at December 31, 2023, 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, 2023, when compared to the year ended December 31, 2022, we decreased our pension and postretirement discount rates each by 0.20%, resulting in an increase in our pension plan benefit obligation of $916 and an increase in our postretirement benefit obligation of $110.
Our expected long-term rate of return was 7.50% on pension plan assets and 6.50% on postretirement plan assets for 2023. For 2024, we have increased our expected return on pension plan assets to 7.75%, reflecting higher yields for bonds and changes in the asset mix, and decreased our expected return on postretirement plan assets to 4.00%, reflecting reallocation of assets to cash for benefit payment. 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 2024 combined pension and postretirement cost to increase $150, 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.
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
| | | | | | | | |
| AT&T Inc. |
| Dollars in millions except per share amounts |
known as a discounted cash flow model) and market multiple approaches. 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, 2023, the calculated fair values of the reporting units exceeded their book values in all circumstances. However, the Consumer Wireline fair value exceeded its book value by less than 10%, with interest rates negatively impacting fair value offset by higher long-term cash flow projections driven by our fiber investment. For our Mobility and Business Wireline reporting units where fair values were in excess of 10%, if either the projected long-term growth rates declined by 0.5%, if the projected long-term EBITDA margin declined by 0.5%, or if the weighted average cost of capital increased by 0.5%, the fair values would still be higher than the book value of the reporting units. In the event of a 10% drop in the fair value of these reporting units, the fair value still would have exceeded the book value of the reporting units.
For the Consumer Wireline reporting unit, as of October 1, 2023, if the projected rate of long-term growth declined by 0.75%, if the projected long-term EBITDA margin declined by 4.0%, or if the weighted average cost of capital increased by 0.25%, it would result in impairment of the goodwill.
The fair values of our reporting units continue to be impacted by 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.
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 10%, 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. The fair value of these wireless licenses exceeded their book values by more than 10%.
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.
OTHER BUSINESS MATTERS
Gigapower, LLC On May 11, 2023, we closed the transaction with BlackRock, through a fund managed by its Diversified Infrastructure business, related to Gigapower, LLC (Gigapower). The joint venture will provide a fiber network to internet service providers and other businesses across the U.S. that serve customers outside of our wireline service area. We have agreed to contribute incremental funding of up to approximately $700, which will be funded as the network is constructed. We deconsolidated Gigapower’s operations in the second quarter of 2023.
| | | | | | | | |
| AT&T Inc. |
| Dollars in millions except per share amounts |
Labor Contracts As of January 31, 2024, we employed approximately 149,900 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 set to expire in 2024 include the following:
•A contract covering approximately 5,000 Mobility employees in Arkansas, Kansas, Missouri, Oklahoma and Texas is set to expire in February.
•A wireline contract covering approximately 8,500 employees in California and Nevada is set to expire in April.
•Three wireline contracts covering approximately 15,000 employees in the southeastern United States are set to expire in August.
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 2024 tax liability.
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 has continued to release additional guidance on the two-pillar framework throughout 2022 and 2023. Several jurisdictions, including the European Union, have enacted Pillar Two legislation with varying dates into force, including January 1, 2024 for certain components. 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, | 2023 | 2022 | 2021 |
Cash provided by operating activities | $ | 38,314 | | $ | 35,812 | | $ | 37,170 | |
Cash used in investing activities | (19,660) | | (26,899) | | (32,489) | |
Cash (used in) provided by financing activities | (15,614) | | (59,564) | | 1,894 | |
| | | |
At December 31, | 2023 | 2022 | |
Cash and cash equivalents | $ | 6,722 | | $ | 3,701 | | |
Total debt | 137,331 | | 135,890 | | |
We had $6,722 in cash and cash equivalents available at December 31, 2023, increasing $3,021 since December 31, 2022. Cash and cash equivalents included cash of $1,368 and money market funds and other cash equivalents of $5,354. Approximately $1,381 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 2023, cash inflows were primarily provided by cash receipts from operations, including cash from our sale and transfer of our receivables to third parties, issuance of commercial paper, long-term debt and cumulative preferred interests in subsidiaries and distributions from DIRECTV. These inflows exceeded cash used to meet the needs of the business, including, but not limited to, payment of operating expenses, funding capital expenditures and vendor financing payments, repayment of short-term borrowings and long-term debt, dividend payments to stockholders, and repurchase of the Series A Cumulative Perpetual Preferred Membership Interests in AT&T Mobility II LLC (Mobility preferred interests). 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.
| | | | | | | | |
| AT&T Inc. |
| Dollars in millions except per share amounts |
Cash Provided by Operating Activities from Continuing Operations
During 2023, cash provided by operating activities was $38,314 compared to $35,812 in 2022, reflecting operational growth and a focus to lower working capital programs, which resulted in lower device payments partially offset by lower receivable sales, net of remittances (see Note 17), and higher cash income tax payments. Cash from operating activities in 2022 also included higher voluntary benefit plan contributions.
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 (referred to as supplier financing program). In addition, for payments to suppliers of handset inventory, 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 direct supplier financing). The net impact of direct supplier financing, including principal and interest payments, was to decrease cash from operating activities $299 in 2023 and improve cash from operating activities $851 in 2022. All supplier financing payments are due within one year. (See Note 22)
Cash Used in Investing Activities from Continuing Operations
During 2023, cash used in investing activities totaled $19,660, consisting primarily of $17,853 (including interest during construction) for capital expenditures. In 2023, we received a return of investment of $2,049 from DIRECTV representing distributions in excess of cumulative equity in earnings from DIRECTV (see Note 10). We paid $2,221 of spectrum relocation and clearing costs in 2023, which we report as “Acquisitions, net of cash acquired” on our consolidated statements of cash flows.
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 $5,742 in 2023, compared to $4,697 in 2022. Capital expenditures in 2023 were $17,853, and when including $5,742 cash paid for vendor financing, capital investment was $23,595 ($728 lower than the prior year).
The vast majority of our capital expenditures are spent on our networks, including product development and related support systems. In 2023, we placed $2,651 of equipment in service under vendor financing arrangements (compared to $5,817 in 2022).
The amount of capital expenditures is influenced by demand for services and products, capacity needs and network enhancements. Our capital expenditures and vendor financing payments were slightly elevated in 2023, reflecting strategic investments. In 2024, we expect that our capital investment, which includes capital expenditures and cash paid for vendor financing, will be in the $21,000 to $22,000 range.
Cash Provided by or Used in Financing Activities from Continuing Operations
In 2023, cash used in financing activities totaled $15,614 and was comprised of debt issuances and repayments, payments of dividends, issuances and repurchase of preferred interests in subsidiaries and vendor financing payments.
| | | | | | | | |
| AT&T Inc. |
| Dollars in millions except per share amounts |
A tabular summary of our debt activity during 2023 is as follows:
| | | | | | | | | | | | | | | | | |
| First
Quarter | Second
Quarter | Third
Quarter | Fourth
Quarter | Full Year 2023 |
| Net commercial paper borrowings | $ | 2,341 | | $ | 1,284 | | $ | (112) | | $ | (2,436) | | $ | 1,077 | |
Issuance of notes and debentures: | | | | | |
USD notes | $ | 1,747 | | $ | 2,730 | | $ | — | | $ | — | | $ | 4,477 | |
EUR notes | 1,319 | | 3,537 | | — | | — | | 4,856 | |
| Other | 1,050 | | — | | — | | 371 | | 1,421 | |
Debt issuances | $ | 4,116 | | $ | 6,267 | | $ | — | | $ | 371 | | $ | 10,754 | |
| | | | | |
| Repayments: | | | | | |
| |
| |
| Private financing | $ | — | | $ | (750) | | $ | — | | $ | — | | $ | (750) | |
| Repayments of other short-term borrowings | $ | — | | $ | (750) | | $ | — | | $ | — | | $ | (750) | |
| | | | | |
USD notes | $ | (376) | | $ | (750) | | $ | — | | $ | — | | $ | (1,126) | |
EUR notes | (1,626) | | (473) | | (3,503) | | — | | (5,602) | |
AUD notes | — | | — | | (450) | | — | | (450) | |
2025 Term Loan | (2,500) | | — | | — | | — | | (2,500) | |
| Other | (1,443) | | (441) | | (327) | | (155) | | (2,366) | |
| Repayments of long-term debt | $ | (5,945) | | $ | (1,664) | | $ | (4,280) | | $ | (155) | | $ | (12,044) | |
The weighted average interest rate of our long-term debt portfolio, including credit agreement borrowings and the impact of derivatives, was approximately 4.2% as of December 31, 2023 and 4.1% as of December 31, 2022. We had $133,402 of total notes and debentures outstanding at December 31, 2023. This also included Euro, British pound sterling, Canadian dollar, Swiss franc, and Australian dollar denominated debt that totaled approximately $35,192.
At December 31, 2023, we had $9,477 of debt maturing within one year, consisting of $2,091 of commercial paper borrowings and $7,386 of long-term debt issuances. The weighted average interest rate on our outstanding short-term borrowings was approximately 6.0% as of December 31, 2023 and 4.8% as of December 31, 2022.
During 2023, we paid $5,742 of cash under our vendor financing program, compared to $4,697 in 2022. Total vendor financing payables included in our December 31, 2023 consolidated balance sheet were $2,833, with $1,975 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, 2023, we had approximately 144 million shares remaining from our share repurchase authorizations approved by the Board of Directors in 2014.
We paid dividends on common shares and preferred shares of $8,136 in 2023, compared with $9,859 in 2022. Dividends on common stock declared by our Board of Directors totaled $1.11 per share in 2023 and in 2022. Our dividend policy considers the expectations and requirements of stockholders, capital funding requirements of AT&T and long-term growth opportunities.
In April 2023, we expanded our September 2020 sale of Telco LLC cumulative preferred interests and issued an additional $5,250 of nonconvertible cumulative preferred interests (April preferreds). The April preferreds pay an initial preferred distribution of 6.85% annually, subject to declaration, and subject to reset on November 1, 2027, and every seven years thereafter. (See Note 16)
In April 2023, we also accepted the December 2022 put option notice from the AT&T pension trust and repurchased the remaining 213 million Mobility preferred interests for a purchase price, including accrued and unpaid distributions, of $5,414. The Mobility preferred interests had a redemption value of $5,320, with approximately $2,650 removed from “Accounts payable and accrued liabilities” and $2,670 removed from “Other noncurrent liabilities.” The repurchase was primarily funded with proceeds from the April 2023 issuances of Telco LLC preferred interests. (See Note 16)
In June 2023, we issued $2,000 of Series B Cumulative Perpetual Preferred Membership Interests in Mobility II LLC (Mobility noncontrolling interests), which pay cash distributions of 6.8% per annum, subject to declaration. The Mobility noncontrolling interests are included in “Redeemable Noncontrolling Interest” on the consolidated balance sheets. (See Note 16)
| | | | | | | | |
| AT&T Inc. |
| Dollars in millions except per share amounts |
Our 2024 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. We currently have one $12,000 revolving credit agreement that terminates on November 18, 2028 (Revolving Credit Agreement). No amount was outstanding under the Revolving Credit Agreement as of December 31, 2023.
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. On March 30, 2023, the 2025 Term Loan was paid off and terminated.
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.
Our Revolving Credit Agreement contains covenants that are customary for an issuer with investment grade senior debt credit rating as well as a net debt-to-EBITDA financial ratio covenant requiring AT&T to maintain, as of the last day of each fiscal quarter, a ratio of not more than 3.75-to-1. As of December 31, 2023, 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 $39,800 derivative portfolio, counterparties are still required to post collateral. During 2023, we received approximately $220 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), redeemable noncontrolling interest and stockholders’ equity. Our capital structure does not include debt issued by our equity method investments. At December 31, 2023, our debt ratio was 53.5%, compared to 56.1% at December 31, 2022 and 48.9% at December 31, 2021. 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 2023 and 2022, were $16,877 and $16,630. 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, auction deposits and spectrum relocation and clearing costs was approximately $2,940 in 2023, $10,200 in 2022 and $25,400 in 2021.
•Total health and welfare benefits provided to certain active and retired employees and their dependents totaled approximately $2,990 in 2023 and $3,200 in 2022, with $624 paid from plan assets in 2023 compared to $788 in 2022. Of those benefits, approximately $2,730 related to medical and prescription drug benefits in 2023 compared to $2,840 in 2022. In addition, in 2023, we prefunded $135 for future benefit payments versus $500 in 2022. We paid $4,863 of pension benefits out of plan assets in 2023 compared to $5,854 in 2022.
| | | | | | | | |
| AT&T Inc. |
| Dollars in millions except per share amounts |
Contractual Obligations
Our contractual obligations as of December 31, 2023, and the estimated timing of payment, are in the following table:
| | | | | | | | | | | | | | | | | |
| Payments Due By Period |
| Total | Less than 1 Year | 1-3 Years | 3-5 Years | More than
5 Years |
Long-term debt obligations1 | $ | 146,064 | | $ | 7,537 | | $ | 15,801 | | $ | 13,215 | | $ | 109,511 | |
Interest payments on long-term debt2 | 98,565 | | 5,931 | | 11,084 | | 9,870 | | 71,680 | |
Purchase obligations3 | 29,507 | | 7,555 | | 12,856 | | 8,187 | | 909 | |
Operating lease obligations4 | 25,356 | | 4,699 | | 7,548 | | 4,977 | | 8,132 | |
FirstNet sustainability payments5 | 17,010 | | 561 | | 1,316 | | 3,224 | | 11,909 | |
Unrecognized tax benefits (UTB)6 | 9,238 | | 392 | | — | | — | | 8,846 | |
Other finance obligations7 | 11,733 | | 2,692 | | 2,374 | | 1,763 | | 4,904 | |
| |
| |
| |
| |
| |
| |
| |
| |
| |
|
|
|
|
|
|
|
|
|
|
/s/
We have served as the Company’s auditor since 1999.
February 23, 2024
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, 2023, 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, 2023, 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 2023 consolidated financial statements of the Company and our report dated February 23, 2024 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/
February 23, 2024
| | |
| AT&T Inc. |
| Dollars in millions except per share amounts |
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
| | | | | | | | | | | | | | | | | |
| Consolidated Statements of Income | | | | | |
| 2023 | | 2022 | | 2021 |
| Operating Revenues | | | | | |
| Service | $ | | | | $ | | | | $ | | |
| Equipment | | | | | | | | |
| Total operating revenues | | | | | | | | |
| | | | | |
| Operating Expenses | | | | | |
| Cost of revenues | | | | | |
| Equipment | | | | | | | | |
| Broadcast, programming and operations | | | | | | | | |
Other cost of revenues (exclusive of depreciation and amortization shown separately below) | | | | | | | | |
| Selling, general and administrative | | | | | | | | |
| Asset impairments and abandonments and restructuring | | | | | | | | |
| Depreciation and amortization | | | | | | | | |
| Total operating expenses | | | | | | | | |
| Operating Income (Loss) | | | | () | | | | |
| | | | | |
| Other Income (Expense) | | | | | |
| Interest expense | () | | | () | | | () | |
| Equity in net income of affiliates | | | | | | | | |
| Other income (expense) – net | | | | | | | | |
| Total other income (expense) | () | | | | | | | |
| Income (Loss) from Continuing Operations Before Income Taxes | | | | () | | | | |
| Income tax expense on continuing operations | | | | | | | | |
| Income (Loss) from Continuing Operations | | | | () | | | | |
| Loss from discontinued operations, net of tax | | | | () | | | () | |
| Net Income (Loss) | | | | () | | | | |
| Less: Net Income Attributable to Noncontrolling Interest | () | | | () | | | () | |
| Net Income (Loss) Attributable to AT&T | $ | | | | $ | () | | | $ | | |
| Less: Preferred Stock Dividends | () | | | () | | | () | |
| Net Income (Loss) Attributable to Common Stock | $ | | | | $ | () | | | $ | | |
| Basic Earnings (Loss) Per Share from continuing operations | $ | | | | $ | () | | | $ | | |
| Basic Loss Per Share from discontinued operations | $ | | | | $ | () | | | $ | () | |
| Basic Earnings (Loss) Per Share Attributable to Common Stock | $ | | | | $ | () | | | $ | | |
| Diluted Earnings (Loss) Per Share from continuing operations | $ | | | | $ | () | | | $ | | |
| Diluted Loss Per Share from discontinued operations | $ | | | | $ | () | | | $ | () | |
| Diluted Earnings (Loss) Per Share Attributable to Common Stock | $ | | | | $ | () | | | $ | | |
The accompanying notes are an integral part of the consolidated financial statements.
| | | | | | | | |
| AT&T Inc. |
| Dollars in millions except per share amounts |
| | | | | | | | | | | | | | | | | |
Consolidated Statements of Comprehensive Income | | | | | |
| 2023 | | 2022 | | 2021 |
| | | | | |
| Net income (loss) | $ | | | | $ | () | | | $ | | |
| Other comprehensive income (loss), net of tax: | | | | | |
| Foreign Currency: | | | | | |
Translation adjustment (includes $, $ and $() attributable to noncontrolling interest), net of taxes of $, $ and $() | | | | | | | () | |
Reclassification adjustment included in net income (loss), net of taxes of $, $ and $ | | | | | | | | |
Distributions of WarnerMedia, net of taxes of $, $() and $ | | | | () | | | | |
| Securities: | | | | | |
Net unrealized gains (losses), net of taxes of $, $() and $() | | | | () | | | () | |
Reclassification adjustment included in net income (loss), net of taxes of $, $ and $() | | | | | | | () | |
| Derivative Instruments: | | | | | |
Net unrealized gains (losses), net of taxes of $, $() and $() | | | | () | | | () | |
Reclassification adjustment included in net income (loss), net of taxes of $, $ and $ | | | | | | | | |
Distributions of WarnerMedia, net of taxes of $, $() and $ | | | | () | | | | |
| Defined benefit postretirement plans: | | | | | |
Net prior service (cost) credit arising during period, net of taxes of $, $ and $() | | | | | | | () | |
Amortization of net prior service credit included in net income (loss), net of taxes of $(), $() and $() | () | | | () | | | () | |
Distributions of WarnerMedia, net of taxes of $, $ and $ | | | | | | | | |
| Other comprehensive income (loss) | () | | | () | | | () | |
| Total comprehensive income (loss) | | | | () | | | | |
| Less: Total comprehensive income attributable to noncontrolling interest | () | | | () | | | () | |
| Total Comprehensive Income (Loss) Attributable to AT&T | $ | | | | $ | () | | | $ | | |
The accompanying notes are an integral part of the consolidated financial statements.
| | | | | | | | |
| AT&T Inc. |
| Dollars in millions except per share amounts |
| | | | | | | | | | | |
Consolidated Balance Sheets |
| December 31, |
| 2023 | | 2022 |
| Assets | | | |
| Current Assets | | | |
| Cash and cash equivalents | $ | | | | $ | | |
Accounts receivable – net of related allowance for credit loss of $ and $ | | | | | |
| Inventories | | | | | |
| Prepaid and other current assets | | | | | |
| Total current assets | | | | | |
| Property, Plant and Equipment – Net | | | | | |
| Goodwill – Net | | | | | |
| Licenses – Net | | | | | |
| Other Intangible Assets – Net | | | | | |
| Investments in and Advances to Equity Affiliates | | | | | |
| Operating Lease Right-Of-Use Assets | | | | | |
| Other Assets | | | | | |
| Total Assets | $ | | | | $ | | |
| Liabilities and Stockholders’ Equity | | | |
| Current Liabilities | | | |
| Debt maturing within one year | $ | | | | $ | | |
| Note payable to DIRECTV | | | | | |
| Accounts payable and accrued liabilities | | | | | |
| Advanced billings and customer deposits | | | | | |
| Dividends payable | | | | | |
| Total current liabilities | | | | | |
| Long-Term Debt | | | | | |
| Deferred Credits and Other Noncurrent Liabilities | | | |
| Deferred income taxes | | | | | |
| Postemployment benefit obligation | | | | | |
| Operating lease liabilities | | | | | |
| Other noncurrent liabilities | | | | | |
| Total deferred credits and other noncurrent liabilities | | | | | |
| Redeemable Noncontrolling Interest | | | | | |
| Stockholders’ Equity | | | |
Preferred stock ($ par value, authorized at December 31, 2023 and December 31, 2022): | | | |
Series A ( issued and outstanding at December 31, 2023 and December 31, 2022) | | | | | |
Series B ( issued and outstanding at December 31, 2023 and December 31, 2022) | | | | | |
Series C ( issued and outstanding at December 31, 2023 and December 31, 2022) | | | | | |
Common stock ($ par value, authorized at December 31, 2023 and December 31, 2022: issued at December 31, 2023 and December 31, 2022) | | | | | |
| Additional paid-in capital | | | | | |
| Retained (deficit) earnings | () | | | () | |
Treasury stock ( at December 31, 2023 and at December 31, 2022, at cost) | () | | | () | |
| Accumulated other comprehensive income | | | | | |
| Noncontrolling interest | | | | | |
| Total stockholders’ equity | | | | | |
| Total Liabilities and Stockholders’ Equity | $ | | | | $ | | |
The accompanying notes are an integral part of the consolidated financial statements.
| | | | | | | | |
| AT&T Inc. |
| Dollars in millions except per share amounts |
| | | | | | | | | | | | | | | | | |
| Consolidated Statements of Cash Flows | | | | | |
| 2023 | | 2022 | | 2021 |
| Operating Activities | | | | | |
| Income (loss) from continuing operations | $ | | | | $ | () | | | $ | | |
| Adjustments to reconcile income (loss) from continuing operations to net cash provided by operating activities from continuing operations: | | | | | |
| Depreciation and amortization | | | | | | | | |
| |
| |
| Provision for uncollectible accounts | | | | | | | | |
| Deferred income tax expense | | | | | | | | |
| Net (gain) loss on investments, net of impairments | | | | | | | () | |
| Pension and postretirement benefit expense (credit) | () | | | () | | | () | |
Actuarial and settlement (gain) loss on pension and postretirement benefits - net | | | | () | | | () | |
| Asset impairments and abandonments and restructuring | | | | | | | | |
| Changes in operating assets and liabilities: | | | | | |
| Receivables | | | | | | | () | |
| Other current assets | () | | | () | | | () | |
| Accounts payable and other accrued liabilities | () | | | () | | | () | |
| Equipment installment receivables and related sales | () | | | | | | () | |
| Deferred customer contract acquisition and fulfillment costs | | | | () | | | | |
| Postretirement claims and contributions | () | | | () | | | () | |
| Other – net | | | | () | | | | |
| Total adjustments | | | | | | | | |
| Net Cash Provided by Operating Activities from Continuing Operations | | | | | | | | |
| Investing Activities | | | | | |
| Capital expenditures | () | | | () | | | () | |
| Acquisitions, net of cash acquired | () | | | () | | | () | |
| Dispositions | | | | | | | | |
| Distributions from DIRECTV in excess of cumulative equity in earnings | | | | | | | | |
(Purchases), sales and settlements of securities and investments - net | () | | | | | | | |
| Other – net | () | | | () | | | | |
| |
| |
| |
| Net Cash Used in Investing Activities from Continuing Operations | () | | | () | | | () | |
| Financing Activities | | | | | |
| Net change in short-term borrowings with original maturities of three months or less | () | | | () | | | | |
| Issuance of other short-term borrowings | | | | | | | | |
| Repayment of other short-term borrowings | () | | | () | | | () | |
| Issuance of long-term debt | | | | | | | | |
| Repayment of long-term debt | () | | | () | | | () | |
Note payable to DIRECTV, net of payments | () | | | () | | | | |
| Payment of vendor financing | () | | | () | | | () | |
| |
| Purchase of treasury stock | () | | | () | | | () | |
| Issuance of treasury stock | | | | | | | | |
Issuance of preferred interests in subsidiary | | | | | | | | |
Redemption of preferred interests in subsidiary | () | | | () | | | | |
| Dividends paid | () | | | () | | | () | |
| Other – net | () | | | () | | | () | |
| Net Cash (Used in) Provided by Financing Activities from Continuing Operations | () | | | () | | | | |
| Net increase (decrease) in cash and cash equivalents and restricted cash from continuing operations | | | | () | | | | |
| Cash flows from Discontinued Operations: | | | | | |
| Cash (used in) provided by operating activities | | | | () | | | | |
Cash provided by investing activities | | | | | | | | |
| Cash provided by (used in) financing activities | | | | | | | () | |
| Net increase (decrease) in cash and cash equivalents and restricted cash from discontinued operations | | | | | | | | |
Net increase (decrease) in cash and cash equivalents and restricted cash | | | | () | | | | |
| Cash and cash equivalents and restricted cash beginning of year | | | | | | | | |
| Cash and Cash Equivalents and Restricted Cash End of Year | $ | | | | $ | | | | $ | | |
The accompanying notes are an integral part of the consolidated financial statements.
| | | | | | | | |
| AT&T Inc. |
| Dollars and shares in millions except per share amounts |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Consolidated Statements of Changes in Stockholders’ Equity |
| 2023 | | 2022 | | 2021 |
| 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 | | | | $ | | | | | | | $ | | | | | | | $ | | |
| | | | | | | |
| Balance at end of year | | | | $ | | | | | | | $ | | | | | | | $ | | |
| Additional Paid-In Capital | | | | | | | | | | | |
| Balance at beginning of year | | | $ | | | | | | $ | | | | | | $ | | |
| Distribution of WarnerMedia | | | | | | | | () | | | | | | |
| | | | | | | |
| | | | | | | |
Preferred stock dividends | | | () | | | | | | | | | | | |
Common stock dividends ($ per share in 2023) | | | () | | | | | | | | | | | |
| | | | | | | |
| | | | | | | |
| Issuance of treasury stock | | | () | | | | | () | | | | | () | |
| Share-based payments | | | () | | | | | () | | | | | | |
Redemption or reclassification of interests held by noncontrolling owners | | | () | | | | | | | | | | | |
| Balance at end of year | | | $ | | | | | | $ | | | | | | $ | | |
| Retained (Deficit) Earnings | | | | | | | | | | | |
| Balance at beginning of year | | | $ | () | | | | | $ | | | | | | $ | | |
| | | | | | | |
| | | | | | | |
| Net income (loss) attributable to AT&T | | | | | | | | () | | | | | | |
| Distribution of WarnerMedia | | | | | | | | () | | | | | | |
| Preferred stock dividends | | | | | | | | () | | | | | () | |
Common stock dividends ($ and $ per share in 2022 and 2021, respectively) | | | | | | | | () | | | | | () | |
| Balance at end of year | | | $ | () | | | | | $ | () | | | | | $ | | |
The accompanying notes are an integral part of the consolidated financial statements.
| | | | | | | | |
| AT&T Inc. |
| Dollars and shares in millions except per share amounts |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Consolidated Statements of Changes in Stockholders’ Equity - continued |
| 2023 | | 2022 | | 2021 |
| Shares | | Amount | | Shares | | Amount | | Shares | | Amount |
| Treasury Stock | | | | | | | | | | | |
| Balance at beginning of year | () | | | $ | () | | | () | | | $ | () | | | () | | | $ | () | |
Repurchase and acquisition of common stock | () | | | () | | | () | | | () | | | () | | | () | |
| Issuance of treasury stock | | | | | | | | | | | | | | | | | |
| Balance at end of year | () | | | $ | () | | | () | | | $ | () | | | () | | | $ | () | |
Accumulated Other Comprehensive Income Attributable to AT&T, net of tax | | | | | | | | | | |
| Balance at beginning of year | | | $ | | | | | | $ | | | | | | $ | | |
| | | | | | | |
| | | | | | | |
Other comprehensive income (loss) attributable to AT&T | | | () | | | | | () | | | | | () | |
| Balance at end of year | | | $ | | | | | | $ | | | | | | $ | | |
Noncontrolling Interest1 | | | | | | | | | | | |
| Balance at beginning of year | | | $ | | | | | | $ | | | | | | $ | | |
| | | | | | | |
| | | | | | | |
Net income attributable to noncontrolling interest | | | | | | | | | | | | | | |
Issuance and acquisition (disposition) of noncontrolling owners | | | | | | | | () | | | | | | |
| Redemption of noncontrolling interest | | | () | | | | | () | | | | | | |
Reclassification of noncontrolling interest | | | | | | | | () | | | | | | |
| Distributions | | | () | | | | | () | | | | | () | |
| | | | | | | |
Translation adjustments attributable to noncontrolling interest, net of taxes | | | | | | | | | | | | | () | |
| Balance at end of year | | | $ | | | | | | $ | | | | | | $ | | |
Total Stockholders’ Equity at beginning of year | | | $ | | | | | | $ | | | | | | $ | | |
Total Stockholders’ Equity at end of year | | | $ | | | | | | $ | | | | | | $ | | |
1 Excludes redeemable noncontrolling interest.
The accompanying notes are an integral part of the consolidated financial statements.
| | | | | | | | |
| AT&T Inc. |
| Dollars in millions except per share amounts |
Notes to Consolidated Financial Statements
Adopted and New Accounting Standards
| | |
| AT&T Inc. |
| Dollars in millions except per share amounts |
Accounting Policies
in cash and $ in money market funds and other cash equivalents. Of our total cash and cash equivalents, $ resided in foreign jurisdictions, some of which is subject to restrictions on repatriation.
.
| | |
| AT&T Inc. |
| Dollars in millions except per share amounts |
), renewals of domestic wireless licenses have occurred routinely and at nominal cost. We have determined that there are currently no legal, regulatory, contractual, competitive, economic or other factors that limit the useful lives of our FCC wireless licenses.
We amortize our wireless licenses in Mexico over their average remaining economic life of 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.
| | |
| AT&T Inc. |
| Dollars in millions except per share amounts |
| | $ | () | | | $ | | | Net income from continuing operations attributable to noncontrolling interests | () | | | () | | | () | |
| Preferred Stock Dividends | () | | | () | | | () | |
Income (loss) from continuing operations attributable to common stock | | | | () | | | | |
| Adjustment to carrying value of noncontrolling interest | | | | | | | | |
Numerator for basic earnings per share from continuing operations1 | | | | () | | | | |
| Loss from discontinued operations, net of tax | | | | () | | | () | |
Loss from discontinued operations attributable to noncontrolling interests | | | | | | | | |
Loss from discontinued operations attributable to common stock | | | | () | | | () | |
Numerator for basic earnings per share1 | $ | | | | $ | () | | | $ | | |
| Dilutive potential common shares: | | | | | |
Mobility preferred interests2 | | | | | | | | |
Share-based payment2 | | | | | | | | |
| Numerator for diluted earnings per share | $ | | | | $ | () | | | $ | | |
| Denominators (000,000) | | | | | |
| Denominator for basic earnings per share: | | | | | |
| Weighted average number of common shares outstanding | | | | | | | | |
| Dilutive potential common shares: | | | | | |
| Mobility preferred interests (in shares) | | | | | | | | |
| Share-based payment (in shares) | | | | | | | | |
Denominator for diluted earnings per share2 | | | | | | | | |
1For 2022, in the calculation of basic earnings per share, income (loss) attributable to common stock for continuing operations and total company has been increased by $ from adjustment to carrying value of noncontrolling interest. (See Note 16) |
2For 2022, 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. |
| | |
| AT&T Inc. |
| Dollars in millions except per share amounts |
| | $ | | | | $ | () | | $ | | | $ | | | Other comprehensive income (loss) before reclassifications | () | | | () | | | () | | | () | | | () | |
Amounts reclassified from accumulated OCI | | | 1,4 | () | | 1 | | | 2 | () | | 3 | | |
Net other comprehensive income (loss) | | | | () | | | () | | | () | | | () | |
| Balance as of December 31, 2021 | () | | | | | | () | | | | | | | |
Other comprehensive income (loss) before reclassifications | | | | () | | | () | | | | | | | |
Amounts reclassified from accumulated OCI | | | 1 | | | 1 | | | 2 | () | | 3 | () | |
| Distribution of WarnerMedia | () | | | | | | () | | | | | | () | |
Net other comprehensive income (loss) | | | | () | | | () | | | () | | | () | |
| Balance as of December 31, 2022 | () | | | () | | | () | | | | | | | |
Other comprehensive income (loss) before reclassifications | | | | | | | | | | | | | | |
Amounts reclassified from accumulated OCI | | | 1 | | | 1 | | | 2 | () | | 3 | () | |
Net other comprehensive income (loss) | | | | | | | | | | () | | | () | |
| Balance as of December 31, 2023 | $ | () | | | $ | () | | | $ | () | | | $ | | | | $ | | |
1(Gains) losses are included in “Other income (expense) – net” in the consolidated statements of income. |
2(Gains) losses are primarily included in “Interest expense” in the consolidated statements of income (see Note 12). |
3The amortization of prior service credits associated with postretirement benefits is included in “Other income (expense) – net” in the consolidated statements of income (see Note 14). |
4Represents unrealized foreign currency translation adjustments at Vrio that were released upon sale (see Note 6). |
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.
| | |
| AT&T Inc. |
| Dollars in millions except per share amounts |
in 2022 and $ in 2021. Correspondingly, this recast lowered administrative expenses within Corporate and Other, 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 integrated 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 multi-gig services to residential customers in select locations and our fixed wireless access product that provides home internet services delivered over our 5G wireless network where available. 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 (see Note 19).
•Held-for-sale and other reclassifications, which includes our former Crunchyroll and Government Solutions businesses.
•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.
| | |
| AT&T Inc. |
| Dollars in millions except per share amounts |
| | $ | | | | $ | | | | $ | | | | $ | | |
| Business Wireline | | | | | | | | | | | | | | |
| Consumer Wireline | | | | | | | | | | | | | | |
| Total Communications | | | | | | | | | | | | | | |
Latin America – Mexico | | | | | | | | | | | | | () | |
| Segment Total | | | | | | | | | | | | | | |
| Corporate and Other | | | | | | | | | |
| Corporate: | | | | | | | | | |
| DTV-related retained costs | | | | | | | () | | | | | | () | |
| Parent administration support | () | | | | | | () | | | | | | () | |
| Securitization fees | | | | | | | () | | | | | | () | |
| Value portfolio | | | | | | | | | | | | | | |
| Total Corporate | | | | | | | () | | | | | | () | |
| | | | | |
| | | | | |
| Certain significant items | | | | | | | () | | | | | | () | |
| | | | | |
| Total Corporate and Other | | | | | | | () | | | | | | () | |
| AT&T Inc. | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the year ended December 31, 2022 |
| Revenues | | Operations
and Support
Expenses | | EBITDA | | Depreciation
and
Amortization | | Operating
Income
(Loss) |
| Communications | | | | | | | | | |
| Mobility | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
| Business Wireline | | | | | | | | | | | | | | |
| Consumer Wireline | | | | | | | | | | | | | | |
| Total Communications | | | | | | | | | | | | | | |
Latin America – Mexico | | | | | | | | | | | | | () | |
| Segment Total | | | | | | | | | | | | | | |
| Corporate and Other | | | | | | | | | |
| Corporate: | | | | | | | | | |
| DTV-related retained costs | | | | | | | () | | | | | | () | |
| Parent administration support | () | | | | | | () | | | | | | () | |
| Securitization fees | | | | | | | () | | | | | | () | |
| Value portfolio | | | | | | | | | | | | | | |
| Total Corporate | | | | | | | () | | | | | | () | |
| Certain significant items | | | | | | | () | | | | | | () | |
| Total Corporate and Other | | | | | | | () | | | | | | () | |
| AT&T Inc. | $ | | | | $ | | | | $ | | | | $ | | | | $ | () | |
|
| | |
| AT&T Inc. |
| Dollars in millions except per share amounts |
| | $ | | | | $ | | | | $ | | | | $ | | | | Business Wireline | | | | | | | | | | | | | | |
| Consumer Wireline | | | | | | | | | | | | | | |
| Total Communications | | | | | | | | | | | | | | |
Latin America – Mexico | | | | | | | | | | | | | () | |
| Segment Total | | | | | | | | | | | | | | |
| Corporate and Other | | | | | | | | | |
| Corporate: | | | | | | | | | |
| DTV-related retained costs | | | | | | | () | | | | | | () | |
| Parent administration support | () | | | | | | () | | | | | | () | |
| Securitization fees | | | | | | | () | | | | | | () | |
| Value portfolio | | | | | | | | | | | | | | |
| Total Corporate | | | | | | | () | | | | | | () | |
| Video | | | | | | | | | | | | | | |
Held-for-sale and other reclassifications | | | | | | | | | | | | | | |
| Certain significant items | | | | | | | () | | | | | | () | |
| Eliminations and consolidations | () | | | () | | | | | | | | | | |
| Total Corporate and Other | | | | | | | | | | | | | | |
| AT&T Inc. | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
|
| | $ | | | | $ | | | | | | | | Latin America | () | | | () | | | () | | | | | |
| Segment Operating Income | | | | | | | | | | | | |
| Reconciling Items: | | | | | | | | | |
| Corporate | () | | | () | | | () | | | | | |
| Video | | | | | | | | | | | | |
| Held-for-sale and other reclassifications | | | | | | | | | | | | |
| Transaction and other costs | () | | | () | | | () | | | | | |
| Amortization of intangibles acquired | () | | | () | | | () | | | | | |
| Asset impairments and abandonments and restructuring | () | | | () | | | () | | | | | |
| Benefit-related gains (losses) | | | | () | | | | | | | | |
| AT&T Operating Income (Loss) | | | | () | | | | | | | | |
Interest expense | | | | | | | | | | | | |
| Equity in net income of affiliates | | | | | | | | | | | | |
| Other income (expense) – net | | | | | | | | | | | | |
| Income (Loss) from Continuing Operations Before Income Taxes | $ | | | | $ | () | | | $ | | | | | | |
|
| | |
| AT&T Inc. |
| Dollars in millions except per share amounts |
| | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | Mexico | | | | | | | | | | | | | | | | | |
| Asia/Pacific Rim | | | | | | | | | | | | | | | | | |
| Europe | | | | | | | | | | | | | | | | | |
| Latin America | | | | | | | | | | | | | | | | | |
| Other | | | | | | | | | | | | | | | | | |
| Total | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
| | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | Latin America | | | | | | | | | | | | | | | | | | |
Corporate and eliminations | | () | | | | | | | | | () | | | | | | | |
| Total | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
|
| | |
| AT&T Inc. |
| Dollars in millions except per share amounts |
| | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | Business service | | | | | | | | | | | | | | | | | | | | |
| Broadband | | | | | | | | | | | | | | | | | | | | |
| Legacy voice and data | | | | | | | | | | | | | | | | | | | | |
| Other | | | | | | | | | | | | | | | | | | | | |
| Total Service | | | | | | | | | | | | | | | | | | | | |
| Equipment | | | | | | | | | | | | | | | | | | | | |
| Total | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
| | |
| AT&T Inc. |
| Dollars in millions except per share amounts |
| | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | Business service | | | | | | | | | | | | | | | | | | | | |
| Broadband | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| Legacy voice and data | | | | | | | | | | | | | | | | | | | | |
| Other | | | | | | | | | | | | | | | | | | | | |
| Total Service | | | | | | | | | | | | | | | | | | | | |
| Equipment | | | | | | | | | | | | | | | | | | | | |
| Total | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the year ended December 31, 2021 |
| Communications | | | | | | | | |
| Mobility | | Business Wireline | | Consumer Wireline | | Latin America | | Corporate & Other | | Elim. | | Total |
| Wireless service | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
Video service | | | | | | | | | | | | | | | | | | | | |
| Business service | | | | | | | | | | | | | | | | | | | | |
| Broadband | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | |
| Legacy voice and data | | | | | | | | | | | | | | | | | | | | |
| Other | | | | | | | | | | | | | | | | () | | | | |
| Total Service | | | | | | | | | | | | | | | | () | | | | |
| Equipment | | | | | | | | | | | | | | | | | | | | |
| Total | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | () | | | $ | | |
to .
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, Business Wireline, and Consumer Wireline to better reflect the estimated economic lives of the relationships. These changes in accounting estimate decreased “Other cost of revenues” approximately $, or $ per diluted share from continuing operations for the year ended December 31, 2022.
| | $ | | | | Other Assets | | | | | |
| Total deferred customer contract acquisition costs | $ | | | | $ | | |
| | | |
| Deferred Fulfillment Costs | | | |
| Prepaid and other current assets | $ | | | | $ | | |
| Other Assets | | | | | |
| Total deferred customer contract fulfillment costs | $ | | | | $ | | |
| | |
| AT&T Inc. |
| Dollars in millions except per share amounts |
| | $ | | | | Deferred fulfillment cost amortization | | | | | |
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., trade-in device credits) the difference between revenue recognized and consideration received is recorded as a contract asset to be amortized over the contract term.
Our contract assets primarily relate to our wireless businesses. Promotional equipment sales where we offer handset credits, which are allocated between equipment and service in proportion to their standalone selling prices, when customers commit to a specified service period result in additional contract assets recognized. These contract assets will amortize over the service contract period, resulting in lower future service revenue.
When consideration is received in advance of the delivery of goods or services, a contract liability is recorded. Reductions in the contract liability will be recorded as we satisfy the performance obligations.
| | $ | | |
| Current portion in “Prepaid and other current assets” | | | | |
| Contract liability | | | | |
| Current portion in “Advanced billings and customer deposits” | | | | |
Our contract asset balance in 2023 reflects increased promotional equipment sales in our wireless business.
Our beginning of period contract liabilities recorded as customer contract revenue during 2023 was $.
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, 2023, the aggregate amount of the transaction price allocated to remaining performance obligations was $, of which we expect to recognize approximately % by the end of 2025, with the balance recognized thereafter.
3.45 GHz licenses in Auction 110. We provided the FCC an upfront deposit of $ in the third quarter of 2021 and paid the remaining $ in the first quarter of 2022, for a total of $. 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.
| | |
| 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.
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 $ of junior preferred units, an additional distribution preference of $ and a % economic interest in common units (collectively “equity considerations”). TPG contributed approximately $ in cash to DIRECTV for $ of senior preferred units and a % 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 $ in cash from DIRECTV ($, net of $ cash on hand) and transferred $ of DIRECTV debt. Approximately $ of the cash received is reported as cash received from financing activities in our consolidated statement of cash flows, as it related to a note payable to DIRECTV, for which payment was tied to our agreement to cover net losses under the remaining term of the NFL SUNDAY TICKET contract up to a cap of $ 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.
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). , which represented approximately % 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 $, which includes $ of Spinco cash and $ of debt retained by WarnerMedia. During the second quarter of 2022, $ of retained earnings and $ of additional paid-in capital associated with the transaction were removed from our balance sheet. Additionally, in August 2022, we and WBD finalized the post-closing adjustment, pursuant to Section 1.3 of the SDA, which resulted in a $ 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 24)
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 $ to be paid over , of which $ 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 $, including approximately $ related to accumulated foreign currency translation adjustments and $ related to property, plant and equipment and intangible assets. Approximately $ of the impairment was attributable to noncontrolling interest. 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 $ in cash. The disposition did not result in a material gain or loss.
| | |
| AT&T Inc. |
| Dollars in millions except per share amounts |
in cash and recognized a pre-tax gain of $ in “Other income (expense) – net,” on our consolidated statement of income.
| | $ | | |
| Buildings and improvements | - | | | | | | |
Central office equipment1 | - | | | | | | |
| Cable, wiring and conduit | - | | | | | | |
| |
| Other equipment | - | | | | | | |
| Software | - | | | | | | |
| Under construction | - | | | | | | |
| | | | | | | |
| Accumulated depreciation and amortization | | | | | | | |
| Property, plant and equipment – net | | | $ | | | | $ | | |
1 Includes certain network software. | | | | | |
Our depreciation expense was $ in 2023, $ in 2022, and $ in 2021. Depreciation expense included amortization of software totaling $ in 2023, $ in 2022 and $ in 2021.
In December 2022, we recorded a noncash pre-tax charge of $ 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 $, or $ per diluted share from continuing operations for the year ended December 31, 2022.
years. Some of our operating leases (e.g., for towers and real estate) 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.
$ | | $ | | | Finance lease cost: | | | |
Amortization of leased assets in property, plant and equipment | $ | | $ | | $ | |
| Interest on lease obligation | | | |
| Total finance lease cost | $ | | $ | | $ | |
| | |
| AT&T Inc. |
| Dollars in millions except per share amounts |
$ | | $ | | | | | |
| Supplemental Lease Cash Flow Disclosures | | | |
| Operating lease right-of-use assets obtained in exchange for new operating lease obligations | | | |
The following tables set forth supplemental balance sheet information related to leases at December 31:
| | | | | | | | |
| 2023 | 2022 |
| Operating Leases | | |
| Operating lease right-of-use assets | $ | | | $ | | |
| | |
| Accounts payable and accrued liabilities | $ | | | $ | | |
| Operating lease obligation | | | | |
| Total operating lease obligation | $ | | | $ | | |
| | |
| Finance Leases | | |
| Property, plant and equipment, at cost | $ | | | $ | | |
| Accumulated depreciation and amortization | () | | () | |
| Property, plant and equipment – net | $ | | | $ | | |
| | |
| Current portion of long-term debt | $ | | | $ | | |
| Long-term debt | | | | |
| Total finance lease obligation | $ | | | $ | | |
| | |
| | |
| 2023 | 2022 |
| Weighted-Average Remaining Lease Term (years) | | |
| Operating leases | | |
| Finance leases | | |
| | |
| Weighted-Average Discount Rate | | |
| Operating leases | | % | | % |
| Finance leases | | % | | % |
| | |
| AT&T Inc. |
| Dollars in millions except per share amounts |
| | $ | | | | 2025 | | | | | |
| 2026 | | | | | |
| 2027 | | | | | |
| 2028 | | | | | |
| Thereafter | | | | | |
| Total lease payments | | | | | |
| Less: imputed interest | () | | | () | |
| Total | $ | | | | $ | | |
in our Business Wireline reporting unit, $ in our Consumer Wireline reporting unit and $ 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 have increased by approximately $ if the weighted average cost of capital increased by 25 basis points, or $ if the projected terminal growth rate declined by 25 basis points, or $ if the projected long-term EBITDA margin declined 100 basis points.
Changes to our goodwill in 2023 primarily resulted from goodwill attributed to assets contributed to the formation of strategic joint ventures. Changes to our goodwill in 2022 primarily resulted from the noncash impairments discussed above.
At December 31, 2023, 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.
| | $ | () | | | $ | | | | $ | | | | $ | — | | | $ | () | | | $ | | | Accumulated Impairments | () | | | — | | | () | | | | | | () | | | — | | | () | |
| Net goodwill | | | | () | | | | | | | | | () | | | () | | | | |
| Latin America | | | | | | | | | | | | | () | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Total | $ | | | | $ | () | | | $ | | | | $ | | | | $ | () | | | $ | () | | | $ | | |
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.
| | |
| AT&T Inc. |
| Dollars in millions except per share amounts |
Indefinite-lived wireless licenses increased in 2022 primarily due to auction activity and $ of capitalized interest (see Notes 6 and 23).
years | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | () | | Customer lists and relationships | years | | | | | | | | () | | | | | | | | | () | |
Trademarks, trade names and other | years | | | | | | | | () | | | | | | | | | () | |
| Total | years | | $ | | | | $ | | | | $ | () | | | $ | | | | $ | | | | $ | () | |
| | | $ | | | | Trade names | | | | | | |
| Total | $ | | | | | $ | | |
|
for the year ended December 31, 2023, $ for the year ended December 31, 2022 and $ for the year ended December 31, 2021. Estimated amortization expense for the next five years is: $ for 2024, $ for 2025, $ for 2026, $ for 2027 and $ for 2028.
held by TPG, which were fully distributed in 2021.
| | |
| AT&T Inc. |
| Dollars in millions except per share amounts |
•Distribution preference associated with Common units of $ held by AT&T, of which $ of distribution rights remain as of December 31, 2023.
•Common units, with % held by AT&T and % held by TPG.
The initial fair value of the equity considerations on July 31, 2021 was $, which was determined using a discounted cash flow model reflecting distribution rights and preference of the individual instruments. During 2023, 2022 and 2021, we recognized $, $ and $ of equity in net income of affiliates and received total distributions of $, $ and $, respectively, from DIRECTV. The book value of our investment in DIRECTV was $ and $ at December 31, 2023 and 2022.
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.
Gigapower We hold a % interest in this joint venture with BlackRock, which will provide a fiber network to internet service providers and other businesses across the U.S. that serve customers outside of our wireline service area.
SKY Mexico We hold a % interest in SKY Mexico, which is a leading pay-TV provider in Mexico.
| | $ | | | | $ | | | | Operating income | | | | | | | | |
| Net income | | | | | | | | |
| | | | | |
| |
| |
| |
| |
Balance Sheets2 | | | | | |
| |
| Current assets | | | | | | | |
| Noncurrent assets | | | | | | | |
| Current liabilities | | | | | | | |
| Noncurrent liabilities | | | | | | | |
1Does not include DIRECTV for periods prior to August 1, 2021. |
2Does not include Gigapower for periods prior to May 12, 2023. |
| |
| |
| |
| |
| |
| |
| |
| | The following table is a reconciliation of our investments in equity affiliates as presented on our consolidated balance sheets:
| | | | | | | | | | | |
| 2023 | | 2022 |
| Beginning of year | $ | | | | $ | | |
| Additional investments | | | | | |
|
| Distributions from DIRECTV in excess of cumulative equity in earnings | () | | | () | |
|
| Dividends and distributions of cumulative earnings received | () | | | () | |
| Equity in net income of affiliates | | | | | |
| Impairments | () | | | | |
|
| Currency translation adjustments | | | | | |
| Other adjustments | | | | | |
| End of year | $ | | | | $ | | |
| | |
| AT&T Inc. |
| Dollars in millions except per share amounts |
– | % | | 2023 | – | 2033 | | $ | | | | $ | | |
| % | – | % | | 2023 | – | 2061 | | | | | | |
| % | – | % | | 2023 | – | 2095 | | | | | | |
| % | – | % | | 2023 | – | 2097 | | | | | | |
| Credit agreement borrowings | | | | | |
| Fair value of interest rate swaps recorded in debt | | | | | |
| | | | | |
| Unamortized (discount) premium – net | () | | | () | |
| Unamortized issuance costs | () | | | () | |
| Total notes and debentures | | | | | |
| Finance lease obligations | | | | | |
| Total long-term debt, including current maturities | | | | | |
| Current maturities of long-term debt | () | | | () | |
|
| Total long-term debt | $ | | | | $ | | |
1Foreign debt includes the impact from hedges, when applicable. |
We had outstanding Euro, British pound sterling, Canadian dollar, Swiss franc, and Australian dollar denominated debt of approximately $ and $ at December 31, 2023 and 2022, respectively.
The weighted-average interest rate of our long-term debt portfolio, including credit agreement borrowings and the impact of derivatives, was approximately % as of December 31, 2023 and % as of December 31, 2022.
Debt maturing within one year consisted of the following at December 31:
| | $ | | | | Commercial paper | | | | | |
|
| Total | $ | | | | $ | | |
The weighted average interest rate on our outstanding short-term borrowings was approximately % as of December 31, 2023 and % as of December 31, 2022.
| | |
| AT&T Inc. |
| Dollars in millions except per share amounts |
| $ | | | $ | () | | $ | () | | $ | | | Issuance of notes and debentures: | | | | | |
USD notes | $ | | | $ | | | $ | | | $ | | | $ | | |
EUR notes | | | | | | | | | | |
| Other | | | | | | | | | | |
Debt issuances | $ | | | $ | | | $ | | | $ | | | $ | | |
| | | | | |
| Repayments: | | | | | |
| |
| |
| Private financing | $ | | | $ | () | | $ | | | $ | | | $ | () | |
| Repayment of other short-term borrowings | $ | | | $ | () | | $ | | | $ | | | $ | () | |
| | | | | |
USD notes | $ | () | | $ | () | | $ | | | $ | | | $ | () | |
EUR notes | () | | () | | () | | | | () | |
AUD notes | | | | | () | | | | () | |
2025 Term Loan | () | | | | | | | | () | |
| Other | () | | () | | () | | () | | () | |
| Repayments of long-term debt | $ | () | | $ | () | | $ | () | | $ | () | | $ | () | |
As of December 31, 2023 and 2022, 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, 2023, and the corresponding weighted-average interest rate scheduled for repayment are as follows:
| | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | Weighted-average interest rate 2 | | % | | | % | | | % | | | % | | | % | | | % |
1Debt repayments represent maturity value. Foreign debt includes the impact from hedges, when applicable. |
2Includes credit agreement borrowings. |
Credit Facilities
General
In November 2022, we entered into and drew on a $ term loan agreement due February 16, 2025 (2025 Term Loan), with Mizuho Bank, Ltd., as agent. On March 30, 2023, the $ Term Loan was paid off and terminated.
In March 2021, we entered into and drew on a $ term loan credit agreement (BAML Bilateral Term Loan) consisting of (i) a $ facility (BAML Tranche A Facility), and (ii) a $ facility (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 January 2021, we entered into a $ Term Loan Credit Agreement (2021 Syndicated Term Loan), with Bank of America, N.A., as agent. In March 2021, we borrowed $ under the 2021 Syndicated Term Loan and the remaining $ of lenders’ commitments was terminated. On April 13, 2022, the 2021 Syndicated Term Loan was paid off and terminated.
| | |
| AT&T Inc. |
| Dollars in millions except per share amounts |
Our Revolving Credit Agreement contains covenants that are customary for an issuer with investment grade senior debt credit rating as well as a net debt-to-EBITDA financial ratio covenant requiring AT&T to maintain, as of the last day of each fiscal quarter, a ratio of not more than -to-1.
The events of default are customary for agreements of this type and such events would result in the acceleration of, or would permit the lenders to accelerate, as applicable, required payments and would increase each agreement’s relevant Applicable Margin by % per annum.
The obligations of the lenders under the Revolving Credit Agreement to provide advances will terminate on November 18, 2028, 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 % of the facility amount may agree to extend their commitments under the credit agreement for additional 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) % 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 % plus %, 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 % 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 %, %, % or % per annum of the amount of the lender commitments, depending on AT&T’s credit rating.
| | |
| AT&T Inc. |
| Dollars in millions except per share amounts |
| | $ | | | | $ | | | | $ | | | | Commercial paper | | | | | | | | | | | |
| | | |
Investment securities2 | | | | | | | | | | | |
1Includes credit agreement borrowings. |
2Excludes investments accounted for under the equity method. |
The carrying amount of debt with an original maturity of less than one year approximates fair value. The fair value measurements used for notes and debentures are considered Level 2 and are determined using various methods, including quoted prices for identical or similar securities in both active and inactive markets.
| | $ | | | | $ | | | | $ | | | | International equities | | | | | | | | | | | |
| Fixed income equities | | | | | | | | | | | |
| Available-for-Sale Debt Securities | | | | | | | | | | | |
| Asset Derivatives | | | | | | | |
| | | |
| Cross-currency swaps | | | | | | | | | | | |
| | | |
| | | |
| Liability Derivatives | | | | | | | |
| Interest rate swaps | | | | () | | | | | | () | |
| Cross-currency swaps | | | | () | | | | | | () | |
| | | |
| | | |
|
| December 31, 2022 |
| Level 1 | | Level 2 | | Level 3 | | Total |
| Equity Securities | | | | | | | |
| Domestic equities | $ | | | | $ | | | | $ | | | | $ | | |
| International equities | | | | | | | | | | | |
| Fixed income equities | | | | | | | | | | | |
| Available-for-Sale Debt Securities | | | | | | | | | | | |
| Asset Derivatives | | | | | | | |
| | | |
| Cross-currency swaps | | | | | | | | | | | |
| | | |
| | | |
| Liability Derivatives | | | | | | | |
| | | |
| Cross-currency swaps | | | | () | | | | | | () | |
| | | |
| Foreign exchange contracts | | | | () | | | | | | () | |
Investment Securities
Our investment securities include both equity and debt securities that are measured at fair value, as well as equity securities without readily determinable fair values. A substantial portion of the fair values of our investment securities is estimated based on quoted market prices. Investments in equity securities not traded on a national securities exchange are valued at cost, less any impairment, and adjusted for changes resulting from observable, orderly transactions for identical or similar securities.
| | |
| AT&T Inc. |
| Dollars in millions except per share amounts |
| | $ | () | | | $ | | | | Gains (Losses) recognized on equity securities sold | | | | () | | | () | |
| Unrealized gains (losses) recognized on equity securities held at end of period | $ | | | | $ | () | | | $ | | |
At December 31, 2023, available-for-sale debt securities totaling $ have maturities as follows - less than one year: $; one to three years: $; three to five years: $; five or more years: $.
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, 2023 and 2022, no ineffectiveness was measured on fair value hedges.
Cash Flow Hedging We designate 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 and interest rate risk generated from our foreign-denominated debt. These agreements include initial and final exchanges of principal from fixed foreign 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 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 $. The amount will be reclassified to earnings when the hedged item is recognized in earnings or
| | |
| AT&T Inc. |
| Dollars in millions except per share amounts |
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, 2023, we had posted collateral of $ (a deposit asset) and held collateral of $ (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 $. 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 $. At December 31, 2022, we had posted collateral of $ (a deposit asset) and held collateral of $ (a receipt liability).
| | $ | | | | Cross-currency swaps | | | | | |
|
| Foreign exchange contracts | | | | | |
| Total | $ | | | | $ | | |
) | | $ | () | | | $ | () | | Gain (loss) on long-term debt | | | | | | | | |
| Cross-currency swaps: | | | | | |
Gain (loss) on cross-currency swaps | | | | | | | () | |
Gain (loss) on long-term debt | () | | | () | | | | |
Gain (loss) recognized in accumulated OCI | | | | | | | () | |
| Foreign exchange contracts: | | | | | |
Gain (loss) on foreign exchange contracts | | | | () | | | | |
Gain (loss) on long-term debt | () | | | | | | | |
Gain (loss) recognized in accumulated OCI | | | | () | | | | |
| | |
| AT&T Inc. |
| Dollars in millions except per share amounts |
| | $ | () | | | $ | () | | | Foreign exchange contracts: | | | | | |
Gain (loss) recognized in accumulated OCI | | | | | | | () | |
Other income (expense) – net reclassified from accumulated OCI into income | | | | | | | | |
| Interest rate locks: | | | | | |
| |
Interest income (expense) reclassified from accumulated OCI into income | () | | | () | | | () | |
Other income (expense) reclassified from accumulated OCI into income | | | | () | | | | |
| Distribution of WarnerMedia | | | | () | | | | |
Nonrecurring Fair Value Measurements
| | $ | | | | Licenses and nonamortizable intangibles | | | | | |
Lease right-of-use assets | | | | | |
| Lease liabilities | () | | | () | |
| Employee benefits | () | | | () | |
| Deferred fulfillment costs | | | | | |
| Equity in partnership | | | | | |
| Net operating loss and other carryforwards | () | | | () | |
| Other – net | | | | () | |
| Subtotal | | | | | |
| Deferred tax assets valuation allowance | | | | | |
| Net deferred tax liabilities | $ | | | | $ | | |
| | | |
| Noncurrent deferred tax liabilities | $ | | | | $ | | |
| Less: Noncurrent deferred tax assets | () | | | () | |
| Net deferred tax liabilities | $ | | | | $ | | |
At December 31, 2023, we had combined net operating and capital loss carryforwards (tax effected) for federal income tax purposes of $, state of $ and foreign of $, expiring through 2043. Additionally, we had federal credit carryforwards of $ and state credit carryforwards of $, expiring primarily through 2043.
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, 2023 and 2022 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
| | |
| AT&T Inc. |
| Dollars in millions except per share amounts |
| | $ | | | | Increases for tax positions related to the current year | | | | | |
| Increases for tax positions related to prior years | | | | | |
| Decreases for tax positions related to prior years | () | | | () | |
| Lapse of statute of limitations | () | | | () | |
| Settlements | | | | () | |
|
|
| Balance at end of year | | | | | |
| Accrued interest and penalties | | | | | |
| Gross unrecognized income tax benefits | | | | | |
| Less: Deferred federal and state income tax benefits | () | | | () | |
| Less: Tax attributable to timing items included above | () | | | () | |
Total UTB that, if recognized, would impact the effective income tax rate as of the end of the year | $ | | | | $ | | |
Periodically we make deposits to taxing jurisdictions which reduce our UTB balance but are not included in the reconciliation above. The amount of deposits that reduced our UTB balance was $ at December 31, 2023 and $ at December 31, 2022. Current tax assets on our consolidated balance sheet at December 31, 2023 were $.
Accrued interest and penalties included in UTBs were $ as of December 31, 2023 and $ as of December 31, 2022. 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 $ for 2023, $() for 2022 and $() for 2021.
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 2006 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.
| | |
| AT&T Inc. |
| Dollars in millions except per share amounts |
| | $ | | | | $ | () | | | Deferred | | | | | | | | |
| | | | | | | | |
| State and local: | | | | | |
| Current | | | | | | | | |
| Deferred | () | | | | | | | |
| () | | | | | | | |
| Foreign: | | | | | |
| Current | | | | | | | () | |
| Deferred | | | | () | | | | |
| | | | | | | () | |
| Total | $ | | | | $ | | | | $ | | |
| | $ | () | | | $ | | | | Foreign income (loss) before income taxes | () | | | () | | | () | |
| Total | $ | | | | $ | () | | | $ | | |
| | $ | () | | | $ | | | | Increases (decreases) in income taxes resulting from: | | | | | |
| State and local income taxes – net of federal income tax benefit | | | | | | | | |
| CARES Act federal NOL carryback | | | | | | | () | |
| Tax on foreign investments | | | | | | | | |
| Noncontrolling interest | () | | | () | | | () | |
Permanent items and R&D credit | () | | | () | | | () | |
Audit resolutions | | | | () | | | () | |
Divestitures | () | | | () | | | () | |
Goodwill impairment1 | | | | | | | | |
| Other – net | () | | | () | | | () | |
| Total | $ | | | | $ | | | | $ | | |
| Effective Tax Rate | | % | | () | % | | | % |
|
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 $ 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 Inc. |
| Dollars in millions except per share amounts |
The purchase of the group annuity contracts closed on May 3, 2023, covering approximately AT&T participants and beneficiaries (Transferred Participants). Under the group annuity contracts, Athene, through its wholly-owned subsidiaries Athene Annuity and Life Company and Athene Annuity & Life Assurance Company of New York, made an irrevocable commitment, and is solely responsible, to pay the pension benefits of each Transferred Participant beginning with their August 2023 pension payments. The transaction does not change the amount of pension benefits payable to the Transferred Participants.
The purchase of the group annuity contracts was funded directly by assets of the Plan via the pension trust underlying the Plan and required cash or asset contributions by AT&T. We transferred $ of pension benefit obligation and related plan assets upon close of the transaction and recognized a pre-tax pension settlement gain of $. The funded status of the Plan did not materially change due to this transaction.
This transaction with Athene was considered a settlement for accounting purposes and required us to remeasure our pension plan assets and obligations at quarter-end for the second and third quarters of 2023.
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.
| | |
| AT&T Inc. |
| Dollars in millions except per share amounts |
| | $ | | | | $ | | | | $ | | | | Service cost - benefits earned during the period | | | | | | | | | | | |
| Interest cost on projected benefit obligation | | | | | | | | | | | |
| Amendments | | | | | | | () | | | () | |
| Actuarial (gain) loss | | | | () | | | | | | () | |
| Benefits paid, including settlements | () | | | () | | | () | | | () | |
Group annuity contract transfer | () | | | | | | | | | | |
| | | |
| | | |
| Benefit obligation at end of year | $ | | | | $ | | | | $ | | | | $ | | |
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 |
| 2023 | | 2022 | | 2023 | | 2022 |
| Fair value of plan assets at beginning of year | $ | | | | $ | | | | $ | | | | $ | | |
| Actual return on plan assets | | | | () | | | | | | () | |
Benefits paid, including settlements 1 | () | | | () | | | () | | | () | |
| Contributions | | | | | | | | | | | |
Group annuity contract transfer | () | | | | | | | | | | |
| | | |
| Fair value of plan assets at end of year | | | | | | | | | | | |
Unfunded status at end of year 2 | $ | () | | | $ | () | | | $ | () | | | $ | () | |
1At our discretion, certain postretirement benefits may be paid from our cash accounts, which does not reduce Voluntary Employee Benefit Association (VEBA) assets. Future benefit payments may be made from VEBA trusts and thus reduce those asset balances. |
2Funded status is not indicative of our ability to pay ongoing pension benefits or of our obligation to fund retirement trusts. Required pension funding is determined in accordance with the Employee Retirement Income Security Act of 1974, as amended (ERISA) and applicable regulations. |
Amounts recognized on our consolidated balance sheets at December 31 are listed below:
| | | | | | | | | | | | | | | | | | | | | | | |
| Pension Benefits | | Postretirement Benefits |
| 2023 | | 2022 | | 2023 | | 2022 |
Current portion of employee benefit obligation 1 | $ | | | | $ | | | | $ | () | | | $ | () | |
Employee benefit obligation 2 | () | | | () | | | () | | | () | |
| Net amount recognized | $ | () | | | $ | () | | | $ | () | | | $ | () | |
1Included in “Accounts payable and accrued liabilities.” |
2Included in “Postemployment benefit obligation,” combined with international pension obligations and other postemployment obligations of $ and $ at December 31, 2023, and $ and $ at December 31, 2022, 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 $ at December 31, 2023, and $ at December 31, 2022.
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 $(), $() and $() for the years ended December 31, 2023, 2022 and 2021.
| | |
| AT&T Inc. |
| Dollars in millions except per share amounts |
| | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | Interest cost on projected benefit obligation | | | | | | | | | | | | | | | | | |
| Expected return on assets | () | | | () | | | () | | | () | | | () | | | () | |
| Amortization of prior service credit | () | | | () | | | () | | | () | | | () | | | () | |
Net periodic benefit cost (credit) before remeasurement | () | | | () | | | () | | | () | | | () | | | () | |
| Actuarial (gain) loss | | | | () | | | () | | | | | | () | | | () | |
Settlement (gain) loss | () | | | | | | | | | | | | | | | | |
Net pension and postretirement cost (credit) | $ | | | | $ | () | | | $ | () | | | $ | () | | | $ | () | | | $ | () | |
Other Changes in Benefit Obligations Recognized in Other Comprehensive Income
The following table presents the after-tax changes in benefit obligations recognized in OCI and the after-tax prior service credits that were amortized from OCI into net periodic benefit costs:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Pension Benefits | | Postretirement Benefits |
| 2023 | | 2022 | | 2021 | | 2023 | | 2022 | | 2021 |
| Balance at beginning of year | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
| Prior service (cost) credit | | | | | | | | | | | | | | | | | |
| Amortization of prior service credit | () | | | () | | | () | | | () | | | () | | | () | |
Total recognized in other comprehensive (income) loss | () | | | () | | | () | | | () | | | () | | | () | |
| Balance at end of year | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
| | |
| AT&T Inc. |
| Dollars in millions except per share amounts |
% | | | % | | | % | | | % | | | % | | | % | Discount rate in effect for determining service cost1 | | % | | | % | | | % | | | % | | | % | | | % |
Discount rate in effect for determining interest cost1 | | % | | | % | | | % | | | % | | | % | | | % |
Weighted-average interest credit rate for cash balance pension programs2 | | % | | | % | | | % | | | % | | | % | | | % |
| Long-term rate of return on plan assets | | % | | | % | | | % | | | % | | | % | | | % |
Composite rate of compensation increase for determining benefit obligation | | % | | | % | | | % | | | % | | | % | | | % |
Composite rate of compensation increase for determining net cost (credit) | | % | | | % | | | % | | | % | | | % | | | % |
1Weighted-average discount rates shown for years with interim remeasurements: 2023, 2022 and 2021 for pension benefits and 2022 for postretirement benefits. |
2Weighted-average interest crediting rates for cash balance pension programs relate only to the cash balance portion of total pension benefits. A % increase in the weighted-average interest crediting rate would increase the pension benefit obligation by $. |
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 %, at December 31, 2023, 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, 2023, when compared to the year ended December 31, 2022, we decreased our pension discount rate by %, resulting in an increase in our pension plan benefit obligation of $ and decreased our postretirement discount rate by %, resulting in an increase in our postretirement benefit obligation of $. For the year ended December 31, 2022, we increased our pension discount rate by %, resulting in a decrease in our pension plan benefit obligation of $ and increased our postretirement discount rate by %, resulting in a decrease in our postretirement benefit obligation of $.
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.
| | |
| AT&T Inc. |
| Dollars in millions except per share amounts |
Composite Rate of Compensation Increase Our expected composite rate of compensation increase cost of % in 2023 and 2022 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 2024 assumed annual healthcare prescription drug cost trend and medical cost trend for eligible participants will remain at an annual and ultimate trend rate of %. For 2023, our assumed annual healthcare prescription drug cost trend and medical cost trend for eligible participants increased from an annual and ultimate trend rate of % to an annual and ultimate trend rate of %. This change in assumption increased our obligation by $.
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 2024.
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 $ in December 2022 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.
% | - | | % | | | % | | | % | | | % | - | | % | | | % | | | % | | International | | % | - | | % | | | | | | | | | % | - | | % | | | | | | |
| Fixed income securities | | % | - | | % | | | | | | | | | % | - | | % | | | | | | |
| Real assets | | % | - | | % | | | | | | | | | % | - | | % | | | | | | |
| Private equity | | % | - | | % | | | | | | | | | % | - | | % | | | | | | |
| Preferred interests | | % | - | | % | | | | | | | | | % | - | | % | | | | | | |
| Other | | % | - | | % | | | | | | | | | % | - | | % | | | | | | |
| Total | | | | | | % | | | % | | | | | | | % | | | % |
| | |
| AT&T Inc. |
| Dollars in millions except per share amounts |
as of December 31, 2022. All outstanding Mobility preferred interests were repurchased in April 2023. (See Note 16)
At December 31, 2023, AT&T securities represented less than 1% of assets held by our pension trust. The VEBA trusts do not 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.
Prior to redemption, the preferred interests in Mobility II were 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.
| | |
| AT&T Inc. |
| Dollars in millions except per share amounts |
| | $ | | | | $ | | | | $ | | | | Interest bearing cash | | | | | | | | | | | |
| Foreign currency contracts | | | | | | | | | | | |
| Equity securities: | | | | | | | |
| Domestic equities | | | | | | | | | | | |
| International equities | | | | | | | | | | | |
| | | |
| Fixed income securities: | | | | | | | |
| Corporate bonds and other investments | | | | | | | | | | | |
| Government and municipal bonds | | | | | | | | | | | |
| Mortgage-backed securities | | | | | | | | | | | |
| Real estate and real assets | | | | | | | | | | | |
| Securities lending collateral | | | | | | | | | | | |
| Receivable for variation margin | | | | | | | | | | | |
| Assets at fair value | | | | | | | | | | | |
| Investments sold short and other liabilities at fair value | () | | | () | | | | | | () | |
| Total plan net assets at fair value | $ | | | | $ | | | | $ | | | | $ | | |
| Assets held at net asset value practical expedient | | | | | | | |
| Private equity funds | | | | | | | | |
| Real estate funds | | | | | | | | |
| Commingled funds | | | | | | | | |
| Total assets held at net asset value practical expedient | | | | | | | | |
Other assets (liabilities) 1 | | | | | | | () | |
| Total Plan Net Assets | | | | | | | $ | | |
1Other assets (liabilities) include amounts receivable, accounts payable and net adjustment for securities lending payable. |
| | | | | | | | | | | | | | | | | | | | | | | |
Postretirement Assets and Liabilities at Fair Value |
| Level 1 | | Level 2 | | Level 3 | | Total |
| Interest bearing cash | $ | | | | $ | | | | $ | | | | $ | | |
| Equity securities: | | | | | | | |
| Domestic equities | | | | | | | | | | | |
| International equities | | | | | | | | | | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| Total plan net assets at fair value | $ | | | | $ | | | | $ | | | | $ | | |
| Assets held at net asset value practical expedient | | | | | | | |
| Private equity funds | | | | | | | | |
| Real estate funds | | | | | | | | |
| Commingled funds | | | | | | | | |
| Total assets held at net asset value practical expedient | | | | | | | | |
Other assets (liabilities)1 | | | | | | | | |
| Total Plan Net Assets | | | | | | | $ | | |
1Other assets (liabilities) include amounts receivable and accounts payable. |
| | |
| AT&T Inc. |
| Dollars in millions except per share amounts |
| | $ | | | | $ | | | | $ | | | | Interest bearing cash | | | | | | | | | | | |
| Foreign currency contracts | | | | | | | | | | | |
| Equity securities: | | | | | | | |
| Domestic equities | | | | | | | | | | | |
| International equities | | | | | | | | | | | |
| Preferred interests | | | | | | | | | | | |
| Fixed income securities: | | | | | | | |
| Corporate bonds and other investments | | | | | | | | | | | |
| Government and municipal bonds | | | | | | | | | | | |
| Mortgage-backed securities | | | | | | | | | | | |
| Real estate and real assets | | | | | | | | | | | |
| Securities lending collateral | | | | | | | | | | | |
| Receivable for variation margin | | | | | | | | | | | |
| Assets at fair value | | | | | | | | | | | |
| Investments sold short and other liabilities at fair value | () | | | () | | | | | | () | |
| Total plan net assets at fair value | $ | | | | $ | | | | $ | | | | $ | | |
| Assets held at net asset value practical expedient | | | | | | | |
| Private equity funds | | | | | | | | |
| Real estate funds | | | | | | | | |
| Commingled funds | | | | | | | | |
| Total assets held at net asset value practical expedient | | | | | | | | |
Other assets (liabilities) 1 | | | | | | | () | |
| Total Plan Net Assets | | | | | | | $ | | |
1Other assets (liabilities) include amounts receivable, accounts payable and net adjustment for securities lending payable. |
| | | | | | | | | | | | | | | | | | | | | | | |
Postretirement Assets and Liabilities at Fair Value |
| Level 1 | | Level 2 | | Level 3 | | Total |
Interest bearing cash | $ | | | | $ | | | | $ | | | | $ | | |
Equity securities: | | | | | | | |
| Domestic equities | | | | | | | | | | | |
| International equities | | | | | | | | | | | |
| | | |
| | | |
| | | |
| | | |
| Securities lending collateral | | | | | | | | | | | |
| Assets at fair value | | | | | | | | | | | |
| Securities lending payable and other liabilities | | | | () | | | | | | () | |
| Total plan net assets at fair value | $ | | | | $ | | | | $ | | | | $ | | |
| Assets held at net asset value practical expedient | | | | | | | |
| Commingled funds | | | | | | | | |
| Private equity funds | | | | | | | | |
| Real estate funds | | | | | | | | |
| Total assets held at net asset value practical expedient | | | | | | | | |
Other assets (liabilities) 1 | | | | | | | | |
| Total Plan Net Assets | | | | | | | $ | | |
1Other assets (liabilities) include amounts receivable and accounts payable. |
| | |
| AT&T Inc. |
| Dollars in millions except per share amounts |
| | $ | | | | $ | | | | $ | | | | Realized gains (losses) | () | | | | | | | | | () | |
| Unrealized gains (losses) | | | | | | | () | | | () | |
| | | |
| | | |
| Purchases | | | | | | | | | | | |
| Sales | () | | | | | | () | | | () | |
Balance as of December 31, 2023 | $ | | | | $ | | | | $ | | | | $ | | |
| | $ | | | | $ | | | | $ | | | | Realized gains (losses) | | | | | | | | | | | |
| Unrealized gains (losses) | () | | | | | | | | | | |
| Transfers in | | | | | | | | | | | |
| Transfers out | | | | () | | | () | | | () | |
| Purchases | | | | | | | | | | | |
| Sales | () | | | | | | () | | | () | |
Balance as of December 31, 2022 | $ | | | | $ | | | | $ | | | | $ | | |
| | $ | | | | 2025 | | | | | |
| 2026 | | | | | |
| 2027 | | | | | |
| 2028 | | | | | |
Years 2029 - 2033 | | | | | |
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 $ and the net supplemental retirement pension cost was $ at and for the year ended December 31, 2023. The projected benefit obligation was $ and the net supplemental retirement pension credit was $ at and for the year ended December 31, 2022.
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 % at December 31, 2023 and % at December 31, 2022 were calculated using the same methodologies used in calculating the discount rates for our qualified pension and postretirement benefit plans.
Deferred compensation expense was $ in 2023, $ in 2022 and $ in 2021.
| | |
| AT&T Inc. |
| Dollars in millions except per share amounts |
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 $, $ and $ for the years ended December 31, 2023, 2022 and 2021.
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, 2023, we were authorized to issue up to approximately 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.
| | $ | | | | $ | | | | Restricted stock and stock units | | | | | | | | |
| Other nonvested stock units | | | | | | | | |
| Stock options | | | | | | | | |
| Total | $ | | | | $ | | | | $ | | |
| Income tax benefit | $ | | | | $ | | | | $ | | |
| | |
| AT&T Inc. |
| Dollars in millions except per share amounts |
| | $ | | | | Granted | | | | | |
| Vested | () | | | | |
| Forfeited | () | | | | |
|
Nonvested at December 31, 2023 | | | | $ | | |
As of December 31, 2023, there was $ 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 years. The total fair value of shares vested during the year was $ for 2023, compared to $ for 2022 and $ for 2021.
It is our intent to satisfy share option exercises using our treasury stock. Cash received from stock option exercises was $ for 2023, $ for 2022 and $ for 2021.
billion common shares of AT&T stock and million preferred shares of AT&T stock, each with a par value of $ per share. Cumulative perpetual preferred shares consist of the following:•Series A: thousand shares outstanding at December 31, 2023 and December 31, 2022, with a $ per share liquidation preference and a dividend rate of %.
•Series B: thousand shares outstanding at December 31, 2023 and December 31, 2022, with a € per share liquidation preference, and an initial rate of %, subject to reset after May 1, 2025.
•Series C: thousand shares outstanding at December 31, 2023 and December 31, 2022, with a $ per share liquidation preference, and a dividend rate of %.
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 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. In March 2014, our Board of Directors approved an authorization program to repurchase million shares of common stock, of which approximately million remain outstanding at December 31, 2023.
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 2023, there were shares repurchased and during 2022, we repurchased approximately million shares totaling $ under the March 2014 authorization.
Dividend Declarations In December 2023 and December 2022, AT&T declared a quarterly preferred dividend of $. In December 2023 and December 2022, AT&T declared a quarterly common dividend of $ per share of common stock.
Preferred Interests Issued by Subsidiaries We have issued cumulative perpetual preferred membership interests in certain subsidiaries. The preferred interests are entitled to cash distributions, subject to declaration.
Mobility II Preferred Interests
In 2018, we issued million Series A Cumulative Perpetual Preferred Membership Interests in Mobility II (Mobility preferred interests), which paid cash distributions of % per annum, subject to declaration. So long as the distributions were declared and paid, the terms of the Mobility preferred interests did not impose any limitations on cash movements between
| | |
| AT&T Inc. |
| Dollars in millions except per share amounts |
Prior to repurchase, a holder of the Mobility preferred interests could put the interests to Mobility II, or Mobility II could have redeemed the interests upon a change in control of Mobility II or on or after September 9, 2022, with either option only allowed to be exercised during certain periods.
The price at which a put option or a redemption option could be exercised was 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) dollars plus (b) any accrued and unpaid distributions. The redemption price was to 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 was Mobility II required to deliver more than million shares of AT&T common stock to settle put and redemption options.
On October 24, 2022, approximately million Mobility preferred interests were put to AT&T by a third-party investor, for which we paid approximately $ 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 million, or approximately $, of Mobility preferred interests outstanding. The terms of the instruments limited the amount we were required to redeem in any 12-month period to approximately million shares, or $. With the certainty of redemption, the Mobility preferred interests were reclassified from equity to a liability at fair value, with approximately $ recorded in current liabilities as “Accounts payable and accrued liabilities,” representing the amount required to be redeemed within one year, and $ recorded in “Other noncurrent liabilities.” The liabilities associated with the Mobility preferred interests were 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 had approximately million Mobility preferred interests outstanding, which had a redemption value of approximately $ and paid cash distributions of $ per annum, subject to declaration. In April 2023, we accepted the December 2022 put option notice from the AT&T pension trust and repurchased the remaining million Mobility preferred interest for a purchase price, including accrued and unpaid distributions, of $.
Tower Holdings Preferred Interests
In 2019, we issued $ nonconvertible cumulative preferred interests in a wireless subsidiary (Tower Holdings) that holds interests in various tower assets and have the right to receive approximately $ 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 (Tower Class A-1) of the preferred interests totals $ and pays an initial preferred distribution of %, and the December series (Tower Class A-2) totals $ and pays an initial preferred distribution of %. Distributions are paid quarterly, subject to declaration, and reset every . 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 from the issuance date or upon the receipt of proceeds from the sale of the underlying assets. The Tower preferred interests are included in “Noncontrolling interest” on the consolidated balance sheets.
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 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 Preferred Interests
In September 2020, we issued $ nonconvertible cumulative preferred interests (Telco Class A-1) out of a newly created limited liability company (Telco LLC) that was formed to hold telecommunication-related assets. In April 2023, we expanded our September 2020 transaction and issued an additional $ of nonconvertible cumulative preferred interests (Telco Class A-2 and A-3). As of December 31, 2023, cumulative preferred interests in our Telco LLC totaled $ (collectively the “Telco preferred interests”).
Members’ equity in Telco LLC consist of (1) member’s interests, which are held by a consolidated subsidiary of AT&T, (2) Telco Class A-1 preferred interests, which pay an initial preferred distribution of % annually, subject to declaration, and subject to reset every , and (3) Telco Class A-2 and A-3 preferred interest which pay an initial preferred distribution
| | |
| AT&T Inc. |
| Dollars in millions except per share amounts |
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 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.
Mobility II Redeemable Noncontrolling Interests
In June 2023, we issued Series B Cumulative Perpetual Preferred Membership Interests in Mobility II LLC (Mobility noncontrolling interests), which pay cash distributions of % per annum, subject to declaration. So long as the distributions are declared and paid, the terms of the Mobility noncontrolling interests will not impose any limitations on cash movements between affiliates, or our ability to declare a dividend on or repurchase AT&T shares.
The Mobility noncontrolling interests are required to be initially recorded at fair value less issuance costs and will accrete to redemption value of $ through “Net Income Attributable to Noncontrolling Interest.” The Mobility noncontrolling interests are considered Level 3 under the Fair Value Measurement and Disclosures framework (see Note 12) and included in “Redeemable Noncontrolling Interest” on the consolidated balance sheets.
per Mobility noncontrolling interest plus (b) any accrued and unpaid distributions. The redemption price must be paid in cash.
| | $ | | | | $ | | |
Net cash received (paid) from other programs2 | | | | | | | () | |
| Total net cash impact to cash flows from operating activities | $ | | | | $ | | | | $ | | |
1Cash from initial sales of $, $ and $ for the years ended December 31, 2023, 2022 and 2021, respectively. |
2Certain transferred receivables are guaranteed by a subsidiary that holds additional receivables in the amount of $ at December 31, 2023, which are pledged as collateral and represent our maximum exposure to loss. |
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. In the event cash is received on the beneficial interests, those receipts are classified as cash flows from investing activities, when applicable.
| | |
| AT&T Inc. |
| Dollars in millions except per share amounts |
| | Balance sheet classification | | | | | |
| Accounts receivable | | | | | |
|
|
| Other Assets | | | | | |
|
| | | | | |
| | |
|
1Represents amounts to which financial institutions remain entitled, excluding the beneficial interests. |
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 beneficial interests. 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.
| | $ | | | | $ | | |
Net receivables sold2 | | | | | | | | |
| Cash proceeds received | | | | | | | | |
Beneficial interests recorded | | | | | | | | |
| Guarantee obligation recorded | | | | | | | | |
1Receivables net of promotion credits. |
2Receivables net of allowance, imputed interest and equipment trade-in right guarantees. |
Beneficial interests 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 contemplates changes in value after the launch of a device model. The fair value measurements used for the beneficial interests and the guarantee obligation are considered Level 3 under the Fair Value Measurement and Disclosure framework (see Note 12).
| | $ | | | | $ | | | Carrying value of beneficial interests | | | | | | | | |
Gain (loss) on repurchases1 | $ | () | | | $ | () | | | $ | | |
1These gains (losses) are included in “Selling, general and administrative” expense in the consolidated statements of income. |
At December 31, 2023 and December 31, 2022, our beneficial interests were $ and $, respectively, of which $ and $ 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, 2023 and December 31, 2022 was $ and $, respectively, of which $ and $ are included in “Accounts payable and accrued liabilities” on our consolidated balance sheets, with the remainder
| | |
| AT&T Inc. |
| Dollars in millions except per share amounts |
wireless towers and purchased of our wireless towers for $ in cash. The leases have various terms with an average length of approximately years. As the leases expire, Crown Castle will have fixed price purchase options for these towers totaling approximately $, 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 , as renewed, at current market rates, subject to further 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 %. The financing obligation is increased by interest expense and estimated future net cash flows generated and retained by Crown Castle from operation of the tower sites, and reduced by our contractual payments. We continue to include the tower assets in “Property, Plant and Equipment – Net” on our consolidated balance sheets and depreciate them accordingly. At December 31, 2023 and 2022, the tower assets had a balance of $ and $, respectively. Our depreciation expense for these assets was $ for each of 2023, 2022 and 2021.
Payments made to Crown Castle under this arrangement were $ for 2023. At December 31, 2023, the future minimum payments under the sublease arrangement are $ for 2024, $ for 2025, $ for 2026, $ for 2027, $ for 2028 and $ thereafter.
.
| | $ | | | | $ | | | | | | | | |
Distributions classified as operating activities | $ | | | | $ | | | | $ | | |
Distributions classified as investing activities | | | | | | | | |
Cash distributions received from DIRECTV | $ | | | | $ | | | | $ | | |
In 2021, in addition to the assets and liabilities contributed to DIRECTV, we recorded total obligations of $ to cover certain net losses under the NFL SUNDAY TICKET contract, of which $ was in the form of a note payable to DIRECTV. For the years ended December 31, 2023 and 2022, cash payments to DIRECTV on the note totaled $ and $, respectively and were classified as financing activities in our consolidated statement of cash flows. As of December 31, 2023 the notes to DIRECTV have been repaid.
We provide DIRECTV with network transport for U-verse products and sales services under commercial arrangements for up to . Under separate transition services agreements, we provide DIRECTV certain operational support, including servicing of certain customer receivables. For the years ended December 31, 2023, 2022 and 2021, we billed DIRECTV approximately $, $ and $ for these costs, which were recorded as a reduction to the operations and support expenses incurred.
At December 31, 2023, we had accounts receivable from DIRECTV of $ and accounts payable to DIRECTV of $.
We are not committed, implicitly or explicitly, to provide financial or other support, as our involvement with DIRECTV is limited to the carrying amount of the assets and liabilities recognized on our balance sheet.
| | |
| AT&T Inc. |
| Dollars in millions except per share amounts |
During 2023, we submitted $ in sustainability payments, with future payments under the agreement of $ for 2024, $ for 2025; $ for 2026, $ for 2027, $ for 2028; and $ 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 $ of initial funding from FirstNet is contingent on the achievement of 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 , 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, 2023, we have collected $ of the $ for the completion of certain tasks.
in 2024, $ in total for 2025 and 2026, $ in total for 2027 and 2028 and $ in total for years thereafter.
See Note 12 for a discussion of collateral and credit-risk contingencies.
| | |
| AT&T Inc. |
| Dollars in millions except per share amounts |
| Invoices received | | |
Invoices paid | () | |
Confirmed obligations outstanding at the end of year | $ | | |
Direct Supplier Financing
We also have arrangements with suppliers of handset inventory that allow us to extend the stated payment terms by up to 90 days at an additional cost to us (variable rate extension fee). Direct supplier financing outstanding is included in “Accounts payable and accrued liabilities” on our consolidated balance sheets and is reported as operating activities in our statements of cash flows when paid.
| | $ | | |
Invoices extended | | | | | |
Invoices paid | () | | | () | |
Obligations outstanding at the end of year | $ | | | | $ | | |
Vendor Financing
In connection with capital improvements and the acquisition of other productive assets, we negotiate favorable payment terms of 120 days or more (referred to as vendor financing), which are reported as financing activities in our statements of cash flows when paid.
| | $ | | | Commitments | | | | | |
Payments | () | | | () | |
Obligations outstanding at the end of year1 | $ | | | | $ | | |
1Total vendor financing payables at December 31, 2023 at December 31, 2022 were approximately $ and $, respectively, of which $ and $ are included in “Accounts payable and accrued liabilities.” |
| | $ | | | | Accrued payroll and commissions | | | | | |
| Current portion of employee benefit obligation | | | | | |
Current portion of Mobility preferred interests | | | | | |
| Accrued interest | | | | | |
| Accrued taxes | | | | | |
| Other | | | | | |
| Total accounts payable and accrued liabilities | $ | | | | $ | | |
| | |
| AT&T Inc. |
| Dollars in millions except per share amounts |
| | $ | | | | $ | | | Interest income | $ | | | | $ | | | | $ | | |
| Interest expense incurred | $ | | | | $ | | | | $ | | |
| Capitalized interest – capital expenditures | () | | | () | | | () | |
Capitalized interest – spectrum1 | () | | | () | | | () | |
| Total interest expense | $ | | | | $ | | | | $ | | |
1Included in “Acquisitions, net of cash acquired” on our consolidated statements of cash flows. |
Cash and Cash Flows We typically maintain our restricted cash balances for purchases and sales of certain investment securities and funding of certain deferred compensation benefit payments.
| | $ | | | | $ | | | | $ | | | | Cash and cash equivalents from discontinued operations | | | | | | | | | | | |
| Restricted cash in Prepaid and other current assets | | | | | | | | | | | |
| Restricted cash in Other Assets | | | | | | | | | | | |
| Cash and cash equivalents and restricted cash | $ | | | | $ | | | | $ | | | | $ | | |
The following tables summarize certain cash flow activities from continuing operations:
| | | | | | | | | | | | | | | | | |
| Consolidated Statements of Cash Flows | 2023 | | 2022 | | 2021 |
Cash paid (received) during the year for: | | | | | |
| Interest | $ | | | | $ | | | | $ | | |
Income taxes, net of refunds1 | | | | | | | | |
1Total cash income taxes paid, net of refunds, by AT&T was $, $ and $ for 2023, 2022 and 2021, respectively. |
| | | | | |
| |
| |
| Purchase of property and equipment | $ | | | | $ | | | | $ | | |
Interest during construction - capital expenditures1 | | | | | | | | |
| Total Capital expenditures | $ | | | | $ | | | | $ | | |
| | | | | |
| |
| |
| Business acquisitions | $ | | | | $ | | | | $ | | |
Spectrum acquisitions | | | | | | | | |
Interest during construction - spectrum1 | | | | | | | | |
| Total Acquisitions, net of cash acquired | $ | | | | $ | | | | $ | | |
1Total capitalized interest was $, $ and $ for 2023, 2022 and 2021, respectively. |
Labor Contracts As of January 31, 2024, we employed approximately persons. Approximately % 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 set to expire in 2024 include the following:
•A contract covering approximately Mobility employees in Arkansas, Kansas, Missouri, Oklahoma and Texas is set to expire in February.
•A wireline contract covering approximately employees in California and Nevada is set to expire in April.
•Three wireline contracts covering approximately employees in the southeastern United States are set to expire in August.
| | |
| AT&T Inc. |
| Dollars in millions except per share amounts |
| | $ | | | | $ | | | | Operating Expenses | | | | | | |
| Cost of revenues | | | | | | | | | |
| Selling, general and administrative | | | | | | | | | |
Asset abandonments and impairments1 | | | | | | | | | |
| Depreciation and amortization | | | | | | | | | |
| Total operating expenses | | | | | | | | | |
| Interest expense | | | | | | | | | |
| Equity in net income (loss) of affiliates | | | | | () | | | | |
Other income (expense) — net2 | | | | | () | | | | |
| Total other income (expense) | | | | | () | | | | |
| Net loss before income taxes | | | | | () | | | () | |
| Income tax expense (benefit) | | | | | () | | | | |
| Net loss from discontinued operations | | $ | | | | $ | () | | | $ | () | |
12021 includes $ impairment resulting from our assessment of the recoverability of Vrio’s net assets. The implied fair value of the Vrio business was estimated using both the discounted cash flow as well as market multiple approaches, which are considered Level 3. |
2“Other income (expense) - net” includes the gain of $ from Playdemic for the year ended 2021. |
In preparation for close of the separation and distribution, on April 7, 2022, Spinco drew $ on its $ term loan credit agreement (Spinco Term Loan), which conveyed to WBD. Total debt conveyed was approximately $, which included $ of existing WarnerMedia debt, $ of Spinco senior notes issued in March 2022 and the $ Spinco Term Loan. WarnerMedia cash transfer to Discovery was approximately $.
| | $ | | | | $ | | | | $ | | | | $ | | | Operating Income | | | | | | | | | | | | | | |
Net Income from Continuing Operations | | | | | | | | | | | | | | |
Net Income from Continuing Operations Attributable to Common Stock | | | | | | | | | | | | | | |
Basic Earnings Per Share | | | | | | | | | |
Attributable to Common Stock from Continuing Operations2 | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
Diluted Earnings Per Share | | | | | | | | | |
Attributable to Common Stock from Continuing Operations2 | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
1Includes actuarial gains and losses on pension and postretirement benefit plans (Note 14). |
2Quarterly earnings per share impacts may not add to full-year earnings per share impacts due to the difference in weighted-average common shares for the quarters versus the weighted-average common shares for the year. |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | |
| AT&T Inc. |
| Dollars in millions except per share amounts |
| | $ | | | | $ | | | | $ | | | | $ | | |
Operating Income (Loss) | | | | | | | | | | () | | | () | |
Net Income (Loss) from Continuing Operations | | | | | | | | | | () | | | () | |
Net Income (Loss) from Continuing Operations Attributable to Common Stock | | | | | | | | | | () | | | () | |
Basic Earnings (Loss) Per Share | | | | | | | | | |
Attributable to Common Stock from Continuing Operations3 | $ | | | | $ | | | | $ | | | | $ | () | | | $ | () | |
Diluted Earnings (Loss) Per Share | | | | | | | | | |
Attributable to Common Stock from Continuing Operations3 | $ | | | | $ | | | | $ | | | | $ | () | | | $ | () | |
1Includes actuarial gains and losses on pension and postretirement benefit plans (Note 14). |
2Includes goodwill impairments (Note 9) and an asset abandonment charge (Note 7). |
3Quarterly earnings per share impacts may not add to full-year earnings per share impacts due to the difference in weighted-average common shares for the quarters versus the weighted-average common shares for the year. |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | |
| AT&T Inc. |
| Dollars in millions except per share amounts |
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
During our two most recent fiscal years, there has been no change in the independent accountant engaged as the principal accountant to audit our financial statements, and the independent accountant has not expressed reliance on other independent accountants in its reports during such time period.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
The registrant maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed by the registrant is recorded, processed, summarized, accumulated and communicated to its management, including its principal executive and principal financial officers, to allow timely decisions regarding required disclosure, and reported within the time periods specified in the SEC’s rules and forms. The Chief Executive Officer and Chief Financial Officer have performed an evaluation of the effectiveness of the design and operation of the registrant’s disclosure controls and procedures as of December 31, 2023. 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, 2023.
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, 2023. 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, 2023, 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
a.There is no information that was required to be disclosed in a report on Form 8-K during the fourth quarter of 2023 but was not reported.
b.In the quarter ended December 31, 2023, none of our directors or officers (as defined in Rule 16a-1(f) of the Exchange Act) adopted or terminated a plan for the purchase or sale of our securities intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or a non-Rule 10b5-1 trading arrangement for the purchase or sale of our securities, within the meaning of Item 408 of Regulation S-K.
| | |
| AT&T Inc. |
| Dollars in millions except per share amounts |
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information regarding executive officers required by Item 401 of Regulation S-K is furnished in a separate disclosure at the end of Part I of this report entitled “Information about our Executive Officers.” Information regarding directors required by Item 401 of Regulation S-K is incorporated herein by reference pursuant to General Instruction G(3) from the registrant’s 2024 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,” “Pay Versus Performance,” 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.
| | |
| AT&T Inc. |
| Dollars in millions except per share amounts |
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Information required by Item 403 of Regulation S-K is included in the registrant’s Proxy Statement under the heading “Common Stock Ownership,” which is incorporated herein by reference pursuant to General Instruction G(3).
Equity Compensation Plan Information
The following table provides information as of December 31, 2023, concerning shares of AT&T common stock authorized for issuance under AT&T’s existing equity compensation plans.
| | | | | | | | | | | |
| Equity Compensation Plan Information |
| Plan Category | Number of securities to be issued upon
exercise of
outstanding options, warrants and rights
(a) | Weighted average
exercise price of outstanding
options, warrants
and rights
(b) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) |
Equity compensation plans approved by security holders | 65,711,036 (1) | $ | — | | 97,567,370 (2) |
| Equity compensation plans not approved by security holders | — | | — | | — | |
| Total | 65,711,036 (3) | $ | — | | 97,567,370 (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) 108,480 phantom stock units under the Stock Savings Plan (SSP), 17,725,781 phantom stock units under the SPDP, 21,174 restricted stock under the 2011 Incentive Plan, 425,950 restricted stock under the 2016 Incentive Plan and 43,413,267 restricted stock under the 2018 Incentive Plan, (c) 1,871,791 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 up to 200%. 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 restricted stock, 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 2,144,593 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 12,326,447 shares that may be issued under the SPDP, 82,053,876 shares that may be issued under the 2018 Incentive Plan, and up to 3,187,047 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, 2023, there were 2,199,257 shares of AT&T common stock subject to the converted options, having a weighted-average exercise price of $20.82. Also, does not include 345,032 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 138,149 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 restricted stock, performance shares, or phantom stock units.
| | |
| 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: ) | |
Financial Statements covered by Report of Independent Registered Public Accounting Firm: | |
Consolidated Statements of Income | |
| Consolidated Statements of Comprehensive Income | |
Consolidated Balance Sheets | |
Consolidated Statements of Cash Flows | |
Consolidated Statements of Changes in Stockholders’ Equity | |
Notes to Consolidated Financial Statements | |
| |
(2) Financial Statement Schedules: | |
II - Valuation and Qualifying Accounts | |
Financial statement schedules other than those listed above have been omitted because the required information is contained in the financial statements and notes thereto, or because such schedules are not required or applicable.
| | | | | | | | | | | | | | |
(3) Exhibits: | |
| Exhibits identified in parentheses below, on file with the SEC, are incorporated herein by reference as exhibits hereto. Unless otherwise indicated, all exhibits so incorporated are from File No. 1-8610. |
| | | | | | | | | | | | | | |
| Exhibit Number | |
| 2-a | |
| 2-b | |
| 3-a | |
| 3-b | |
| 3-c | |
| 3-d | |
| 3-e | |
| | |
| AT&T Inc. |
| Dollars in millions except per share amounts |
| | | | | | | | | | | | | | |
| 4-a | No instrument which defines the rights of holders of long-term debt of the registrant and all of its consolidated subsidiaries is filed herewith pursuant to Regulation S-K, Item 601(b)(4)(iii)(A), except for the instruments referred to in 4-b, 4-c, 4-d, 4-e, 4-f below. Pursuant to this regulation, the registrant hereby agrees to furnish a copy of any such instrument not filed herewith to the SEC upon request. |
| 4-b | |
| 4-c | Guaranty of certain obligations of Ameritech Capital Funding Corp., Indiana Bell Telephone Co. Inc., Michigan Bell Telephone Co., Pacific Bell Telephone Co., Southwestern Bell Telephone Company, Illinois Bell Telephone Company, The Ohio Bell Telephone Company, The Southern New England Telephone Company, Southern New England Telecommunications Corporation, and Wisconsin Bell, Inc. (Exhibit 4-d to Form 10-K for the period ending December 31, 2011) |
| 4-d | |
| 4-e | |
| 4-f | |
| 4-g | Deposit Agreement, dated December 12, 2019, among the AT&T Inc., Computershare Inc. and Computershare Trust Company, N.A., collectively, as depositary, and the holders from time to time of the depository receipts described therein (Exhibit 4.3 to Form 8-K filed December 12, 2019) |
| 4-h | Deposit Agreement, dated February 18, 2020, among the Company, Computershare Inc. and Computershare Trust Company, N.A., collectively, as depositary, and the holders from time to time of the depositary receipts described therein (Exhibit 4.3 to Form 8-K filed February 18, 2020) |
| 4-i | |
| 10-a | |
| 10-b | |
| 10-c | |
| 10-d | |
| 10-e | |
| 10-f | |
| 10-g | |
| 10-h | |
| 10-i | |
| 10-j | |
| 10-k | |
| 10-l | |
| 10-m | |
| 10-n | |
| 10-o | |
| 10-p | |
| 10-q | |
| 10-r | |
| 10-s | |
| 10-t | |
| | |
| AT&T Inc. |
| Dollars in millions except per share amounts |
| | | | | | | | | | | | | | |
| 10-u | |
| 10-v | |
| 10-w | |
| 10-x | |
| 10-y | $12,000,000,000 Amended and Restated Credit Agreement, dated as of November 18, 2022, among AT&T Inc., the lenders named therein and Citibank, N.A., as agent. (Exhibit 10.1 to Form 8-K filed on November 18, 2022) |
10-z | |
10-aa | |
10-bb | |
10-cc | |
10-dd | |
10-ee | |
10-ff | |
10-gg | |
10-hh | |
| 21 | |
| 23 | |
| 24 | |
|
| 31 | Rule 13a-14(a)/15d-14(a) Certifications |
| 31.1 | |
| 31.2 | |
| 32 | |
| 97 | |
| 99 | Supplemental Interim Financial Information |
| 101 | The consolidated financial statements from the Company’s Form 10-K for the year ended December 31, 2023, as filed with the SEC on February 23, 2024, formatted in Inline XBRL: (i) Consolidated Statements of Cash Flows, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Balance Sheets, and (v) Notes to Consolidated Financial Statements, tagged as blocks of text and including detailed tags. |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
* Certain schedules (or similar attachments) have been omitted pursuant to Item 601(a)(5) or Item 601(b)(2) of Regulation S-K. The registrant agrees to furnish copies of such schedules (or similar attachments) to the U.S. Securities and Exchange Commission upon request.
**Management contracts and compensatory plans and arrangements required to be filed as exhibits pursuant to Item 15(b) of this report.
We will furnish to stockholders upon request, and without charge, a copy of the Annual Report to Stockholders and the Proxy Statement, portions of which are incorporated by reference in the Form 10-K. We will furnish any other exhibit at cost.
ITEM 16. FORM 10-K SUMMARY
None.
| | |
| AT&T Inc. |
| Dollars in millions except per share amounts |
| | | | | | | | | $ | | |
| Year 2022 | $ | | | | | | | | | | | $ | | |
| Year 2021 | $ | | | | | | | | | | | $ | | |
| | |
| | | (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.
(b)Amounts written off as uncollectible.
(c)Includes balances applicable to trade receivables, loans, contract assets and other assets subject to credit loss measurement (see Note 1).
Allowance for Deferred Tax Assets
| | | | | | | | | | | | | | | | | | | | |
| COL. A | COL. B | COL. C | COL. D | COL. E |
| | Additions | | |
| | (1) | (2) | (3) | | |
| Balance at Beginning of Period | Charged to
Costs and Expenses | Charged to Other
Accounts | Acquisitions | Deductions | Balance at End
of Period |
| | |
Year 2023 | $ | | | | | | | | | | | $ | | |
Year 2022 | $ | | | () | | | | | | | | $ | | |
Year 2021 | $ | | | () | | | | | | | | $ | | |
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 23rd day of February, 2024.
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:
Sabrina Sanders
Senior Vice President, Chief
Accounting Officer and Controller
February 23, 2024
| | | | | |
| 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 | |
Similar companies
See also VERIZON COMMUNICATIONS INC -
Annual report 2022 (10-K 2022-12-31)
Annual report 2023 (10-Q 2023-09-30)
See also AMERICA MOVIL SAB DE CV/
See also BCE INC
See also PERUSAHAAN PERSEROAN PERSERO PT TELEKOMUNIKASI INDONESIA TBK
See also ORANGE
Open main menu
