REG - AT & T Inc. - Annual Financial Report
23/07/2024 16:45
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RNS Number : 5235X AT & T Inc. 23 July 2024
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2023
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to
Commission File Number: 001-8610
AT&T INC.
(Exact name of registrant as specified in its charter)
Delaware 43-1301883
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
208 S. Akard St.
Dallas, Texas 75202
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code 210-821-4105
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class Trading Symbol(s) on which registered
Common Shares (Par Value $1.00 Per Share) T New York Stock Exchange
Depositary Shares, each representing a 1/1000th interest in a share of T PRA New York Stock Exchange
5.000% Perpetual Preferred Stock, Series A
Depositary Shares, each representing a 1/1000th interest in a share of T PRC New York Stock Exchange
4.750% Perpetual Preferred Stock, Series C
AT&T Inc. 2.400% Global Notes due March 15, 2024 T 24A New York Stock Exchange
AT&T Inc. Floating Rate Global Notes due March 6, 2025 T 25A New York Stock Exchange
AT&T Inc. 3.550% Global Notes due November 18, 2025 T 25B New York Stock Exchange
AT&T Inc. 3.500% Global Notes due December 17, 2025 T 25 New York Stock Exchange
AT&T Inc. 0.250% Global Notes due March 4, 2026 T 26E New York Stock Exchange
AT&T Inc. 1.800% Global Notes due September 5, 2026 T 26D New York Stock Exchange
AT&T Inc. 2.900% Global Notes due December 4, 2026 T 26A New York Stock Exchange
AT&T Inc. 1.600% Global Notes due May 19, 2028 T 28C New York Stock Exchange
AT&T Inc. 2.350% Global Notes due September 5, 2029 T 29D New York Stock Exchange
AT&T Inc. 4.375% Global Notes due September 14, 2029 T 29B New York Stock Exchange
AT&T Inc. 2.600% Global Notes due December 17, 2029 T 29A New York Stock Exchange
AT&T Inc. 0.800% Global Notes due March 4, 2030 T 30B New York Stock Exchange
AT&T Inc. 3.950% Global Notes due April 30, 2031 T 31F New York Stock Exchange
AT&T Inc. 2.050% Global Notes due May 19, 2032 T 32A New York Stock Exchange
AT&T Inc. 3.550% Global Notes due December 17, 2032 T 32 New York Stock Exchange
AT&T Inc. 5.200% Global Notes due November 18, 2033 T 33 New York Stock Exchange
Securities registered pursuant to Section 12(b) of the Act (continued): Name of each exchange
Title of each class Trading Symbol(s) on which registered
AT&T Inc. 3.375% Global Notes due March 15, 2034 T 34 New York Stock Exchange
AT&T Inc. 4.300% Global Notes due November 18, 2034 T 34C New York Stock Exchange
AT&T Inc. 2.450% Global Notes due March 15, 2035 T 35 New York Stock Exchange
AT&T Inc. 3.150% Global Notes due September 4, 2036 T 36A New York Stock Exchange
AT&T Inc. 2.600% Global Notes due May 19, 2038 T 38C New York Stock Exchange
AT&T Inc. 1.800% Global Notes due September 14, 2039 T 39B New York Stock Exchange
AT&T Inc. 7.000% Global Notes due April 30, 2040 T 40 New York Stock Exchange
AT&T Inc. 4.250% Global Notes due June 1, 2043 T 43 New York Stock Exchange
AT&T Inc. 4.875% Global Notes due June 1, 2044 T 44 New York Stock Exchange
AT&T Inc. 4.000% Global Notes due June 1, 2049 T 49A New York Stock Exchange
AT&T Inc. 4.250% Global Notes due March 1, 2050 T 50 New York Stock Exchange
AT&T Inc. 3.750% Global Notes due September 1, 2050 T50A New York Stock Exchange
AT&T Inc. 5.350% Global Notes due November 1, 2066 TBB New York Stock Exchange
AT&T Inc. 5.625% Global Notes due August 1, 2067 TBC New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act.
Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act.
Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically
every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or
for such shorter period that the registrant was required to submit such
files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, a smaller reporting company, or an
emerging growth company. See definition of "large accelerated filer,"
"accelerated filer," "smaller reporting company," and "emerging growth
company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer ☒ Accelerated Filer ☐
Non-accelerated filer ☐ Smaller reporting company ☐
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has
elected not to use the extended transition period for complying with any new
or revised financial accounting standards provided pursuant to Section 13(a)
of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and
attestation to its management's assessment of the effectiveness of its
internal control over financial reporting under Section 404(b) of the
Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting
firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by
check mark whether the financial statements of the registrant included in the
filing reflect the correction of an error to previously issued financial
statements. ☐
Indicate by check mark whether any of those error corrections are restatements
that required a recovery analysis of incentive-based compensation received by
any of the registrant's executive officers during the relevant recovery period
pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
Based on the closing price of $15.95 per share on June 30, 2023, the aggregate
market value of our voting and non-voting common stock held by non-affiliates
was $114 billion.
At February 7, 2024, common shares outstanding were 7,152,792,253.
DOCUMENTS INCORPORATED BY REFERENCE
(1)Portions of AT&T Inc.'s Notice of 2024 Annual Meeting and Proxy
Statement dated on or about April 4, 2024 to be filed within the period
permitted under General Instruction G(3) (Part III).
TABLE OF CONTENTS
Item Page
PART I (#BKMK_13)
1. Business (#BKMK_14) 1 (#BKMK_14)
1A. (#BKMK_15) Risk Factors (#BKMK_15) 7 (#BKMK_15)
1 (#BKMK_16) B (#BKMK_16) . (#BKMK_16) U (#BKMK_16) nr (#BKMK_16) esolved Sta (#BKMK_16) ff (#BKMK_16) Comments 1 (#BKMK_16) 5 (#BKMK_16)
(#BKMK_16)
1C. (#BKMK_17) Cybersecurity (#BKMK_17) 15 (#BKMK_17)
2. (#BKMK_18) Properties (#BKMK_18) 16 (#BKMK_18)
3. (#BKMK_19) Legal Proceedings (#BKMK_19) 16 (#BKMK_19)
4. (#BKMK_20) Mine Safety Disclosures (#BKMK_20) 16 (#BKMK_20)
Information about our Executive Officers (#BKMK_21) 17 (#BKMK_21)
PART II (#BKMK_22)
5. (#BKMK_23) Market for Registrant's Common Equity, Related Stockholder Matters and Issuer 18 (#BKMK_23)
Purchases of Equity (#BKMK_23)
Securities (#BKMK_23)
6. (#BKMK_24) Item 6. Reserved (#BKMK_24) 19 (#BKMK_24)
7. (#BKMK_25) Management's Discussion and Analysis of Financial Condition and Results of 19 (#BKMK_25)
Operations (#BKMK_25)
7A. (#BKMK_26) Quantitative and Qualitative Disclosures about Market Risk (#BKMK_26) 37 (#BKMK_26)
8. (#BKMK_27) Financial Statements and Supplementary Data (#BKMK_27) 43 (#BKMK_27)
9. (#BKMK_28) Changes in and Disagreements with Accountants on Accounting and Financial 96 (#BKMK_28)
Disclosure (#BKMK_28)
9A. (#BKMK_29) Controls and Procedures (#BKMK_29) 96 (#BKMK_29)
9B. (#BKMK_30) Other Information (#BKMK_30) 96 (#BKMK_30)
PART III (#BKMK_31)
10. (#BKMK_32) Directors, Executive Officers and Corporate Governance (#BKMK_32) 97 (#BKMK_32)
11. (#BKMK_33) Executive Compensation (#BKMK_33) 97 (#BKMK_33)
12. (#BKMK_34) Security Ownership of Certain Beneficial Owners and Management and Related 98 (#BKMK_34)
Stockholder Matters (#BKMK_34)
13. (#BKMK_35) Certain Relationships and Related Transactions, and Director Independence 99 (#BKMK_35)
(#BKMK_35)
14. (#BKMK_36) Principal Accountant Fees and Services (#BKMK_36) 99 (#BKMK_36)
PART IV (#BKMK_37)
15. (#BKMK_38) Exhibits and Financial Statement Schedules (#BKMK_38) 99 (#BKMK_38)
16. (#BKMK_39) Form 10-K Summary (#BKMK_39) 101 (#BKMK_39)
AT&T Inc.
Dollars in millions except per share amounts
PART I
ITEM 1. BUSINESS
GENERAL
AT&T Inc. ("AT&T," "we" or the "Company") is a holding company
incorporated under the laws of the State of Delaware in 1983 and has its
principal executive offices at 208 S. Akard St., Dallas, Texas, 75202
(telephone number 210-821-4105). We maintain an internet website at
www.att.com. (This website address is for information only and is not intended
to be an active link or to incorporate any website information into this
document.) We file electronically with the Securities and Exchange Commission
(SEC) required reports on Form 8-K, Form 10-Q and Form 10-K; proxy materials;
registration statements on Forms S-3 and S-8, as necessary; and other forms or
reports as required. The SEC maintains a website (www.sec.gov) that contains
reports, proxy and information statements, and other information regarding
issuers that file electronically with the SEC. We make available, free of
charge, on our website our annual report on Form 10-K, our quarterly reports
on Form 10-Q, current reports on Form 8-K and all amendments to those reports
as soon as reasonably practicable after such reports are electronically filed
with, or furnished to, the SEC. We also make available on that website, and in
print, if any stockholder or other person so requests, our "Code of Ethics"
applicable to all employees and Directors, our "Corporate Governance
Guidelines," and the charters for all committees of our Board of Directors,
including Audit, Human Resources and Governance and Policy committees. Any
changes to our Code of Ethics or waiver of our Code of Ethics for senior
financial officers, executive officers or Directors will be posted on that
website.
A reference to a "Note" refers to the Notes to Consolidated Financial
Statements in Item 8.
History
AT&T, formerly known as SBC Communications Inc. (SBC), was formed as one
of several regional holding companies created to hold AT&T Corp.'s (ATTC)
local telephone companies. On January 1, 1984, we were spun-off from ATTC
pursuant to an anti-trust consent decree, becoming an independent publicly
traded telecommunications services provider.
Following our formation, we expanded our communications footprint and
operations, most significantly:
•Our subsidiaries merged with incumbent local exchange carriers (ILEC)
Pacific Telesis Group in 1997 and Ameritech Corporation in 1999.
•In 2005, we merged one of our subsidiaries with ATTC, creating one of the
world's leading telecommunications providers. In connection with the merger,
we changed the name of our company from "SBC Communications Inc." to "AT&T
Inc."
•In 2006, we acquired ILEC BellSouth Corporation (BellSouth), which included
BellSouth's 40 percent economic interest in AT&T Mobility LLC (AT&T
Mobility), formerly Cingular Wireless LLC, resulting in 100 percent ownership
of AT&T Mobility.
•In 2014, we completed the acquisition of wireless provider Leap Wireless
International, Inc.
•In 2015, we acquired wireless properties in Mexico and acquired DIRECTV, a
leading provider of digital television entertainment services in both the
United States (included in our Video business) and Latin America (referred to
as Vrio).
•From 2018 through April 2022, we acquired and held various investments in
entertainment businesses, namely Time Warner Inc., which comprised a
substantial portion of our previous WarnerMedia segment.
•In July 2021, we closed our transaction with TPG Capital (TPG) to form a
new company named DIRECTV Entertainment Holdings, LLC (DIRECTV). With the
close of the transaction (DIRECTV Transaction), we separated our Video
business, comprised of our U.S. video operations, and began accounting for our
investment in DIRECTV under the equity method.
•In April 2022, we completed the separation of our WarnerMedia business in a
Reverse Morris Trust transaction (WarnerMedia/Discovery Transaction). Upon its
separation and distribution, the WarnerMedia business met the criteria for
discontinued operations, as did other dispositions that were part of a single
plan, including Vrio, Xandr and Playdemic Ltd. (Playdemic). These businesses
are reflected in our historical financial statements as discontinued
operations, including for periods prior to the consummation of the WarnerMedia
separation.
1
AT&T Inc.
Dollars in millions except per share amounts
General
We are a leading provider of telecommunications and technology services
globally. The services and products that we offer vary by market and utilize
various technology platforms in a range of geographies. Our reportable
segments are organized as follows:
The Communications segment provides wireless and wireline telecom and
broadband services to consumers located in the U.S. and businesses globally.
Our business strategies reflect 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 support costs, including administrative support costs borne by
AT&T where business units do not influence decision making, divested
businesses and results from business no longer integral to our operations are
reported as Corporate and Other, which reconciles our segment results to
consolidated operating income and income before income taxes.
Areas of Focus
We are a leader in providing connectivity services through our market focus
areas of 5G and fiber. Fiber underpins the connectivity we deliver, both wired
and wireless. Building on that fiber foundation is our solid spectrum
portfolio, strengthened through Federal Communications Commission (FCC)
auction acquisitions and 5G deployment. We believe our fixed wireline and
mobile approach will differentiate our services and provide us with additional
convergence growth opportunities in the future as bandwidth demands continue
to grow. We will continue to demonstrate our commitment to ensure management
attention is sharply focused on growth areas and operational efficiencies.
Our integrated telecommunications network utilizes different technological
platforms to provide instant connectivity at the higher speeds made possible
by our fiber network expansion and wireless network enhancements. Streaming,
augmented reality, "smart" technologies and user generated content are
expected to continue to drive greater demand for broadband and capitalize on
our fiber and 5G deployments. During 2024, we plan to continue to develop and
provide high-value, integrated mobile and broadband solutions.
In December 2023, we announced plans to collaborate with Ericsson to lead the
U.S. in commercial scale open radio access network (Open RAN) deployment 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.
We plan for about 70% of our wireless network traffic to flow across
open-capable platforms by late 2026, and to have fully-integrated Open RAN
sites operating starting in 2024. Beginning in 2025, we expect to scale this
Open RAN environment throughout our wireless network in coordination with
multiple suppliers.
We believe the move to an open, agile, programmable wireless network positions
us to quickly capitalize on the next generation of wireless technology and
spectrum when it becomes available. These innovative technologies are expected
to enable lower-power, sustainable networks with higher performance to deliver
enhanced user experiences.
Wireless Service We continue to experience rapid growth in data usage as
consumers are demanding seamless access across their wireless and wired
devices, and businesses and municipalities are connecting more and more
equipment and facilities to the internet. The deployment of 5G, which allows
for faster connectivity, lower latency and greater bandwidth, requires
modifications of existing cell sites to add equipment supporting new
frequencies, like the C-Band and the 3.45 GHz band. The increased speeds and
network operating efficiency expected with 5G technology should enable massive
deployment of devices connected to the internet as well as faster delivery of
data services. As the wireless industry has matured, with nearly full
penetration of smartphones in the U.S. population, future wireless growth will
depend on our ability to offer innovative services, plans and devices that
bundle product offerings and take advantage of our 5G wireless network.
To support higher mobile data usage, our priority is to best utilize a
wireless network that has sufficient spectrum and capacity to support these
innovations on as broad a geographic basis as possible. We expect to continue
to invest significant capital in expanding our network capacity, as well as
obtaining additional spectrum that meets our long-term needs. We participate
in FCC spectrum auctions and have been redeploying spectrum previously used
for more basic services to support more advanced mobile internet services.
2
AT&T Inc.
Dollars in millions except per share amounts
In North America, our network covers over 438 million people with 4G LTE and
over 302 million with 5G technology. In the United States, our network covers
all major metropolitan areas and more than 334 million people with our LTE
technology and more than 302 million people with our 5G technology.
Broadband Technology In 2020, we identified fiber as a core priority for our
business and enhanced our focus to expand our fiber footprint and grow
customers. At December 31, 2023, we had more than 8.3 million fiber consumer
wireline broadband customers, adding 1.1 million during the year. The
expansion builds on our recent investments to convert to a software-based
network, managing the migration of wireline customers to services using our
fiber infrastructure to provide broadband technology. Software-based
technologies align with our global leadership in software defined network
(SDN) and network function virtualization (NFV). This network approach
delivers a demonstrable cost advantage in the deployment of next-generation
technology over the traditional, hardware-intensive network approach. Our
virtualized network supports next-generation applications like 5G and
broadband-based services quickly and efficiently.
BUSINESS OPERATIONS
OPERATING SEGMENTS
Our segments are strategic business units that offer different products and
services over various technology platforms and/or in different geographies
that are managed accordingly. We have two reportable segments: Communications
and Latin America.
Additional information about our segments, including financial information, is
included under the heading "Segment Results" in Item 7. and in Note 4 of Item
8.
COMMUNICATIONS
Our Communications segment provides wireless and wireline telecom and
broadband services to consumers located in the U.S. and businesses globally.
Our Communications services and products are marketed under the AT&T,
AT&T Business, Cricket, AT&T PREPAIDSM and AT&T Fiber brand names.
The Communications segment provided approximately 97% of 2023 segment
operating revenues and accounted for all of our 2023 total segment income.
This segment contains the Mobility, Business Wireline and Consumer Wireline
business units.
Mobility - Our Mobility business unit provides nationwide wireless services to
consumers and wholesale and resale wireless subscribers located in the United
States by utilizing our network to provide voice and data services, including
high-speed internet over wireless devices. We classify our subscribers as
either postpaid, prepaid, connected device or reseller. As of December 31,
2023, we served 242 million Mobility subscribers, including 87 million
postpaid (71 million phone), 19 million prepaid, 7 million reseller and 128
million connected devices. Our Mobility business unit revenue includes the
following categories: service and equipment.
Services
We offer a comprehensive range of high-quality nationwide wireless voice and
data communications services in a variety of pricing plans to meet the
communications needs of targeted customer categories. Through FirstNet®
services, we also provide a nationwide wireless broadband network dedicated to
public safety.
Consumers continue to require increasing availability of data-centric services
and a network to connect and control those devices. An increasing number of
our subscribers are using more advanced devices, including embedded computing
systems and/or software, commonly called the Internet of Things (IoT). We
offer unlimited plans that include features allowing for the sharing of voice,
text and data across multiple devices, which attracts subscribers from other
providers and helps minimize subscriber churn. Customers in our "connected
device" category (e.g., users of monitoring devices and automobile systems)
generally purchase those devices from third-party suppliers that buy data
access supported by our network. We continue to upgrade our network and
coordinate with equipment manufacturers and application developers to further
capitalize on the continued growing demand for wireless data services.
We also offer nationwide wireless voice and data communications to certain
customers who prefer to pay in advance. These services are offered under the
Cricket and AT&T PREPAID brands and are typically monthly prepaid
services.
Equipment
We sell a wide variety of handsets, wireless data cards and wireless computing
devices manufactured by various suppliers for use with our voice and data
services. We also sell accessories, such as carrying cases/protective covers
and wireless chargers. We sell through our own company-owned stores, agents
and third-party retail stores. We provide our customers the ability to
purchase handsets on an installment basis and the opportunity to bring their
own device. Subscribers that bring their own devices or retain handsets for
longer periods impact upgrade activity. Like other wireless service providers,
we also provide postpaid contract subscribers promotional equipment offers to
initiate, renew or upgrade service.
3
AT&T Inc.
Dollars in millions except per share amounts
Business Wireline - Our Business Wireline business unit provides services to
business customers, including multinational corporations, small and mid-sized
businesses, governmental and wholesale customers. Our Business Wireline
business unit revenue includes the following categories: service and
equipment.
Services
We offer advanced IP-based services, such as Virtual Private Networks (VPN),
AT&T Dedicated Internet, and Ethernet as well as traditional data
services, cloud solutions, outsourcing and managed professional services. We
provide collaboration services that utilize our IP infrastructure and allow
our customers to utilize the most advanced technology to improve their
productivity.
We continue to reconfigure our wireline network to take advantage of the
latest technologies and services, and rely on our SDN and NFV to enhance
business customers' digital agility in a rapidly evolving environment. Some of
the services we have offered historically are in secular decline and, going
forward, we will focus on our owned and operated connectivity services powered
by 5G and fiber.
Equipment
Equipment revenues include customer premises equipment.
Consumer Wireline - Our Consumer Wireline business unit provides broadband
services, including fiber connections, and legacy telephony voice
communication services to customers in the United States by utilizing our
IP-based and copper wired network. Additionally, this business unit offers
AT&T Internet Air, which is a fixed wireless access product that provides
home internet services delivered over our 5G wireless network where available.
Our Consumer Wireline business unit revenue includes the following categories:
broadband, legacy voice and data services and other service and equipment.
Broadband Services
We provide broadband and internet services to approximately 15 million
customer locations, with 8 million fiber broadband connections at
December 31, 2023. With changes in video viewing preferences and the impacts
of remote work and learning trends, we are experiencing increasing demand for
high-speed broadband services. We believe our investment in expanding our
industry-leading fiber network positions us to be a leader in wired
connectivity. With our focus on fiber that brings efficiencies and owner
economics, we continue to evaluate opportunities where we can turn down
existing copper infrastructure.
We believe that our flexible platform with a broadband and wireless connection
is the most efficient way to transport direct-to-consumer video and data
experiences both at home and on mobile devices. Through this integrated
approach, we can optimize the use of storage in the home as well as in the
cloud, while also providing a seamless service for consumers across screens
and locations.
Legacy Voice and Data Services
Revenues from our traditional voice services continue to decline as customers
switch to wireless or VoIP services provided by us, cable companies or other
internet-based providers.
Other Services and Equipment
Other service revenues include VoIP services, customer fees and equipment.
Additional information on our Communications segment is contained in the
"Overview" section of Item 7.
LATIN AMERICA
Our Latin America segment provides wireless services in Mexico. We utilize our
regional and national wireless networks in Mexico to provide consumer and
business customers with wireless data and voice communication services. We
divide our revenue into the following categories: service and equipment.
Services
We provide postpaid and prepaid wireless services in Mexico to approximately
22 million subscribers under the AT&T and Unefon brands. Postpaid services
allow for (1) no annual service contract for subscribers who bring their own
device or purchase a device on installment and (2) service contracts for
periods up to 36 months for subscribers who purchase their equipment under the
traditional device subsidy model. We also offer prepaid services to customers
who prefer to pay in advance.
Equipment
We sell a wide variety of handsets, including smartphones manufactured by
various suppliers for use with our voice and data services. We sell through
our own company-owned stores, agents and third-party retail stores.
Additional information on our Latin America segment is contained in the
"Overview" section of Item 7.
4
AT&T Inc.
Dollars in millions except per share amounts
MAJOR CLASSES OF SERVICE
The following table sets forth the percentage of total consolidated reported
operating revenues by any class of service that accounted for 10% or more of
our consolidated total operating revenues in any of the last three fiscal
years:
Percentage of Total
Consolidated Operating Revenues
2023 2022 2021
Communications Segment
Wireless service 52 % 50 % 43 %
Business service 17 18 17
Equipment 17 18 16
Latin America Segment
Wireless service 2 2 1
Equipment 1 1 1
Corporate and Other
Video services1 - - 12
1U.S. video operations were separated in July 2021. (See Note 6)
Additional information on our geographical distribution of revenues is
contained in Note 4 of Item 8.
GOVERNMENT REGULATION
Facilities-based wireless communications providers in the United States, like
AT&T, must be licensed by the FCC to provide communications services at
specified spectrum frequencies within defined geographic areas and must comply
with FCC rules and policies governing the use of the spectrum. The FCC's rules
have a direct impact on whether the wireless industry has sufficient spectrum
available to support the high-quality, innovative services our customers
demand. Wireless licenses are issued for a fixed time period, typically 10 to
15 years, and we must seek renewal of these licenses. While the FCC has
generally renewed licenses, the FCC has authority to both revoke a license for
cause and to deny a license renewal if a renewal is not in the public
interest. Additionally, while wireless communications providers' prices and
service offerings are generally not subject to regulation, the federal
government and various states periodically consider new regulations and
legislation relating to various aspects of wireless services.
The Communications Act of 1934 and other related laws give the FCC broad
authority to regulate the U.S. operations of our 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
5
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.
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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.
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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
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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
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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.
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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.
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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.
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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.
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CAUTIONARY LANGUAGE CONCERNING FORWARD-LOOKING STATEMENTS
Information set forth in this report contains forward-looking statements that
are subject to risks and uncertainties, and actual results could differ
materially. Many of these factors are discussed in more detail in the "Risk
Factors" section. We claim the protection of the safe harbor for
forward-looking statements provided by the Private Securities Litigation
Reform Act of 1995.
The following factors could cause our future results to differ materially from
those expressed in the forward-looking statements:
•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.
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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.
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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.
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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 4/2020
Services, Inc.
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 8/2023
and International
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.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is listed on the New York Stock Exchange under the ticker
symbol "T". The number of stockholders of record as of December 31, 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.
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Our Board of Directors has approved the following authorization to repurchase
common stock: March 2014 authorization program for 300 million shares, with
144 million outstanding at December 31, 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 Average Price Paid Per Share (or Unit) Total Number of Shares (or Units) Purchased Maximum Number (or Approximate Dollar Value) of Shares (or Units) That May Yet
Be Purchased Under The Plans or Programs
Shares (or Units) Purchased1,2 as Part of Publicly Announced Plans or Programs1
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.
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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.
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RESULTS OF OPERATIONS
Consolidated Results Our financial results from continuing operations are
summarized in the following table. We then discuss factors affecting our
overall results from continuing operations. Additional analysis is discussed
in our "Segment Results" section. We also discuss our expected revenue and
expense trends for 2024 in the "Operating Environment and Trends of the
Business" section.
Percent Change
2023 2022 2021 2023 vs. 2022 vs.
2022 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 1,193 27,498 213 (95.7) -
and restructuring
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 - % - %
OVERVIEW
Operating revenues increased in 2023. The increase reflects growth in Mobility
and Consumer Wireline revenues, partially offset by continued declines in
Business Wireline revenues. Revenue increases also reflect higher revenues in
our Mexico business unit, including favorable impacts from foreign exchange.
Operations and support expenses decreased in 2023, reflecting benefits of our
continued transformation efforts, including lower personnel costs, partially
offset by inflationary increases. The decrease also reflects lower Mobility
equipment and associated selling costs, driven by lower device sales in 2023
and 3G network shutdown costs in the first quarter of 2022, higher returns on
benefit-related assets and lower customer support costs. Partially offsetting
the decreases were higher amortization of deferred customer acquisition costs
and unfavorable impact of foreign exchange.
Asset impairments and abandonments and restructuring decreased in 2023, with
higher impairments in 2022. Noncash charges in 2023 primarily relate to
severance and restructuring charges, as well as the abandonment of
non-deployed wireless equipment associated with our recently announced plans
to collaborate with Ericsson to deploy commercial scale open radio access
network (Open RAN), which will further the telecommunications industry efforts
and align with the federal government's goal to build a more robust ecosystem
of network infrastructure providers and suppliers. This network transformation
is expected to result in additional cash charges in 2024.
Noncash charges in 2022 were primarily due to the impairment of $24,812 of
goodwill associated with our Business Wireline, Consumer Wireline and Mexico
reporting units, and were driven by higher interest rates consistent with the
macroeconomic environment, with secular declines also impacting Business
Wireline growth rates (see Note 9). The charges in 2022 also included $1,413
of wireline conduit asset abandonments and $1,273 of restructuring and other
impairment charges due to updated network build plans stemming from spectrum
acquired in recent auctions, severance charges associated with transformation
initiatives and impairment of personal protective equipment inventory.
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Depreciation and amortization expense increased in 2023, primarily due to
higher depreciation expense related to ongoing capital spending for strategic
initiatives such as fiber and network upgrades. We expect depreciation expense
to increase due to continued fiber and 5G investment and approximately $850 in
2024 due to the expected shortening of estimated economic lives of wireless
equipment that will be replaced earlier than originally anticipated with our
deployment of Open RAN.
Operating income increased in 2023 and decreased in 2022. Our operating margin
was 19.2% in 2023, compared to (3.8)% in 2022, which included noncash
impairment charges, and 19.3% in 2021.
Interest expense increased in 2023, primarily due to lower capitalized
interest associated with spectrum acquisitions and higher interest rates.
Interest expense in 2023 also includes the reclassification of Mobility
preferred interests distributions, which were repurchased on April 5, 2023
(see Note 16). Mobility preferred interest distributions were recorded as
noncontrolling interest in 2022.
Late in the third quarter of 2023, C-band incumbents completed their
transition out of the spectrum band, allowing us to use all C-band licenses
awarded to us in the Federal Communications Commission (FCC) auction in 2021,
and we have ceased capitalization of interest for licenses that have been
placed into service. We expect interest expense to increase approximately $400
in 2024 as a result.
Equity in net income of affiliates decreased in 2023. The decrease was
primarily due to the performance of our investment in DIRECTV, which included
our share of a gain on a sale-leaseback transaction by DIRECTV of
approximately $100 in 2023 (see Notes 6, 10 and 19).
Other income (expense) - net decreased in 2023. The decrease was primarily
driven by actuarial remeasurement of pension plan assets and obligations, with
net actuarial and settlement losses of $1,594 in 2023, compared to gains of
$1,999 in 2022 (see Note 14). Also contributing to the decrease was a $450
impairment of an equity investment in a Latin America satellite business and
lower net pension and postretirement benefit credits in 2023 (see Note 14).
Partially offsetting the decrease were higher returns on other benefit-related
investments.
Income tax expense increased in 2023, primarily driven by higher income before
income tax in 2023, partially offset by deferred tax benefits related to
updated estimates.
Our effective tax rate was 21.3% in 2023, (122.2)% in 2022, and 18.5% in 2021.
The effective tax rate in 2022 was lower primarily due to our goodwill
impairments associated with our Business Wireline, Consumer Wireline and
Mexico reporting units, which are not deductible for tax purposes.
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AT&T Inc.
Dollars in millions except per share amounts
Segment Results Our segments are comprised of strategic business units or
other operations that offer products and services to different customer
segments over various technology platforms and/or in different geographies
that are managed accordingly. We evaluate segment performance based on
operating income as well as EBITDA and/or EBITDA margin, which is defined as
operating income excluding depreciation and amortization. EBITDA is used as
part of our management reporting and we believe EBITDA to be a relevant and
useful measurement to our investors as it measures the cash generation
potential of our business units. EBITDA does not give effect to depreciation
and amortization expenses incurred in operating income nor is it burdened by
cash used for debt service requirements and thus does not reflect available
funds for distributions, reinvestment or other discretionary uses. EBITDA
margin is EBITDA divided by total revenues.
Effective for the first quarter of 2023, we stopped recording prior service
credits to our individual business units or the corresponding charge to
Corporate and Other, and segment operating expenses were recast to remove
prior service credits from our historical reporting. Prior service credits
are, and will continue to be, recorded as other income in our consolidated
income statement in accordance with U.S. generally accepted accounting
principles (see Note 14). This recast increased Communications segment
operations and support expenses by approximately $2,400 in 2022 and $2,100 in
2021. Correspondingly, this recast lowered administrative expenses within
Corporate and Other, with no change on a consolidated basis.
COMMUNICATIONS SEGMENT Percent Change
2023 2022 2021 2023 vs. 2022 vs.
2022 2021
Segment Operating Revenues
Mobility $ 83,982 $ 81,780 $ 78,254 2.7 % 4.5 %
Business Wireline 20,883 22,538 23,937 (7.3) (5.8)
Consumer Wireline 13,173 12,749 12,539 3.3 1.7
Total Segment Operating Revenues $ 118,038 $ 117,067 $ 114,730 0.8 % 2.0 %
Segment Operating Income
Mobility $ 25,861 $ 23,812 $ 22,679 8.6 % 5.0 %
Business Wireline 1,289 2,290 3,092 (43.7) (25.9)
Consumer Wireline 651 634 522 2.7 21.5
Total Segment Operating Income $ 27,801 $ 26,736 $ 26,293 4.0 % 1.7 %
Selected Subscribers and Connections
December 31,
(in 000s) 2023 2022 2021
Mobility subscribers 241,532 217,397 201,791
Total domestic broadband connections 15,288 15,386 15,504
Network access lines in service 4,185 5,213 6,177
VoIP connections 2,558 2,930 3,333
Operating revenues increased in 2023, driven by increases in our Mobility and
Consumer Wireline business units, partially offset by a decrease in our
Business Wireline business unit. The increases are primarily driven by gains
in wireless service and broadband service. Business Wireline continues to
reflect lower demand for legacy services and product simplification.
Operating income increased in 2023 and 2022. The 2023 operating income
reflects an increase in operating income from our Mobility and Consumer
Wireline business units, partially offset by declines in our Business Wireline
business unit. Our Communications segment operating income margin was 23.6% in
2023, 22.8% in 2022 and 22.9% in 2021.
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AT&T Inc.
Dollars in millions except per share amounts
Communications Business Unit Discussion
Mobility Results
Percent Change
2023 2022 2021 2023 vs. 2022 vs.
2022 2021
Operating revenues
Service $ 63,175 $ 60,499 $ 57,590 4.4 % 5.1 %
Equipment 20,807 21,281 20,664 (2.2) 3.0
Total Operating Revenues 83,982 81,780 78,254 2.7 4.5
Operating expenses
Operations and support 49,604 49,770 47,453 (0.3) 4.9
Depreciation and amortization 8,517 8,198 8,122 3.9 0.9
Total Operating Expenses 58,121 57,968 55,575 0.3 4.3
Operating Income $ 25,861 $ 23,812 $ 22,679 8.6 % 5.0 %
The following tables highlight other key measures of performance for Mobility:
Subscribers
Percent Change
(in 000s) 2023 2022 2021 2023 vs. 2022 vs.
2022 2021
Postpaid 87,104 84,700 81,534 2.8 % 3.9 %
Postpaid phone 71,255 69,596 67,260 2.4 3.5
Prepaid 19,236 19,176 19,028 0.3 0.8
Reseller 7,468 6,043 6,113 23.6 (1.1)
Connected devices1 127,724 107,478 95,116 18.8 13.0
Total Mobility Subscribers2 241,532 217,397 201,791 11.1 % 7.7 %
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 vs.
2022 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.
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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 vs.
2022 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.
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AT&T Inc.
Dollars in millions except per share amounts
Consumer Wireline Results
Percent Change
2023 2022 2021 2023 vs. 2022 vs.
2022 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 vs.
2022 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 vs.
2022 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.
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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 vs.
2022 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 vs.
2022 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 vs.
2022 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.
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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.
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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.
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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.
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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
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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.
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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.
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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.
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AT&T Inc.
Dollars in millions except per share amounts
A tabular summary of our debt activity during 2023 is as follows:
First Second Third Fourth Full Year 2023
Quarter
Quarter
Quarter
Quarter
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)
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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.
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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 1-3 3-5 More than
5 Years
1 Year Years 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
Total Contractual Obligations $ 337,473 $ 29,367 $ 50,979 $ 41,236 $ 215,891
1Represents principal or payoff amounts of notes, debentures and credit
agreement borrowings at maturity (see Note 11). Foreign debt includes the
impact from hedges, when applicable.
2Includes credit agreement borrowings.
3We expect to fund the purchase obligations with cash provided by operations
or through incremental borrowings. The minimum commitment for certain
obligations is based on termination penalties that could be paid to exit the
contracts. (See Note 21)
4Represents operating lease payments (see Note 8).
5Represents contractual commitment to make sustainability payments over the
25-year contract. These sustainability payments represent our commitment to
fund FirstNet's operating expenses and future reinvestment in the network,
which we own and operate. FirstNet has a statutory requirement to reinvest
funds that exceed the agency's operating expenses, which we anticipate to be
$15,000. (See Note 20)
6The noncurrent portion of the UTBs is included in the "More than 5 Years"
column, as we cannot reasonably estimate the timing or amounts of additional
cash payments, if any, at this time (see Note 13).
7Represents future minimum payments under the Crown Castle and other
arrangements (see Note 18), payables subject to extended payment terms (see
Note 22) and finance lease payments (see Note 8).
Certain items were excluded from this table because the year of payment is
unknown and could not be reliably estimated, we believe the obligations are
immaterial, or the settlement of the obligation will not require the use of
cash. These items include: deferred income tax liability of $58,666 (see Note
13); net postemployment benefit obligations of $9,365 (including current
portion); and other noncurrent liabilities of $8,272.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risks primarily from changes in interest rates and
foreign currency exchange rates. These risks, along with other business risks,
impact our cost of capital. It is our policy to manage our debt structure and
foreign exchange exposure in order to manage capital costs, control financial
risks and maintain financial flexibility over the long term. In managing
market risks, we employ derivatives according to documented policies and
procedures, including interest rate swaps, interest rate locks, foreign
currency exchange contracts and combined interest rate foreign currency
contracts (cross-currency swaps). We do not use derivatives for trading or
speculative purposes. We do not foresee significant changes in the strategies
we use to manage market risk in the near future.
One of the most significant assumptions used in estimating our postretirement
benefit obligations is the assumed weighted-average discount rate, which is
the hypothetical rate at which the projected benefit obligations could be
effectively settled or paid out to participants. We determined our discount
rate based on a range of factors, including a yield curve composed of the
rates of return on several hundred high-quality, fixed income corporate bonds
available at the measurement date and corresponding to the related expected
durations of future cash outflows for the obligations. In recent years, the
discount rates have been increasingly volatile, and on average have been lower
than in historical periods. Lower discount rates used to measure our pension
and postretirement plans result in higher obligations. Future increases in
these rates could result in lower obligations, improved funded status and
actuarial gains.
Interest Rate Risk
The majority of our financial instruments are medium- and long-term fixed-rate
notes and debentures. Changes in interest rates can lead to significant
fluctuations in the fair value of these instruments. The principal amounts by
expected maturity, average interest rate and fair value of our liabilities
that are exposed to interest rate risk are described in Notes 11 and 12. In
managing interest expense, we control our mix of fixed- and floating-rate debt
through term loans, floating rate notes, and interest rate swaps. We have
established interest rate risk limits that we closely monitor by measuring
interest rate sensitivities in our debt and interest rate derivatives
portfolios.
37
AT&T Inc.
Dollars in millions except per share amounts
Our foreign-denominated long-term debt has been swapped from fixed-rate or
floating-rate foreign currencies to fixed-rate U.S. dollars at issuance
through cross-currency swaps, removing interest rate risk and foreign currency
exchange risk associated with the underlying interest and principal payments.
Likewise, periodically we enter into interest rate locks to partially hedge
the risk of increases in the benchmark interest rate during the period leading
up to the probable issuance of fixed-rate debt. We expect gains or losses on
our cross-currency swaps and interest rate locks to offset the losses and
gains in the financial instruments they hedge.
Below are our interest rate derivatives subject to material interest rate risk
as of December 31, 2023. The interest rates illustrated below refer to the
average rates we expect to pay based on current and implied forward rates and
the average rates we expect to receive based on derivative contracts. The
notional amount is the principal amount of the debt subject to the interest
rate swap contracts. The fair value asset (liability) represents the amount we
would receive (pay) if we terminated the contracts as of December 31, 2023.
Maturity
2024 2025 2026 2027 2028 Thereafter Total Fair Value 12/31/2023
Interest Rate Derivatives
Interest Rate Swaps:
Receive Fixed/Pay $ - $ - $ 1,750 $ - $ - $ - $ 1,750 $ (2)
Variable Notional
Amount Maturing2
Weighted-Average 5.0 % 3.6 % 3.3 % - % - % - %
Variable Rate Payable1,2
Weighted-Average 5.5 % 5.5 % 5.5 % - % - % - %
Fixed Rate Receivable
1Interest payable based on implied forward rates for the secured overnight
financing rate (SOFR) plus a spread of approximately 14 basis points.
2Derivative is cancelable by the counterparty beginning in 2024.
We had no interest rate locks at December 31, 2023.
Foreign Exchange Risk
We principally use foreign exchange contracts to hedge costs and debt
denominated in foreign currencies. We are also exposed to foreign currency
exchange risk through our foreign affiliates and equity investments in foreign
companies.
Through cross-currency swaps, our foreign-denominated debt has been swapped
from fixed-rate or floating-rate foreign currencies to fixed-rate U.S. dollars
at issuance, removing interest rate and foreign currency exchange risk
associated with the underlying interest and principal payments. We expect
gains or losses in our cross-currency swaps to offset the gains and losses in
the financial instruments they hedge. We had cross-currency swaps with a
notional value of $38,006 and a fair value of $(3,177) outstanding at
December 31, 2023.
For the purpose of assessing specific risks, we use a sensitivity analysis to
determine the effects that market risk exposures may have on the fair value of
our financial instruments and results of operations. We had no foreign
exchange forward contracts at December 31, 2023.
38
AT&T Inc.
REPORT OF MANAGEMENT
The consolidated financial statements have been prepared in conformity with
U.S. generally accepted accounting principles. The integrity and objectivity
of the data in these financial statements, including estimates and judgments
relating to matters not concluded by year end, are the responsibility of
management, as is all other information included in the Annual Report, unless
otherwise indicated.
The financial statements of AT&T Inc. (AT&T) have been audited by
Ernst & Young LLP, Independent Registered Public Accounting Firm.
Management has made available to Ernst & Young LLP all of AT&T's
financial records and related data, as well as the minutes of stockholders'
and directors' meetings. Furthermore, management believes that all
representations made to Ernst & Young LLP during its audit were valid and
appropriate.
Management maintains disclosure controls and procedures that are designed to
ensure that information required to be disclosed by AT&T is recorded,
processed, summarized, accumulated and communicated to its management,
including its principal executive and principal financial officers, to allow
timely decisions regarding required disclosure, and reported within the time
periods specified by the Securities and Exchange Commission's rules and forms.
Management also seeks to ensure the objectivity and integrity of its financial
data by the careful selection of its managers, by organizational arrangements
that provide an appropriate division of responsibility and by communication
programs aimed at ensuring that its policies, standards and managerial
authorities are understood throughout the organization.
The Audit Committee of the Board of Directors meets periodically with
management, the internal auditors and the independent auditors to review the
manner in which they are performing their respective responsibilities and to
discuss auditing, internal accounting controls and financial reporting
matters. Both the internal auditors and the independent auditors periodically
meet alone with the Audit Committee and have access to the Audit Committee at
any time.
Assessment of Internal Control
The management of AT&T is responsible for establishing and maintaining
adequate internal control over financial reporting, as defined in Rule
13a-15(f) or 15d-15(f) under the Securities Exchange Act of 1934. AT&T's
internal control system was designed to provide reasonable assurance to the
company's management and Board of Directors regarding the preparation and fair
presentation of published financial statements.
AT&T management assessed the effectiveness of the company's internal
control over financial reporting as of December 31, 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.
Ernst & Young LLP, the independent registered public accounting firm that
audited the financial statements included in this Annual Report, has issued an
attestation report on the company's internal control over financial reporting.
/s/John T. Stankey /s/Pascal Desroches
John T. Stankey Pascal Desroches
Chief Executive Officer Senior Executive Vice President
and President
and Chief Financial Officer
39
AT&T Inc.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of AT&T Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of AT&T Inc.
(the Company) as of December 31, 2023 and 2022, the related consolidated
statements of income, comprehensive income, cash flows and changes in
stockholders' equity for each of the three years in the period ended December
31, 2023, and the related notes and financial statement schedule listed in
Item 15(a) (collectively referred to as the "consolidated financial
statements"). In our opinion, the consolidated financial statements present
fairly, in all material respects, the financial position of the Company at
December 31, 2023 and 2022, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2023, in
conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States) (PCAOB), the Company's internal
control over financial reporting as of December 31, 2023, based on criteria
established in Internal Control-Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (2013 framework) and
our report dated February 23, 2024 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on the Company's financial
statements based on our audits. We are a public accounting firm registered
with the PCAOB and are required to be independent with respect to the Company
in accordance with the U.S. federal securities laws and the applicable rules
and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud. Our audits included performing
procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial statements.
Our audits also included evaluating the accounting principles used and
significant estimates made by management, as well as evaluating the overall
presentation of the financial statements. We believe that our audits provide a
reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the
current period audit of the financial statements that were communicated or
required to be communicated to the audit committee and that: (1) relate to
accounts or disclosures that are material to the financial statements and (2)
involved our especially challenging, subjective or complex judgments. The
communication of critical audit matters does not alter in any way our opinion
on the consolidated financial statements, taken as a whole, and we are not, by
communicating the critical audit matters below, providing separate opinions on
the critical audit matters or on the accounts or disclosures to which they
relate.
Discount rates used in determining pension and postretirement benefit
obligations
Description of the Matter At December 31, 2023, the Company's defined benefit pension obligation was
$33,227 million and exceeded the fair value of pension plan assets of $30,098
million, resulting in an unfunded benefit obligation of $3,129 million.
Additionally, at December 31, 2023, the Company's postretirement benefit
obligation was $6,693 million and exceeded the fair value of postretirement
plan assets of $1,763 million, resulting in an unfunded benefit obligation of
$4,930 million. As explained in Note 14 to the consolidated financial
statements, the Company updates the assumptions used to measure the defined
benefit pension and postretirement benefit obligations, including discount
rates, at December 31 or upon a remeasurement event. The Company determines
the discount rates used to measure the obligations based on the development of
a yield curve using high-quality corporate bonds selected to yield cash flows
that correspond to the expected timing and amount of the expected future
benefit payments.
40
AT&T Inc.
Auditing the defined benefit pension and postretirement benefit obligations
was complex due to the judgmental nature of the actuarial assumptions made by
management, primarily the discount rates, used in the Company's measurement
process. The discount rates have a significant effect on the measurement of
the defined benefit pension and postretirement benefit obligations, and
auditing the discount rates was complex because it required an evaluation of
the credit quality of the corporate bonds used to develop the discount rates
and the correlation of those bonds' cash inflows to the timing and amount of
future expected benefit payments.
How We We obtained an understanding, evaluated the design and tested the operating
Addressed the Matter in Our effectiveness of certain controls over management's review of the
Audit determination of the discount rates used in the defined benefit pension and
postretirement benefit obligations calculations.
To test the determination of the discount rates used in the calculation of the
defined benefit pension and postretirement benefit obligations, we performed
audit procedures that focused on evaluating, with the assistance of our
actuarial specialists, the determination of the discount rates, among other
procedures. For example, we evaluated the selected yield curve used to
determine the discount rates applied in measuring the defined benefit pension
and postretirement benefit obligations. As part of this assessment, we
considered the credit quality of the corporate bonds that comprised the yield
curve and compared the timing and amount of cash flows at maturity with the
expected amounts and duration of the related benefit payments.
Evaluation of goodwill for impairment
Description of the Matter At December 31, 2023, the Company's goodwill balance was $67,854 million. As
discussed in Note 1 to the consolidated financial statements, reporting unit
goodwill is tested at least annually for impairment. Estimating fair values in
connection with these impairment evaluations involves the utilization of
discounted cash flow and market multiple approaches.
Auditing management's annual goodwill impairment test for the Consumer
Wireline and Business Wireline reporting units was complex because the
estimation of fair values involves subjective management assumptions, such as
projected terminal growth rates, projected long-term EBITDA margins, and
weighted average cost of capital, and complex valuation methodologies, such as
the discounted cash flow and market multiple approaches. Assumptions used in
these valuation models are forward-looking, and changes in these assumptions
can have a material effect on the determination of fair value.
How We Addressed the We obtained an understanding, evaluated the design and tested the operating
Matter in Our effectiveness of certain controls over the Company's impairment evaluation
Audit processes. Our procedures included testing controls over management's review
of the valuation models and its determination of the significant assumptions
described above.
Our audit procedures to test management's impairment evaluations included,
among others, assessing the valuation methodologies and significant
assumptions discussed above and the underlying data used to develop such
assumptions. For example, we compared the significant assumptions to current
industry, market and economic trends, and other guideline companies in the
same industry. Where appropriate, we evaluated whether changes to the
Company's business and other factors would affect the significant assumptions.
We also assessed the historical accuracy of management's estimates and
performed independent sensitivity analyses. We involved our valuation
specialists to assist us in evaluating the methodologies and auditing the
assumptions used to calculate the estimated fair values of the Company's
reporting units.
/s/ Ernst & Young LLP
We have served as the Company's auditor since 1999.
Dallas, Texas
February 23, 2024
41
AT&T Inc.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of AT&T Inc.
Opinion on Internal Control Over Financial Reporting
We have audited AT&T Inc.'s internal control over financial reporting as
of December 31, 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/ Ernst & Young LLP
Dallas, Texas
February 23, 2024
42
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 $ 99,649 $ 97,831 $ 111,565
Equipment 22,779 22,910 22,473
Total operating revenues 122,428 120,741 134,038
Operating Expenses
Cost of revenues
Equipment 23,136 24,009 23,685
Broadcast, programming and operations - - 8,106
Other cost of revenues (exclusive of depreciation 26,987 26,839 28,616
and amortization shown separately below)
Selling, general and administrative 28,874 28,961 29,669
Asset impairments and abandonments and restructuring 1,193 27,498 213
Depreciation and amortization 18,777 18,021 17,852
Total operating expenses 98,967 125,328 108,141
Operating Income (Loss) 23,461 (4,587) 25,897
Other Income (Expense)
Interest expense (6,704) (6,108) (6,716)
Equity in net income of affiliates 1,675 1,791 603
Other income (expense) - net 1,416 5,810 9,387
Total other income (expense) (3,613) 1,493 3,274
Income (Loss) from Continuing Operations Before Income Taxes 19,848 (3,094) 29,171
Income tax expense on continuing operations 4,225 3,780 5,395
Income (Loss) from Continuing Operations 15,623 (6,874) 23,776
Loss from discontinued operations, net of tax - (181) (2,297)
Net Income (Loss) 15,623 (7,055) 21,479
Less: Net Income Attributable to Noncontrolling Interest (1,223) (1,469) (1,398)
Net Income (Loss) Attributable to AT&T $ 14,400 $ (8,524) $ 20,081
Less: Preferred Stock Dividends (208) (203) (207)
Net Income (Loss) Attributable to Common Stock $ 14,192 $ (8,727) $ 19,874
Basic Earnings (Loss) Per Share from continuing operations $ 1.97 $ (1.10) $ 3.07
Basic Loss Per Share from discontinued operations $ - $ (0.03) $ (0.30)
Basic Earnings (Loss) Per Share Attributable to Common Stock $ 1.97 $ (1.13) $ 2.77
Diluted Earnings (Loss) Per Share from continuing operations $ 1.97 $ (1.10) $ 3.02
Diluted Loss Per Share from discontinued operations $ - $ (0.03) $ (0.29)
Diluted Earnings (Loss) Per Share Attributable to Common Stock $ 1.97 $ (1.13) $ 2.73
The accompanying notes are an integral part of the consolidated financial
statements.
43
AT&T Inc.
Dollars in millions except per share amounts
Consolidated Statements of Comprehensive Income
2023 2022 2021
Net income (loss) $ 15,623 $ (7,055) $ 21,479
Other comprehensive income (loss), net of tax:
Foreign Currency:
Translation adjustment (includes $0, $0 and $(2) attributable to 463 346 (127)
noncontrolling
interest), net of taxes of $143, $90 and $(44)
Reclassification adjustment included in net income (loss), net of taxes of - - 2,087
$0, $0 and $204
Distributions of WarnerMedia, net of taxes of $0, $(38) and $0 - (182) -
Securities:
Net unrealized gains (losses), net of taxes of $8, $(49) and $(21) 22 (143) (63)
Reclassification adjustment included in net income (loss), net of taxes of $4, 11 8 (3)
$3
and $(1)
Derivative Instruments:
Net unrealized gains (losses), net of taxes of $228, $(183) and $(192) 922 (648) (715)
Reclassification adjustment included in net income (loss), net of taxes of 47 96 72
$12, $25
and $19
Distributions of WarnerMedia, net of taxes of $0, $(12) and $0 - (24) -
Defined benefit postretirement plans:
Net prior service (cost) credit arising during period, net of taxes of $10, 32 1,787 (34)
$583
and $(8)
Amortization of net prior service credit included in net income (loss), net of (1,963) (2,028) (2,020)
taxes of
$(642), $(663) and $(660)
Distributions of WarnerMedia, net of taxes of $0, $5 and $0 - 25 -
Other comprehensive income (loss) (466) (763) (803)
Total comprehensive income (loss) 15,157 (7,818) 20,676
Less: Total comprehensive income attributable to noncontrolling interest (1,223) (1,469) (1,396)
Total Comprehensive Income (Loss) Attributable to AT&T $ 13,934 $ (9,287) $ 19,280
The accompanying notes are an integral part of the consolidated financial
statements.
44
AT&T Inc.
Dollars in millions except per share amounts
Consolidated Balance Sheets
December 31,
2023 2022
Assets
Current Assets
Cash and cash equivalents $ 6,722 $ 3,701
Accounts receivable - net of related allowance for credit loss of $499 and 10,289 11,466
$588
Inventories 2,177 3,123
Prepaid and other current assets 17,270 14,818
Total current assets 36,458 33,108
Property, Plant and Equipment - Net 128,489 127,445
Goodwill - Net 67,854 67,895
Licenses - Net 127,219 124,092
Other Intangible Assets - Net 5,283 5,354
Investments in and Advances to Equity Affiliates 1,251 3,533
Operating Lease Right-Of-Use Assets 20,905 21,814
Other Assets 19,601 19,612
Total Assets $ 407,060 $ 402,853
Liabilities and Stockholders' Equity
Current Liabilities
Debt maturing within one year $ 9,477 $ 7,467
Note payable to DIRECTV - 130
Accounts payable and accrued liabilities 35,852 42,644
Advanced billings and customer deposits 3,778 3,918
Dividends payable 2,020 2,014
Total current liabilities 51,127 56,173
Long-Term Debt 127,854 128,423
Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes 58,666 57,032
Postemployment benefit obligation 8,734 7,260
Operating lease liabilities 17,568 18,659
Other noncurrent liabilities 23,696 28,849
Total deferred credits and other noncurrent liabilities 108,664 111,800
Redeemable Noncontrolling Interest 1,973 -
Stockholders' Equity
Preferred stock ($1 par value, 10,000,000 authorized at December 31, 2023
and December 31, 2022):
Series A (48,000 issued and outstanding at December 31, 2023 and - -
December 31, 2022)
Series B (20,000 issued and outstanding at December 31, 2023 and - -
December 31, 2022)
Series C (70,000 issued and outstanding at December 31, 2023 and - -
December 31, 2022)
Common stock ($1 par value, 14,000,000,000 authorized at December 31, 2023 7,621 7,621
and
December 31, 2022: issued 7,620,748,598 at December 31, 2023 and
December 31, 2022)
Additional paid-in capital 114,519 123,610
Retained (deficit) earnings (5,015) (19,415)
Treasury stock (470,685,237 at December 31, 2023 and 493,156,816 at (16,128) (17,082)
December 31, 2022, at cost)
Accumulated other comprehensive income 2,300 2,766
Noncontrolling interest 14,145 8,957
Total stockholders' equity 117,442 106,457
Total Liabilities and Stockholders' Equity $ 407,060 $ 402,853
The accompanying notes are an integral part of the consolidated financial
statements.
45
AT&T Inc.
Dollars in millions except per share amounts
Consolidated Statements of Cash Flows
2023 2022 2021
Operating Activities
Income (loss) from continuing operations $ 15,623 $ (6,874) $ 23,776
Adjustments to reconcile income (loss) from continuing operations to net cash
provided by operating activities from continuing operations:
Depreciation and amortization 18,777 18,021 17,852
Provision for uncollectible accounts 1,969 1,865 1,241
Deferred income tax expense 3,037 2,975 7,412
Net (gain) loss on investments, net of impairments 441 381 (369)
Pension and postretirement benefit expense (credit) (2,552) (3,237) (3,857)
Actuarial and settlement (gain) loss on pension and postretirement benefits - 1,594 (1,999) (4,143)
net
Asset impairments and abandonments and restructuring 1,193 27,498 213
Changes in operating assets and liabilities:
Receivables 82 727 (1,125)
Other current assets (642) (674) (1,288)
Accounts payable and other accrued liabilities (1,764) (1,109) (1,570)
Equipment installment receivables and related sales (133) 154 (271)
Deferred customer contract acquisition and fulfillment costs 1 (947) 18
Postretirement claims and contributions (735) (823) (822)
Other - net 1,423 (146) 103
Total adjustments 22,691 42,686 13,394
Net Cash Provided by Operating Activities from Continuing Operations 38,314 35,812 37,170
Investing Activities
Capital expenditures (17,853) (19,626) (15,545)
Acquisitions, net of cash acquired (2,942) (10,200) (25,453)
Dispositions 72 199 7,136
Distributions from DIRECTV in excess of cumulative equity in earnings 2,049 2,649 1,323
(Purchases), sales and settlements of securities and investments - net (902) 82 44
Other - net (84) (3) 6
Net Cash Used in Investing Activities from Continuing Operations (19,660) (26,899) (32,489)
Financing Activities
Net change in short-term borrowings with original maturities of three months (914) (519) 1,316
or less
Issuance of other short-term borrowings 5,406 3,955 21,856
Repayment of other short-term borrowings (3,415) (18,345) (7,510)
Issuance of long-term debt 10,004 2,979 9,931
Repayment of long-term debt (12,044) (25,118) (3,039)
Note payable to DIRECTV, net of payments (130) (1,211) 1,341
Payment of vendor financing (5,742) (4,697) (4,596)
Purchase of treasury stock (194) (890) (202)
Issuance of treasury stock 3 28 96
Issuance of preferred interests in subsidiary 7,151 - -
Redemption of preferred interests in subsidiary (5,333) (2,665) -
Dividends paid (8,136) (9,859) (15,068)
Other - net (2,270) (3,222) (2,231)
Net Cash (Used in) Provided by Financing Activities from Continuing Operations (15,614) (59,564) 1,894
Net increase (decrease) in cash and cash equivalents and restricted cash from 3,040 (50,651) 6,575
continuing operations
Cash flows from Discontinued Operations:
Cash (used in) provided by operating activities - (3,789) 4,788
Cash provided by investing activities - 1,094 399
Cash provided by (used in) financing activities - 35,823 (316)
Net increase (decrease) in cash and cash equivalents and restricted cash from - 33,128 4,871
discontinued operations
Net increase (decrease) in cash and cash equivalents and restricted cash 3,040 (17,523) 11,446
Cash and cash equivalents and restricted cash beginning of year 3,793 21,316 9,870
Cash and Cash Equivalents and Restricted Cash End of Year $ 6,833 $ 3,793 $ 21,316
The accompanying notes are an integral part of the consolidated financial
statements.
46
AT&T Inc.
Dollars and shares in millions except per share amounts
Consolidated Statements of Changes in Stockholders' Equity
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 7,621 $ 7,621 7,621 $ 7,621 7,621 $ 7,621
Balance at end of year 7,621 $ 7,621 7,621 $ 7,621 7,621 $ 7,621
Additional Paid-In Capital
Balance at beginning of year $ 123,610 $ 130,112 $ 130,175
Distribution of WarnerMedia - (6,832) -
Preferred stock dividends (205) - -
Common stock dividends ($1.11 per (7,991) - -
share in 2023)
Issuance of treasury stock (379) (171) (76)
Share-based payments (109) (162) 13
Redemption or reclassification of (407) 663 -
interests held by noncontrolling owners
Balance at end of year $ 114,519 $ 123,610 $ 130,112
Retained (Deficit) Earnings
Balance at beginning of year $ (19,415) $ 42,350 $ 37,457
Net income (loss) attributable to AT&T 14,400 (8,524) 20,081
Distribution of WarnerMedia - (45,041) -
Preferred stock dividends - (207) (224)
Common stock dividends ($1.11 - (7,993) (14,964)
and $2.08 per share in 2022 and 2021,
respectively)
Balance at end of year $ (5,015) $ (19,415) $ 42,350
The accompanying notes are an integral part of the consolidated financial
statements.
47
AT&T Inc.
Dollars and shares in millions except per share amounts
Consolidated Statements of Changes in Stockholders' Equity - continued
2023 2022 2021
Shares Amount Shares Amount Shares Amount
Treasury Stock
Balance at beginning of year (493) $ (17,082) (480) $ (17,280) (495) $ (17,910)
Repurchase and acquisition of (10) (194) (44) (890) (8) (237)
common stock
Issuance of treasury stock 32 1,148 31 1,088 23 867
Balance at end of year (471) $ (16,128) (493) $ (17,082) (480) $ (17,280)
Accumulated Other Comprehensive Income
Attributable to AT&T, net of tax
Balance at beginning of year $ 2,766 $ 3,529 $ 4,330
Other comprehensive income (loss) (466) (763) (801)
attributable to AT&T
Balance at end of year $ 2,300 $ 2,766 $ 3,529
Noncontrolling Interest1
Balance at beginning of year $ 8,957 $ 17,523 $ 17,567
Net income attributable to 1,146 1,469 1,398
noncontrolling interest
Issuance and acquisition (disposition) of 5,180 (21) 7
noncontrolling owners
Redemption of noncontrolling interest (53) (2,665) -
Reclassification of noncontrolling - (5,997) -
interest
Distributions (1,085) (1,352) (1,447)
Translation adjustments attributable to - - (2)
noncontrolling interest, net of taxes
Balance at end of year $ 14,145 $ 8,957 $ 17,523
Total Stockholders' Equity at $ 106,457 $ 183,855 $ 179,240
beginning of year
Total Stockholders' Equity at $ 117,442 $ 106,457 $ 183,855
end of year
1 Excludes redeemable noncontrolling interest.
The accompanying notes are an integral part of the consolidated financial
statements.
48
AT&T Inc.
Dollars in millions except per share amounts
Notes to Consolidated Financial Statements
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation Throughout this document, AT&T Inc. is referred to
as "AT&T," "we" or the "Company." The consolidated financial statements
include the accounts of the Company and subsidiaries and affiliates which we
control. AT&T is a holding company whose subsidiaries and affiliates
operate worldwide in the telecommunications and technology industries.
On April 8, 2022, we completed the separation of our WarnerMedia business,
which represented substantially all of our WarnerMedia segment, in a Reverse
Morris Trust transaction, under which Magallanes, Inc. (Spinco), a formerly
wholly-owned subsidiary of AT&T that held the WarnerMedia business, was
distributed to AT&T stockholders via a pro rata dividend, followed by the
combination of Spinco with a subsidiary of Discovery, Inc. (Discovery), which
was renamed Warner Bros. Discovery, Inc. (WBD). (See Note 6)
Upon the separation and distribution, the WarnerMedia business met the
criteria for discontinued operations. For discontinued operations, we also
evaluated transactions that were components of AT&T's single plan of a
strategic shift, including dispositions that previously did not individually
meet the criteria due to materiality, and have determined discontinued
operations to be comprised of WarnerMedia, Vrio, Xandr and Playdemic Ltd.
(Playdemic). These businesses are reflected in the accompanying financial
statements as discontinued operations, including for periods prior to the
consummation of the WarnerMedia/Discovery transaction. (See Notes 6 and 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 and deconsolidated our Video business,
comprised of our U.S. video operations, and began accounting for our
investment in DIRECTV under the equity method (see Notes 6, 10 and 19).
All significant intercompany transactions are eliminated in the consolidation
process. Investments in subsidiaries and partnerships which we do not control
but have significant influence are accounted for under the equity method.
Earnings from certain investments accounted for using the equity method are
included in our results on a one quarter lag. We also record our proportionate
share of our equity method investees' other comprehensive income (OCI) items,
including translation adjustments. We treat distributions received from equity
method investees as returns on investment and classify them as cash flows from
operating activities until those distributions exceed our cumulative equity in
the earnings of that investment. We treat the excess amount as a return of
investment and classify it as cash flows from investing activities.
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles (GAAP) requires management to make estimates
and assumptions, including other estimates of fair value, probable losses and
expenses, that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Moreover, unfavorable changes in market conditions, including interest rates,
could adversely impact those estimates and result in asset impairments.
Certain prior-period amounts have been conformed to the current period's
presentation. Unless otherwise noted, the information in Notes 1 through 23
and 25 refer only to our continuing operations and do not include discussion
of balances or activity of WarnerMedia, Vrio, Xandr and Playdemic, which are
part of discontinued operations.
Adopted and New Accounting Standards
Supplier Finance Obligations As of January 1, 2023, we adopted, with
retrospective application, the Financial Accounting Standards Board's (FASB)
Accounting Standards Update (ASU) No. 2022-04, "Liabilities - Supplier Finance
Programs (Subtopic 405-50): Disclosure of Supplier Finance Program
Obligations" (ASU 2022-04), which establishes interim and annual reporting
disclosure requirements about a company's supplier finance programs for its
purchase of goods and services. Interim and annual requirements include
disclosure of outstanding amounts under the obligations as of the end of the
reporting period, and annual requirements include a rollforward of those
obligations for the annual reporting period, as well as a description of
payment and other key terms of the programs. We elected to adopt the annual
rollforward requirement for the year ended December 31, 2023, with prospective
application (see Note 22). In the year of adoption, the disclosure of payment
and other key terms under the programs and outstanding balances under the
obligations also applies to interim reporting dates.
Convertible Instruments Beginning with 2022 interim reporting, we adopted,
through retrospective application, ASU No. 2020-06, "Debt-Debt With Conversion
and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in
Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments
and Contracts in an Entity's Own Equity" (ASU 2020-06). ASU 2020-06 requires
that instruments which may be settled in cash or stock are presumed settled in
stock in calculating diluted earnings per share. Prior to the April 2023
repurchase, settlement of our Series A Cumulative Perpetual Membership
Interests in AT&T Mobility II LLC (Mobility preferred interests) could
have resulted in additional
49
AT&T Inc.
Dollars in millions except per share amounts
dilutive impact, the magnitude of which was influenced by the fair value of
the Mobility preferred interests and the average AT&T common stock price
during the reporting period, which varied from period-to-period (see Note 16).
Reference Rate Reform In March 2020, the FASB issued ASU No. 2020-04,
"Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference
Rate Reform on Financial Reporting" (ASU 2020-04, as amended), which provides
optional expedients, and allows for certain exceptions to existing GAAP, for
contract modifications triggered by the expected market transition of certain
benchmark interest rates to alternative reference rates. ASU 2020-04 applies
to contracts, hedging relationships, certain derivatives and other
arrangements that reference the London Interbank Offering Rate (LIBOR) or any
other rates ending after December 31, 2024. ASU 2020-04, as amended, became
effective immediately. We do not believe our adoption of ASU 2020-04,
including optional expedients, materially impacts our financial statements.
Segment Reporting In November 2023, the FASB issued ASU No. 2023-07, "Segment
Reporting (Topic 280): Improvements to Reportable Segment Disclosures" (ASU
2023-07), which requires that a public entity disclose, on an interim and
annual basis, significant segment expense categories and amounts that are
regularly provided to its chief operating decision maker (CODM) and included
in each reported measure of segment profit or loss. An entity must also
disclose, by reportable segment, the amount and composition of other expenses.
The standard requires an entity disclose the title and position of its CODM
and explain how the CODM uses these reported measures in assessing segment
performance and determining how to allocate resources. ASU 2023-07 will be
effective for annual periods beginning after December 15, 2023, and interim
periods beginning after December 31, 2024, with retrospective application. The
standard allows early adoption of these requirements; we are currently
evaluating the disclosure impacts of our adoption.
Income Taxes In December 2023, the FASB issued ASU No. 2023-09, "Income Taxes
(Topic 740): Improvements to Income Tax Disclosures" (ASU 2023-09), which
requires that a public entity disclose specific categories in its annual
income tax rate reconciliation table and provide additional qualitative
information for reconciling items representing at least 5% of pre-tax income
or loss from continuing operations, using the federal statutory tax rate. The
standard also requires an annual breakdown of income taxes paid by
jurisdiction (i.e., federal, state and foreign), with further disaggregation
by jurisdictions representing at least 5% of total income taxes paid. ASU
2023-09 will be effective for annual periods beginning after December 15,
2024, with prospective application.
Accounting Policies
Income Taxes We record deferred income taxes for temporary differences between
the carrying amounts of assets and liabilities for financial reporting
purposes and the computed tax basis of those assets and liabilities. We record
valuation allowances against the deferred tax assets (included, together with
our deferred income tax assets, as part of our reportable net deferred income
tax liabilities on our consolidated balance sheets), for which the realization
is uncertain. We review these items regularly in light of changes in federal,
state and foreign tax laws and changes in our business.
Cash and Cash Equivalents Cash and cash equivalents include all highly liquid
investments with original maturities of three months or less. The carrying
amounts approximate fair value. At December 31, 2023, we held $1,368 in cash
and $5,354 in money market funds and other cash equivalents. Of our total cash
and cash equivalents, $1,381 resided in foreign jurisdictions, some of which
is subject to restrictions on repatriation.
Allowance for Credit Losses We record expense to maintain an allowance for
credit losses for estimated losses that result from the failure or inability
of our customers to make required payments deemed collectible from the
customer when the service was provided or product was delivered. When
determining the allowances for trade receivables and loans, we consider the
probability of recoverability of accounts receivable based on past experience,
taking into account current collection trends and general economic factors,
including bankruptcy rates. We also consider future economic trends to
estimate expected credit losses over the lifetime of the asset. Credit risks
are assessed based on historical write-offs, net of recoveries, as well as an
analysis of the aged accounts receivable balances with allowances generally
increasing as the receivable ages. Accounts receivable may be fully reserved
for when specific collection issues are known to exist, such as catastrophes
or pending bankruptcies.
Inventories Inventories primarily consist of wireless devices and accessories
and are valued at the lower of cost or net realizable value.
Property, Plant and Equipment Property, plant and equipment is stated at cost,
except for assets acquired through business combinations, which are initially
recorded at fair value. The cost of additions and substantial improvements to
property, plant and equipment is capitalized, and includes internal
compensation costs for these projects. The cost of maintenance and repairs of
property, plant and equipment is charged to operating expenses. Property,
plant and equipment costs are depreciated using straight-line methods over
their estimated economic lives. Certain subsidiaries follow composite group
depreciation
50
AT&T Inc.
Dollars in millions except per share amounts
methodology. Accordingly, when a portion of their depreciable property, plant
and equipment is retired in the ordinary course of business, the gross book
value is reclassified to accumulated depreciation, and no gain or loss is
recognized on the disposition of these assets.
Property, plant and equipment is reviewed for recoverability whenever events
or changes in circumstances indicate that the carrying amount of an asset
group may not be recoverable. We recognize an impairment loss when the
carrying amount of a long-lived asset is not recoverable. The carrying amount
of a long-lived asset is not recoverable if it exceeds the sum of the
undiscounted cash flows expected to result from the use and eventual
disposition of the asset. (See Note 7)
The liability for the fair value of an asset retirement obligation is recorded
in the period in which it is incurred if a reasonable estimate of fair value
can be made. In periods subsequent to initial measurement, we recognize
period-to-period changes in the liability resulting from the passage of time
and revisions to either the timing or the amount of the original estimate. The
increase in the carrying value of the associated long-lived asset is
depreciated over the corresponding estimated economic life.
Software Costs We capitalize certain costs incurred in connection with
developing or obtaining internal-use software. Capitalized software costs are
included in "Property, Plant and Equipment - Net" on our consolidated balance
sheets.
We amortize our capitalized software costs over a three-year to seven-year
period, reflecting the estimated period during which these assets will remain
in service.
Goodwill and Other Intangible Assets We have the following major classes of
intangible assets: goodwill; licenses, which include Federal Communications
Commission (FCC) and other wireless licenses; customer lists and
relationships; and trademarks, trade names and various other finite-lived
intangible assets (see Note 9).
Goodwill represents the excess of consideration paid over the fair value of
identifiable net assets acquired in business combinations. Wireless licenses
provide us with the exclusive right to utilize certain radio frequency
spectrum to provide wireless communications services. While wireless licenses
are issued for a fixed period of time (generally ten years), renewals of
domestic wireless licenses have occurred routinely and at nominal cost. We
have determined that there are currently no legal, regulatory, contractual,
competitive, economic or other factors that limit the useful lives of our FCC
wireless licenses.
We amortize our wireless licenses in Mexico over their average remaining
economic life of 25 years.
We acquired the rights to the AT&T and other trade names in previous
acquisitions, classifying certain of those trade names as indefinite-lived. We
have the effective ability to retain these exclusive rights permanently at a
nominal cost.
Goodwill, FCC wireless licenses and other indefinite-lived intangible assets
are not amortized but are tested at least annually for impairment (see Note
9). The testing is performed on the value as of October 1 each year and
compares the book values of the assets to their fair values. Goodwill is
tested by comparing the carrying amount of each reporting unit, deemed to be
our principal operating segments or one level below them, to the fair value
using both discounted cash flow as well as market multiple approaches. FCC
wireless licenses are tested on an aggregate basis, consistent with our use of
the licenses on a national scope, using a discounted cash flow approach. Trade
names are tested by comparing their book values to their fair values
calculated using a discounted cash flow approach on a presumed royalty rate
derived from the revenues related to each brand name.
Intangible assets that have finite useful lives are amortized over their
estimated economic lives (see Note 9). Customer lists and relationships are
amortized using primarily the sum-of-the-months-digits method of amortization
over the period in which those relationships are expected to contribute to our
future cash flows. Finite-lived trademarks and trade names are amortized using
the straight-line method over the estimated useful life of the assets. The
remaining finite-lived intangible assets are generally amortized using the
straight-line method. These assets, along with other long-lived assets, are
reviewed for recoverability whenever events or changes in circumstances
indicate that the carrying amount of an asset group may not be recoverable.
Advertising Costs We expense advertising costs for products and services or
for promoting our corporate image as incurred (see Note 23).
Foreign Currency Translation Our foreign subsidiaries and foreign investments
generally report their earnings in their local currencies. We translate their
foreign assets and liabilities at exchange rates in effect at the balance
sheet dates. We translate their revenues and expenses using average rates
during the year. The resulting foreign currency translation adjustments are
recorded as a separate component of accumulated OCI in our consolidated
balance sheets (see Note 3).
51
AT&T Inc.
Dollars in millions except per share amounts
Pension and Other Postretirement Benefits See Note 14 for a comprehensive
discussion of our pension and postretirement benefits, including a discussion
of the actuarial assumptions, our policy for recognizing the associated gains
and losses and our method used to estimate service and interest cost
components.
NOTE 2. EARNINGS PER SHARE
A reconciliation of the numerators and denominators of basic and diluted
earnings per share is shown in the table below:
Year Ended December 31, 2023 2022 2021
Numerators
Numerator for basic earnings per share:
Income (loss) from continuing operations, net of tax $ 15,623 $ (6,874) $ 23,776
Net income from continuing operations attributable to (1,223) (1,469) (1,485)
noncontrolling interests
Preferred Stock Dividends (208) (203) (207)
Income (loss) from continuing operations attributable to 14,192 (8,546) 22,084
common stock
Adjustment to carrying value of noncontrolling interest - 663 -
Numerator for basic earnings per share from continuing operations1 14,192 (7,883) 22,084
Loss from discontinued operations, net of tax - (181) (2,297)
Loss from discontinued operations attributable - - 87
to noncontrolling interests
Loss from discontinued operations attributable to common stock - (181) (2,210)
Numerator for basic earnings per share1 $ 14,192 $ (8,064) $ 19,874
Dilutive potential common shares:
Mobility preferred interests2 72 526 560
Share-based payment2 13 17 22
Numerator for diluted earnings per share $ 14,277 $ (7,521) $ 20,456
Denominators (000,000)
Denominator for basic earnings per share:
Weighted average number of common shares outstanding 7,181 7,166 7,168
Dilutive potential common shares:
Mobility preferred interests (in shares) 71 378 304
Share-based payment (in shares) 6 43 31
Denominator for diluted earnings per share2 7,258 7,587 7,503
1For 2022, in the calculation of basic earnings per share, income (loss)
attributable to common stock for continuing operations and total company has
been increased by $663 from adjustment to carrying value of noncontrolling
interest. (See Note 16)
2For 2022, 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.
On April 5, 2023, we repurchased all our Mobility preferred interests (see
Note 16). For periods prior to repurchase, under ASU 2020-06, the ability to
settle the Mobility preferred interests in stock was reflected in our diluted
earnings per share calculation (see Note 1).
52
AT&T Inc.
Dollars in millions except per share amounts
NOTE 3. OTHER COMPREHENSIVE INCOME
Changes in the balances of each component included in accumulated OCI are
presented below. All amounts are net of tax and exclude noncontrolling
interest.
Foreign Net Unrealized Net Unrealized Defined Benefit Accumulated Other
Currency
Postretirement
Comprehensive
Translation Gains (Losses) on Securities Gains (Losses) on Derivative Instruments
Plans
Income
Adjustment
Balance as of December 31, 2020 $ (3,926) $ 111 $ (779) $ 8,924 $ 4,330
Other comprehensive income (125) (63) (715) (34) (937)
(loss) before reclassifications
Amounts reclassified from 2,087 1,4 (3) 1 72 2 (2,020) 3 136
accumulated OCI
Net other comprehensive 1,962 (66) (643) (2,054) (801)
income (loss)
Balance as of December 31, 2021 (1,964) 45 (1,422) 6,870 3,529
Other comprehensive income 346 (143) (648) 1,787 1,342
(loss) before reclassifications
Amounts reclassified from - 1 8 1 96 2 (2,028) 3 (1,924)
accumulated OCI
Distribution of WarnerMedia (182) - (24) 25 (181)
Net other comprehensive 164 (135) (576) (216) (763)
income (loss)
Balance as of December 31, 2022 (1,800) (90) (1,998) 6,654 2,766
Other comprehensive income 463 22 922 32 1,439
(loss) before reclassifications
Amounts reclassified from - 1 11 1 47 2 (1,963) 3 (1,905)
accumulated OCI
Net other comprehensive 463 33 969 (1,931) (466)
income (loss)
Balance as of December 31, 2023 $ (1,337) $ (57) $ (1,029) $ 4,723 $ 2,300
1(Gains) losses are included in "Other income (expense) - net" in the
consolidated statements of income.
2(Gains) losses are primarily included in "Interest expense" in the
consolidated statements of income (see Note 12).
3The amortization of prior service credits associated with postretirement
benefits is included in "Other income (expense) - net" in the consolidated
statements of income (see Note 14).
4Represents unrealized foreign currency translation adjustments at Vrio that
were released upon sale (see Note 6).
NOTE 4. SEGMENT INFORMATION
Our segments are comprised of strategic business units or other operations
that offer products and services to different customer segments over various
technology platforms and/or in different geographies that are managed
accordingly. We have two reportable segments: Communications and Latin
America.
We also evaluate segment and business unit performance based on EBITDA and/or
EBITDA margin, which is defined as operating income excluding depreciation and
amortization. EBITDA is used as part of our management reporting and we
believe EBITDA to be a relevant and useful measurement to our investors as it
measures the cash generation potential of our business units. EBITDA does not
give effect to depreciation and amortization expenses incurred in operating
income nor is it burdened by cash used for debt service requirements and thus
does not reflect available funds for distributions, reinvestment or other
discretionary uses. EBITDA margin is EBITDA divided by total revenue.
53
AT&T Inc.
Dollars in millions except per share amounts
Effective for the first quarter of 2023, we stopped recording prior service
credits to our individual business units or the corresponding charge to
Corporate and Other, and segment operating expenses were recast to remove
prior service credits from our historical reporting. Prior service credits
are, and will continue to be, recorded as other income in our consolidated
income statement in accordance with GAAP. This recast increased Communications
segment operations and support expenses by approximately $2,400 in 2022 and
$2,100 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.
54
AT&T Inc.
Dollars in millions except per share amounts
For the year ended December 31, 2023
Revenues Operations EBITDA Depreciation Operating
and Support
Income
Expenses and
(Loss)
Amortization
Communications
Mobility $ 83,982 $ 49,604 $ 34,378 $ 8,517 $ 25,861
Business Wireline 20,883 14,217 6,666 5,377 1,289
Consumer Wireline 13,173 9,053 4,120 3,469 651
Total Communications 118,038 72,874 45,164 17,363 27,801
Latin America - Mexico 3,932 3,349 583 724 (141)
Segment Total 121,970 76,223 45,747 18,087 27,660
Corporate and Other
Corporate:
DTV-related retained costs - 686 (686) 586 (1,272)
Parent administration support (7) 1,416 (1,423) 6 (1,429)
Securitization fees 85 604 (519) - (519)
Value portfolio 380 99 281 22 259
Total Corporate 458 2,805 (2,347) 614 (2,961)
Certain significant items - 1,162 (1,162) 76 (1,238)
Total Corporate and Other 458 3,967 (3,509) 690 (4,199)
AT&T Inc. $ 122,428 $ 80,190 $ 42,238 $ 18,777 $ 23,461
For the year ended December 31, 2022
Revenues Operations EBITDA Depreciation Operating
and Support
and
Income
Expenses
Amortization
(Loss)
Communications
Mobility $ 81,780 $ 49,770 $ 32,010 $ 8,198 $ 23,812
Business Wireline 22,538 14,934 7,604 5,314 2,290
Consumer Wireline 12,749 8,946 3,803 3,169 634
Total Communications 117,067 73,650 43,417 16,681 26,736
Latin America - Mexico 3,144 2,812 332 658 (326)
Segment Total 120,211 76,462 43,749 17,339 26,410
Corporate and Other
Corporate:
DTV-related retained costs 8 878 (870) 549 (1,419)
Parent administration support (32) 1,378 (1,410) 16 (1,426)
Securitization fees 65 419 (354) - (354)
Value portfolio 489 139 350 41 309
Total Corporate 530 2,814 (2,284) 606 (2,890)
Certain significant items - 28,031 (28,031) 76 (28,107)
Total Corporate and Other 530 30,845 (30,315) 682 (30,997)
AT&T Inc. $ 120,741 $ 107,307 $ 13,434 $ 18,021 $ (4,587)
55
AT&T Inc.
Dollars in millions except per share amounts
For the year ended December 31, 2021
Revenues Operations EBITDA Depreciation Operating
and Support
and
Income
Expenses
Amortization
(Loss)
Communications
Mobility $ 78,254 $ 47,453 $ 30,801 $ 8,122 $ 22,679
Business Wireline 23,937 15,653 8,284 5,192 3,092
Consumer Wireline 12,539 8,922 3,617 3,095 522
Total Communications 114,730 72,028 42,702 16,409 26,293
Latin America - Mexico 2,747 2,652 95 605 (510)
Segment Total 117,477 74,680 42,797 17,014 25,783
Corporate and Other
Corporate:
DTV-related retained costs 49 413 (364) 236 (600)
Parent administration support (18) 1,699 (1,717) 36 (1,753)
Securitization fees 61 89 (28) - (28)
Value portfolio 639 208 431 40 391
Total Corporate 731 2,409 (1,678) 312 (1,990)
Video 15,513 12,900 2,613 356 2,257
Held-for-sale and other 453 310 143 - 143
reclassifications
Certain significant items - 126 (126) 170 (296)
Eliminations and consolidations (136) (136) - - -
Total Corporate and Other 16,561 15,609 952 838 114
AT&T Inc. $ 134,038 $ 90,289 $ 43,749 $ 17,852 $ 25,897
The following table is a reconciliation of operating income (loss) to "Income
(Loss) from Continuing Operations Before Income Taxes" reported in our
consolidated statements of income:
2023 2022 2021
Communications $ 27,801 $ 26,736 $ 26,293
Latin America (141) (326) (510)
Segment Operating Income 27,660 26,410 25,783
Reconciling Items:
Corporate (2,961) (2,890) (1,990)
Video - - 2,257
Held-for-sale and other reclassifications - - 143
Transaction and other costs (98) (425) (41)
Amortization of intangibles acquired (76) (76) (170)
Asset impairments and abandonments and restructuring (1,193) (27,498) (213)
Benefit-related gains (losses) 129 (108) 128
AT&T Operating Income (Loss) 23,461 (4,587) 25,897
Interest expense 6,704 6,108 6,716
Equity in net income of affiliates 1,675 1,791 603
Other income (expense) - net 1,416 5,810 9,387
Income (Loss) from Continuing Operations Before Income Taxes $ 19,848 $ (3,094) $ 29,171
56
AT&T Inc.
Dollars in millions except per share amounts
The following table sets forth revenues earned from customers, and property,
plant and equipment located in different geographic areas:
2023 2022 2021
Revenues Net Property, Revenues Net Property, Revenues Net Property,
Plant &
Plant & Plant &
Equipment
Equipment Equipment
United States $ 117,097 $ 124,387 $ 116,006 $ 123,305 $ 129,157 $ 117,690
Mexico 3,993 3,750 3,210 3,718 2,824 3,460
Asia/Pacific Rim 521 99 592 124 747 136
Europe 504 166 584 201 907 249
Latin America 194 67 217 74 251 82
Other 119 20 132 23 152 32
Total $ 122,428 $ 128,489 $ 120,741 $ 127,445 $ 134,038 $ 121,649
The following table presents assets, investments in equity affiliates and
capital expenditures by segment:
At or for the years ended December 31, 2023 2022
Assets Investments in Capital Assets Investments in Capital
Equity Method
Expenditures
Equity Method
Expenditures
Investees
Investees
Communications $ 504,006 $ - $ 16,876 $ 471,444 $ - $ 18,962
Latin America 9,314 - 298 8,408 - 360
Corporate and eliminations (106,260) 1,251 679 (76,999) 3,533 304
Total $ 407,060 $ 1,251 $ 17,853 $ 402,853 $ 3,533 $ 19,626
NOTE 5. REVENUE RECOGNITION
We report our revenues net of sales taxes and record certain regulatory fees,
primarily Universal Service Fund (USF) fees, on a net basis. No customer
accounted for more than 10% of consolidated revenues in 2023, 2022 or 2021.
Wireless, Advanced Data, Legacy Voice & Data Services and Equipment
Revenue
We offer service-only contracts and contracts that bundle equipment used to
access the services and/or with other service offerings. Some contracts have
fixed terms and others are cancelable on a short-term basis (i.e.,
month-to-month arrangements).
Examples of service revenues include wireless, strategic services (e.g.,
virtual private network service), and legacy voice and data (e.g., traditional
local and long-distance). These services represent a series of distinct
services that is considered a separate performance obligation. Service revenue
is recognized when services are provided, based upon either usage (e.g., bytes
of data processed) or period of time (e.g., monthly service fees).
Some of our services require customer premises equipment that, when combined
and integrated with AT&T's specific network infrastructure, facilitates
the delivery of service to the customer. In evaluating whether the equipment
is a separate performance obligation, we consider the customer's ability to
benefit from the equipment on its own or together with other readily available
resources and if so, whether the service and equipment are separately
identifiable (i.e., is the service highly dependent on, or highly interrelated
with the equipment). When equipment is a separate performance obligation, we
record the sale of equipment when title has passed and the products are
accepted by the customer. For devices sold through indirect channels (e.g.,
national retailers), revenue is recognized when the retailer accepts the
device, not upon activation.
Our equipment and service revenues are predominantly recognized on a gross
basis, as most of our services do not involve a third party and we typically
control the equipment that is sold to our customers.
Revenue recognized from fixed term contracts that bundle services and/or
equipment is allocated based on the standalone selling price of all required
performance obligations of the contract (i.e., each item included in the
bundle). Promotional discounts are attributed to each required component of
the arrangement, resulting in recognition over the contract term.
57
AT&T Inc.
Dollars in millions except per share amounts
Standalone selling prices are determined by assessing prices paid for
service-only contracts (e.g., arrangements where customers bring their own
devices) and standalone device pricing.
We offer the majority of our customers the option to purchase certain wireless
devices in installments over a specified period of time, and, in many cases,
they may be eligible to trade in the original equipment for a new device and
have the remaining unpaid balance paid or settled. For customers that elect
these equipment installment payment programs, at the point of sale, we
recognize revenue for the entire amount of revenue allocated to the customer
receivable net of fair value of the trade-in right guarantee, when applicable.
The difference between the revenue recognized and the consideration received
is recorded as a note receivable when the devices are not discounted and our
right to consideration is unconditional. When installment sales include
promotional discounts that are earned by customers over the contract term
(e.g., "buy one get one free" or equipment discounts with trade-in of a
device), notes receivable are recognized net of discounts and the difference
between revenue recognized and consideration received is recorded as a
contract asset to be amortized over the contract term.
Less commonly, we offer certain customers highly discounted devices when they
enter into a minimum service agreement term. For these contracts, we recognize
equipment revenue at the point of sale based on a standalone selling price
allocation. The difference between the revenue recognized and the cash
received is recorded as a contract asset that will amortize over the contract
term.
Our contracts allow for customers to frequently modify their arrangement,
without incurring penalties in many cases. When a contract is modified, we
evaluate the change in scope or price of the contract to determine if the
modification should be treated as a new contract or if it should be considered
a change of the existing contract. We generally do not have significant
impacts from contract modifications.
Revenues from transactions between us and our customers are recorded net of
revenue-based regulatory fees and taxes. Cash incentives given to customers
are recorded as a reduction of revenue. Nonrefundable, upfront service
activation and setup fees associated with service arrangements are deferred
and recognized over the associated service contract period or customer
relationship life.
Revenue Categories
The following tables set forth reported revenue by category and by business
unit:
For the year ended December 31, 2023
Communications
Mobility Business Wireline Consumer Wireline Latin America Corporate & Other Elim. Total
Wireless service $ 63,175 $ - $ - $ 2,569 $ - $ - $ 65,744
Business service - 20,274 - - - - 20,274
Broadband - - 10,455 - - - 10,455
Legacy voice and data - - 1,508 - 294 - 1,802
Other - - 1,210 - 164 - 1,374
Total Service 63,175 20,274 13,173 2,569 458 - 99,649
Equipment 20,807 609 - 1,363 - - 22,779
Total $ 83,982 $ 20,883 $ 13,173 $ 3,932 $ 458 $ - $ 122,428
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AT&T Inc.
Dollars in millions except per share amounts
For the year ended December 31, 2022
Communications
Mobility Business Wireline Consumer Wireline Latin America Corporate & Other Elim. Total
Wireless service $ 60,499 $ - $ - $ 2,162 $ 13 $ - $ 62,674
Business service - 21,891 - - - - 21,891
Broadband - - 9,669 - - - 9,669
Legacy voice and data - - 1,746 - 323 - 2,069
Other - - 1,334 - 194 - 1,528
Total Service 60,499 21,891 12,749 2,162 530 - 97,831
Equipment 21,281 647 - 982 - - 22,910
Total $ 81,780 $ 22,538 $ 12,749 $ 3,144 $ 530 $ - $ 120,741
For the year ended December 31, 2021
Communications
Mobility Business Wireline Consumer Wireline Latin America Corporate & Other Elim. Total
Wireless service $ 57,590 $ - $ - $ 1,834 $ 74 $ - $ 59,498
Video service - - - - 15,423 - 15,423
Business service - 23,224 - - 70 - 23,294
Broadband - - 9,085 - - - 9,085
Legacy voice and data - - 1,977 - 429 - 2,406
Other - - 1,384 - 611 (136) 1,859
Total Service 57,590 23,224 12,446 1,834 16,607 (136) 111,565
Equipment 20,664 713 93 913 90 - 22,473
Total $ 78,254 $ 23,937 $ 12,539 $ 2,747 $ 16,697 $ (136) $ 134,038
Deferred Customer Contract Acquisition and Fulfillment Costs
Costs to acquire and fulfill customer contracts, including commissions on
service activations, for our Mobility, Business Wireline and Consumer Wireline
services, are deferred and amortized over the contract period or expected
customer relationship life, which typically ranges from three years to five
years.
During the first quarter of 2022, we updated our analysis of expected economic
lives of customer relationships. As of January 1, 2022, we extended the
amortization period for deferred acquisition and fulfillment contract costs
within Mobility, 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 $395, or $0.04 per
diluted share from continuing operations for the year ended December 31, 2022.
The following table presents the deferred customer contract acquisition and
fulfillment costs included on our consolidated balance sheets at December 31:
Consolidated Balance Sheets 2023 2022
Deferred Acquisition Costs
Prepaid and other current assets $ 3,233 $ 2,893
Other Assets 4,077 3,913
Total deferred customer contract acquisition costs $ 7,310 $ 6,806
Deferred Fulfillment Costs
Prepaid and other current assets $ 2,340 $ 2,481
Other Assets 3,843 4,206
Total deferred customer contract fulfillment costs $ 6,183 $ 6,687
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AT&T Inc.
Dollars in millions except per share amounts
The following table presents deferred customer contract acquisition and
fulfillment cost amortization, which are primarily included in "Selling,
general and administrative" and "Other cost of revenues," respectively, for
the years ended December 31:
Consolidated Statements of Income 2023 2022
Deferred acquisition cost amortization $ 3,476 $ 2,935
Deferred fulfillment cost amortization 2,700 2,688
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.
The following table presents contract assets and liabilities on our
consolidated balance sheets at December 31:
Consolidated Balance Sheets 2023 2022
Contract asset $ 6,518 $ 5,512
Current portion in "Prepaid and other current assets" 3,549 2,941
Contract liability 3,994 4,170
Current portion in "Advanced billings and customer deposits" 3,666 3,816
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 $3,830.
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 $38,613,
of which we expect to recognize approximately 82% by the end of 2025, with
the balance recognized thereafter.
NOTE 6. ACQUISITIONS, DISPOSITIONS AND OTHER ADJUSTMENTS
Acquisitions
Spectrum Auctions On January 14, 2022, the Federal Communications Commission
(FCC) announced that we were the winning bidder for 1,624 3.45 GHz licenses in
Auction 110. We provided the FCC an upfront deposit of $123 in the third
quarter of 2021 and paid the remaining $8,956 in the first quarter of 2022,
for a total of $9,079. We funded the purchase price using cash and short-term
investments. We received the licenses in May 2022 and classified the auction
deposits and related capitalized interest as "Licenses - Net" on our December
31, 2022 consolidated balance sheet.
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AT&T Inc.
Dollars in millions except per share amounts
In February 2021, the FCC announced that AT&T was the winning bidder for
1,621 C-Band licenses, comprised of a total of 80 MHz nationwide, including 40
MHz in Phase I. We provided to the FCC an upfront deposit of $550 in 2020 and
cash payments totaling $22,856 in the first quarter of 2021, for a total of
$23,406. We received the licenses in July 2021 and classified the auction
deposits, related capitalized interest and billed relocation costs as
"Licenses - Net" on our December 31, 2021 consolidated balance sheet. In
December 2021, we paid $955 of Incentive Payments upon clearing of Phase I
spectrum and paid $2,112 upon clearing of Phase II spectrum in 2023.
Additionally, we are responsible for approximately $1,100 of compensable
relocation costs over the next several years as the spectrum is being cleared
by satellite operators, of which we paid $650 in 2021, $98 in 2022 and $109 in
2023. Funding for the purchase price of the spectrum included a combination of
cash on hand and short-term investments, as well as short- and long-term debt.
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 $4,250 of junior preferred units, an additional
distribution preference of $4,200 and a 70% economic interest in common units
(collectively "equity considerations"). TPG contributed approximately $1,800
in cash to DIRECTV for $1,800 of senior preferred units and a 30% economic
interest in common units. See Note 10 for additional information on our
accounting for our investment in DIRECTV.
Upon close of the transaction in the third quarter of 2021, we received
approximately $7,170 in cash from DIRECTV ($7,600, net of $430 cash on hand)
and transferred $195 of DIRECTV debt. Approximately $1,800 of the cash
received is reported as cash received from financing activities in our
consolidated statement of cash flows, as it 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 $2,100
over the remaining period of the contract (see Note 19). The remainder of the
net proceeds is reported as cash from investing activities. This transaction
did not result in a material gain or loss.
Dispositions Reflected as Discontinued Operations
WarnerMedia On April 8, 2022, we completed the separation and distribution of
our WarnerMedia business, and merger of Spinco, an AT&T subsidiary formed
to hold the WarnerMedia business, with a subsidiary of Discovery, Inc., which
was renamed Warner Bros. Discovery, Inc (WBD). Each AT&T shareholder was
entitled to receive 0.241917 shares of WBD common stock for each share of
AT&T common stock held as of the record date, which represented
approximately 71% of WBD. In connection with and in accordance with the terms
of the Separation and Distribution Agreement (SDA), prior to the distribution
and merger, AT&T received approximately $40,400, which includes $38,800 of
Spinco cash and $1,600 of debt retained by WarnerMedia. During the second
quarter of 2022, $45,041 of retained earnings and $5,632 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 $1,200
payment to WBD in the third quarter of 2022 and was reflected in the balance
sheet as an adjustment to additional paid-in capital. (See Note 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 $610 to
be paid over four years, of which $300 is in the form of seller financing and
the remainder is related to working capital adjustments. In the second quarter
of 2021, we classified the Vrio disposal group as held-for-sale and reported
the disposal group at fair value less cost to sell, which resulted in a
noncash, pre-tax impairment charge of $4,555, including approximately $2,100
related to accumulated foreign currency translation adjustments and $2,500
related to property, plant and equipment and intangible assets. Approximately
$80 of the impairment was attributable to noncontrolling interest. This
disposition did not result in a net material gain or loss.
Otter Media During the third quarter of 2021, we disposed of substantially all
of the assets of Otter Media. We received approximately $1,540 in cash. The
disposition did not result in a material gain or loss.
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AT&T Inc.
Dollars in millions except per share amounts
Playdemic Ltd. On September 20, 2021, we sold WarnerMedia's mobile games app
studio, Playdemic for approximately $1,370 in cash and recognized a pre-tax
gain of $706 in "Other income (expense) - net," on our consolidated statement
of income.
NOTE 7. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is summarized as follows at December 31:
Lives (years) 2023 2022
Land - $ 1,377 $ 1,381
Buildings and improvements 2-44 39,380 38,751
Central office equipment1 3-10 100,264 98,468
Cable, wiring and conduit 15-50 90,109 84,447
Other equipment 3-20 85,379 81,761
Software 3-7 17,742 17,640
Under construction - 5,640 7,182
339,891 329,630
Accumulated depreciation and amortization 211,402 202,185
Property, plant and equipment - net $ 128,489 $ 127,445
1 Includes certain network software.
Our depreciation expense was $18,593 in 2023, $17,852 in 2022, and $17,634 in
2021. Depreciation expense included amortization of software totaling $3,023
in 2023, $2,972 in 2022 and $2,909 in 2021.
In December 2022, we recorded a noncash pre-tax charge of $1,413 to abandon
conduits that will not be utilized to support future network activity. The
abandonment was considered outside the ordinary course of business.
During the first quarter of 2022, we updated our analysis of economic lives of
AT&T owned fiber network assets. As of January 1, 2022, we extended the
estimated economic life and depreciation period of such costs to better
reflect the physical life of the assets that we had been experiencing and
absence of technological changes that would replace fiber as the best
broadband technology in the industry. The change in accounting estimate
decreased depreciation expense $280, or $0.03 per diluted share from
continuing operations for the year ended December 31, 2022.
NOTE 8. LEASES
We have operating and finance leases for certain facilities and equipment used
in our operations. Our leases generally have remaining lease terms of up to 15
years. Some of our 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.
The components of lease expense were as follows:
2023 2022 2021
Operating lease cost $ 5,577 $ 5,437 $ 5,363
Finance lease cost:
Amortization of leased assets in property, plant and equipment $ 232 $ 204 $ 179
Interest on lease obligation 184 159 145
Total finance lease cost $ 416 $ 363 $ 324
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AT&T Inc.
Dollars in millions except per share amounts
The following table provides supplemental cash flows information related to
leases:
2023 2022 2021
Cash Flows from Operating Activities
Cash paid for amounts included in lease obligations:
Operating cash flows from operating leases $ 4,588 $ 4,679 $ 4,580
Supplemental Lease Cash Flow Disclosures
Operating lease right-of-use assets obtained in exchange for 2,693 3,751 3,396
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 $ 20,905 $ 21,814
Accounts payable and accrued liabilities $ 3,524 $ 3,547
Operating lease obligation 17,568 18,659
Total operating lease obligation $ 21,092 $ 22,206
Finance Leases
Property, plant and equipment, at cost $ 2,828 $ 2,770
Accumulated depreciation and amortization (1,399) (1,224)
Property, plant and equipment - net $ 1,429 $ 1,546
Current portion of long-term debt $ 183 $ 170
Long-term debt 1,655 1,647
Total finance lease obligation $ 1,838 $ 1,817
2023 2022
Weighted-Average Remaining Lease Term (years)
Operating leases 7.7 8.1
Finance leases 7.2 7.9
Weighted-Average Discount Rate
Operating leases 4.1 % 3.7 %
Finance leases 8.3 % 8.0 %
63
AT&T Inc.
Dollars in millions except per share amounts
The following table provides the expected future minimum maturities of lease
obligations:
At December 31, 2023 Operating Leases Finance
Leases
2024 $ 4,699 $ 334
2025 4,105 338
2026 3,443 331
2027 2,805 331
2028 2,172 334
Thereafter 8,132 840
Total lease payments 25,356 2,508
Less: imputed interest (4,264) (670)
Total $ 21,092 $ 1,838
NOTE 9. GOODWILL AND OTHER INTANGIBLE ASSETS
We test goodwill for impairment at a reporting unit level, which is deemed to
be our principal operating segments or one level below. With our annual
impairment testing as of October 1, the calculated fair value of each
reporting unit exceeded its book value; 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.
In 2022, we recorded noncash impairment charges of $13,478 in our Business
Wireline reporting unit, $10,508 in our Consumer Wireline reporting unit and
$826 in our Mexico reporting unit. The decline in fair values was primarily
due to changes in the macroeconomic environment, namely increased
weighted-average cost of capital. Also, inflation pressure and lower projected
cash flows driven by secular declines, predominantly at Business Wireline,
impacted the fair values. A combination of discounted cash flow and market
multiple approaches was used to determine the fair values. In the
Communications segment, if all other assumptions were to remain unchanged, we
expect the impairment charge would have increased by approximately $3,400 if
the weighted average cost of capital increased by 25 basis points, or $2,100
if the projected terminal growth rate declined by 25 basis points, or $2,800
if the projected long-term EBITDA margin declined 100 basis points.
Changes to our goodwill in 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.
The following table sets forth the changes in the carrying amounts of goodwill
by operating segment:
2023 2022
Balance at Dispositions Balance at Balance at Impairments Dispositions, Balance at
Jan. 1
Dec. 31
Jan. 1
currency
Dec. 31
and other
exchange
and other
Communications
Goodwill $ 91,881 $ (41) $ 91,840 $ 91,924 $ - $ (43) $ 91,881
Accumulated (23,986) - (23,986) - (23,986) - (23,986)
Impairments
Net goodwill 67,895 (41) 67,854 91,924 (23,986) (43) 67,895
Latin America - - - 816 (826) 10 -
Total $ 67,895 $ (41) $ 67,854 $ 92,740 $ (24,812) $ (33) $ 67,895
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.
64
AT&T Inc.
Dollars in millions except per share amounts
Indefinite-lived wireless licenses increased in 2023 primarily due to
compensable relocation and incentive payments and $695 of capitalized interest
(see Notes 6 and 23).
Indefinite-lived wireless licenses increased in 2022 primarily due to auction
activity and $1,120 of capitalized interest (see Notes 6 and 23).
Our other intangible assets at December 31 are summarized as follows:
2023 2022
Other Intangible Assets Weighted-Average Gross Accumulated Currency Gross Accumulated Currency
Amortization
Translation
Amortization
Translation
Life Carrying
Adjustment Carrying
Adjustment
Amount Amount
Amortized intangible
assets:
Wireless licenses 21.6 years $ 3,034 $ 572 $ 23 $ 3,045 $ 425 $ (297)
Customer lists and 14.3 years 379 286 (74) 413 304 (75)
relationships
Trademarks, trade names 7.8 years 289 261 (5) 330 245 (6)
and other
Total 21.4 years $ 3,702 $ 1,119 $ (56) $ 3,788 $ 974 $ (378)
Indefinite-lived intangible assets not subject to amortization:
Wireless licenses $ 124,734 $ 121,769
Trade names 5,241 5,241
Total $ 129,975 $ 127,010
Amortized intangible assets are definite-life assets, and, as such, we record
amortization expense based on a method that most appropriately reflects our
expected cash flows from these assets. Amortization expense for definite-life
intangible assets was $184 for the year ended December 31, 2023, $169 for the
year ended December 31, 2022 and $218 for the year ended December 31, 2021.
Estimated amortization expense for the next five years is: $171 for 2024, $164
for 2025, $164 for 2026, $164 for 2027 and $163 for 2028.
NOTE 10. EQUITY METHOD INVESTMENTS
Investments in partnerships, joint ventures and less than majority-owned
subsidiaries in which we have significant influence are accounted for under
the equity method.
On May 11, 2023, we closed our transaction with BlackRock, through a fund
managed by its Diversified Infrastructure business, related to Gigapower, LLC
(Gigapower). We deconsolidated Gigapower's operations and began accounting for
it as an equity method investment on May 12, 2023.
On July 31, 2021, we closed our transaction with TPG to form a new company
named DIRECTV (see Note 6). The transaction resulted in our deconsolidation of
the Video business, with DIRECTV being accounted for under the equity method
beginning August 1, 2021.
Our investments in equity affiliates at December 31, 2023, primarily included
our interests in DIRECTV, Gigapower and SKY Mexico.
DIRECTV We account for our investment in DIRECTV under the equity method of
accounting. DIRECTV is considered a variable interest entity for accounting
purposes. As DIRECTV is jointly governed by a board with representation from
both AT&T and TPG, with TPG having tie-breaking authority on certain key
decisions, most significantly the appointment and removal of the CEO, we have
concluded that we are not the primary beneficiary of DIRECTV.
The ownership interests in DIRECTV, based on seniority are as follows:
•Preferred units with distribution rights of $1,800 held by TPG, which were
fully distributed in 2021.
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AT&T Inc.
Dollars in millions except per share amounts
•Junior preferred units with distribution rights of $4,250 held by AT&T,
which were fully distributed as of December 31, 2023.
•Distribution preference associated with Common units of $4,200 held by
AT&T, of which $2,975 of distribution rights remain as of December 31,
2023.
•Common units, with 70% held by AT&T and 30% held by TPG.
The initial fair value of the equity considerations on July 31, 2021 was
$6,852, which was determined using a discounted cash flow model reflecting
distribution rights and preference of the individual instruments. During 2023,
2022 and 2021, we recognized $1,666, $1,808 and $619 of equity in net income
of affiliates and received total distributions of $3,715, $4,457 and $1,942,
respectively, from DIRECTV. The book value of our investment in DIRECTV was
$877 and $2,911 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 50% 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 41.3% interest in SKY Mexico, which is a leading pay-TV
provider in Mexico.
The following table presents summarized financial information for DIRECTV and
our other equity method investments, consisting primarily of Gigapower, SKY
Mexico and certain sports-related programming investments, at December 31, or
for the year then ended:
2023 2022 2021
Income Statements1,2
Operating revenues $ 22,938 $ 25,794 $ 12,220
Operating income 2,873 3,175 1,179
Net income 2,393 2,581 938
Balance Sheets2
Current assets 3,058 4,240
Noncurrent assets 12,203 14,211
Current liabilities 5,148 6,681
Noncurrent liabilities 8,193 7,951
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 $ 3,533 $ 6,168
Additional investments 135 3
Distributions from DIRECTV in excess of cumulative equity in earnings (2,049) (2,649)
Dividends and distributions of cumulative earnings received (1,668) (1,815)
Equity in net income of affiliates 1,675 1,791
Impairments (450) -
Currency translation adjustments 61 25
Other adjustments 14 10
End of year $ 1,251 $ 3,533
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AT&T Inc.
Dollars in millions except per share amounts
NOTE 11. DEBT
Long-term debt of AT&T and its subsidiaries, including interest rates and
maturities, is summarized as follows at December 31:
2023 2022
Notes and debentures
Interest Rates1 Maturities
0.00% - 2.99% 2023 - 2033 $ 24,560 $ 24,603
3.00% - 4.99% 2023 - 2061 87,855 91,201
5.00% - 6.99% 2023 - 2095 27,286 20,083
7.00% - 12.00% 2023 - 2097 3,639 4,884
Credit agreement borrowings - 2,500
Fair value of interest rate swaps recorded in debt 7 13
143,347 143,284
Unamortized (discount) premium - net (9,509) (9,650)
Unamortized issuance costs (436) (427)
Total notes and debentures 133,402 133,207
Finance lease obligations 1,838 1,817
Total long-term debt, including current maturities 135,240 135,024
Current maturities of long-term debt (7,386) (6,601)
Total long-term debt $ 127,854 $ 128,423
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 $35,192 and $35,525 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
4.2% as of December 31, 2023 and 4.1% as of December 31, 2022.
Debt maturing within one year consisted of the following at December 31:
2023 2022
Current maturities of long-term debt $ 7,386 $ 6,601
Commercial paper 2,091 866
Total $ 9,477 $ 7,467
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.
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AT&T Inc.
Dollars in millions except per share amounts
Financing Activities
During 2023, we received net proceeds of $10,004 on the issuance of $10,061 in
long-term debt and proceeds of $750 on the issuance of credit agreement
borrowings in various markets, with an average weighted maturity of
approximately 6.3 years and a weighted average interest rate of 5.2%. We
repaid $12,458 of long-term debt and credit agreement borrowings with a
weighted average interest rate of 5.3%. Our debt activity during 2023
primarily consisted of the following:
First Second Third Fourth Full Year 2023
Quarter
Quarter
Quarter
Quarter
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)
Repayment 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)
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:
2024 2025 2026 2027 2028 Thereafter
Debt repayments1,2 $ 7,537 $ 5,399 $ 10,402 $ 6,310 $ 6,905 $ 109,511
Weighted-average interest rate 2 3.5 % 4.7 % 3.5 % 3.7 % 3.2 % 4.3 %
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 $2,500 term loan agreement due
February 16, 2025 (2025 Term Loan), with Mizuho Bank, Ltd., as agent. On March
30, 2023, the $2,500 Term Loan was paid off and terminated.
In March 2021, we entered into and drew on a $2,000 term loan credit agreement
(BAML Bilateral Term Loan) consisting of (i) a $1,000 facility (BAML Tranche A
Facility), and (ii) a $1,000 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 $14,700 Term Loan Credit Agreement (2021
Syndicated Term Loan), with Bank of America, N.A., as agent. In March 2021, we
borrowed $7,350 under the 2021 Syndicated Term Loan and the remaining $7,350
of lenders' commitments was terminated. On April 13, 2022, the 2021 Syndicated
Term Loan was paid off and terminated.
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AT&T Inc.
Dollars in millions except per share amounts
Revolving Credit Agreement
We currently have a $12,000 revolving credit agreement that terminates on
November 18, 2028 (Revolving Credit Agreement), for which we extended the
termination date, pursuant to the terms of the agreement, by one year in
November 2023. No amount was outstanding under the Revolving Credit Agreement
as of December 31, 2023.
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.
The events of default are customary for agreements of this type and such
events would result in the acceleration of, or would permit the lenders to
accelerate, as applicable, required payments and would increase each
agreement's relevant Applicable Margin by 2.00% per annum.
The obligations of the lenders under the Revolving Credit Agreement to provide
advances will terminate on November 18, 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 50% of the facility amount may agree to extend their commitments under
the credit agreement for one additional one-year periods beyond the initial
termination date. We have the right to terminate, in whole or in part, amounts
committed by the lenders under the credit agreement in excess of any
outstanding advances; however, any such terminated commitments may not be
reinstated.
Advances under the Revolving Credit Agreement would bear interest, at our
option, either:
•at a variable annual rate equal to: (1) the highest of (but not less than
zero) (a) the rate of interest announced publicly by Citibank in New York, New
York, from time to time, as Citibank's base rate, (b) 0.5% per annum above the
federal funds rate, and (c) the forward-looking term rate based on the secured
overnight financing rate (Term SOFR) for a period of one month plus a credit
spread adjustment of 0.10% plus 1.00%, plus (2) an applicable margin, as set
forth in the credit agreement (the "Applicable Margin for Base Advances"); or
•at a rate equal to: (i) Term SOFR for a period of one, three or six months,
as applicable, plus (ii) a credit spread adjustment of 0.10% plus (iii) an
applicable margin, as set forth in the Revolving Credit Agreement (the
"Applicable Margin for Benchmark Rate Advances").
We pay a facility fee of 0.060%, 0.070%, 0.080% or 0.100% per annum of the
amount of the lender commitments, depending on AT&T's credit rating.
NOTE 12. FAIR VALUE MEASUREMENTS AND DISCLOSURE
The Fair Value Measurement and Disclosure framework in ASC 820, "Fair Value
Measurement," provides a three-tiered fair value hierarchy based on the
reliability of the inputs used to determine fair value. Level 1 refers to fair
values determined based on quoted prices in active markets for identical
assets. Level 2 refers to fair values estimated using significant other
observable inputs and Level 3 includes fair values estimated using significant
unobservable inputs.
The level of an asset or liability within the fair value hierarchy is based on
the lowest level of any input that is significant to the fair value
measurement. Our valuation techniques maximize the use of observable inputs
and minimize the use of unobservable inputs.
The valuation methodologies described above may produce a fair value
calculation that may not be indicative of future net realizable value or
reflective of future fair values. We believe our valuation methods are
appropriate and consistent with other market participants. The use of
different methodologies or assumptions to determine the fair value of certain
financial instruments could result in a different fair value measurement at
the reporting date. There have been no changes in the methodologies used since
December 31, 2022.
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AT&T Inc.
Dollars in millions except per share amounts
Long-Term Debt and Other Financial Instruments
The carrying amounts and estimated fair values of our long-term debt,
including current maturities, and other financial instruments, are summarized
as follows:
December 31, 2023 December 31, 2022
Carrying Fair Carrying Fair
Amount
Value
Amount
Value
Notes and debentures1 $ 133,402 $ 128,474 $ 133,207 $ 122,524
Commercial paper 2,091 2,091 866 866
Investment securities2 2,836 2,836 2,692 2,692
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.
Following is the fair value leveling for investment securities that are
measured at fair value and derivatives as of December 31, 2023 and
December 31, 2022. Derivatives designated as hedging instruments are
reflected as "Prepaid and other current assets," "Other Assets," "Accounts
payable and accrued liabilities," and "Other noncurrent liabilities" on our
consolidated balance sheets.
December 31, 2023
Level 1 Level 2 Level 3 Total
Equity Securities
Domestic equities $ 1,002 $ - $ - $ 1,002
International equities 215 - - 215
Fixed income equities 209 - - 209
Available-for-Sale Debt Securities - 1,228 - 1,228
Asset Derivatives
Cross-currency swaps - 424 - 424
Liability Derivatives
Interest rate swaps - (2) - (2)
Cross-currency swaps - (3,601) - (3,601)
December 31, 2022
Level 1 Level 2 Level 3 Total
Equity Securities
Domestic equities $ 995 $ - $ - $ 995
International equities 198 - - 198
Fixed income equities 189 - - 189
Available-for-Sale Debt Securities - 1,132 - 1,132
Asset Derivatives
Cross-currency swaps - 28 - 28
Liability Derivatives
Cross-currency swaps - (6,010) - (6,010)
Foreign exchange contracts - (23) - (23)
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.
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AT&T Inc.
Dollars in millions except per share amounts
Investments in debt securities not traded on a national securities exchange
are valued using pricing models, quoted prices of securities with similar
characteristics or discounted cash flows.
The components comprising total gains and losses in the period on equity
securities are as follows:
For the years ended December 31, 2023 2022 2021
Total gains (losses) recognized on equity securities $ 257 $ (309) $ 293
Gains (Losses) recognized on equity securities sold 89 (80) (5)
Unrealized gains (losses) recognized on equity securities held at end of $ 168 $ (229) $ 298
period
At December 31, 2023, available-for-sale debt securities totaling $1,228 have
maturities as follows - less than one year: $80; one to three years: $178;
three to five years: $156; five or more years: $814.
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 $1,857. The amount will be reclassified
to earnings when the hedged item is recognized in earnings or
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AT&T Inc.
Dollars in millions except per share amounts
when it becomes probable that the forecasted transactions will not occur. The
election of fair value hedge designation for cross-currency swaps does not
have an impact on our financial results.
Unrealized gains on derivatives designated as cash flow hedges are recorded at
fair value as assets, and unrealized losses are recorded at fair value as
liabilities. For derivative instruments designated as cash flow hedges,
changes in fair value are reported as a component of accumulated OCI and are
reclassified into the consolidated statements of income in the same period the
hedged transaction affects earnings.
Periodically, we enter into and designate interest rate locks to partially
hedge the risk of changes in interest payments attributable to increases in
the benchmark interest rate during the period leading up to the probable
issuance of fixed-rate debt. We designate our interest rate locks as cash flow
hedges. Gains and losses when we settle our interest rate locks are amortized
into income over the life of the related debt. Over the next 12 months, we
expect to reclassify $59 from accumulated OCI to "Interest expense" due to the
amortization of net losses on historical interest rate locks.
Collateral and Credit-Risk Contingency We have entered into agreements with
our derivative counterparties establishing collateral thresholds based on
respective credit ratings and netting agreements. At December 31, 2023, we
had posted collateral of $670 (a deposit asset) and held collateral of $5 (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 $53. 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 $3,113. At December 31, 2022, we had posted
collateral of $886 (a deposit asset) and held collateral of $0 (a receipt
liability). We do not offset the fair value of collateral, whether the right
to reclaim cash collateral (a receivable) or the obligation to return cash
collateral (a payable) exists, against the fair value of the derivative
instruments.
Following are the notional amounts of our outstanding derivative positions at
December 31:
2023 2022
Interest rate swaps $ 1,750 $ -
Cross-currency swaps 38,006 38,213
Foreign exchange contracts - 617
Total $ 39,756 $ 38,830
Following are the related hedged items affecting our financial position and
performance:
Effect of Derivatives on the Consolidated Statements of Income
Fair Value Hedging Relationships
For the years ended December 31, 2023 2022 2021
Interest rate swaps ("Interest expense"):
Gain (loss) on interest rate swaps $ (6) $ (3) $ (4)
Gain (loss) on long-term debt 6 3 4
Cross-currency swaps:
Gain (loss) on cross-currency swaps 1,121 2,195 (91)
Gain (loss) on long-term debt (1,121) (2,195) 91
Gain (loss) recognized in accumulated OCI 1,126 297 (17)
Foreign exchange contracts:
Gain (loss) on foreign exchange contracts 12 (12) -
Gain (loss) on long-term debt (12) 12 -
Gain (loss) recognized in accumulated OCI 12 (12) -
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AT&T Inc.
Dollars in millions except per share amounts
In addition, the net swap settlements that accrued and settled in the periods
above were offset against "Interest expense."
Cash Flow Hedging Relationships
For the years ended December 31, 2023 2022 2021
Cross-currency swaps:
Gain (loss) recognized in accumulated OCI $ 12 $ (1,119) $ (873)
Foreign exchange contracts:
Gain (loss) recognized in accumulated OCI - 3 (17)
Other income (expense) - net reclassified from - 1 1
accumulated OCI into income
Interest rate locks:
Interest income (expense) reclassified from (59) (65) (92)
accumulated OCI into income
Other income (expense) reclassified from - (45) -
accumulated OCI into income
Distribution of WarnerMedia - (12) -
Nonrecurring Fair Value Measurements
In addition to assets and liabilities that are recorded at fair value on a
recurring basis, impairment indicators may subject goodwill and long-lived
assets to nonrecurring fair value measurements. The implied fair values of the
Business Wireline, Consumer Wireline and Mexico reporting units were estimated
using both the discounted cash flow as well as market multiple approaches (see
Note 9). The inputs to these models are considered Level 3.
NOTE 13. INCOME TAXES
Significant components of our deferred tax liabilities (assets) are as follows
at December 31:
2023 2022
Depreciation and amortization $ 37,931 $ 36,570
Licenses and nonamortizable intangibles 20,049 19,339
Lease right-of-use assets 5,100 5,322
Lease liabilities (5,146) (5,417)
Employee benefits (2,970) (2,251)
Deferred fulfillment costs 1,941 1,989
Equity in partnership 2,943 3,284
Net operating loss and other carryforwards (6,484) (5,817)
Other - net 563 (248)
Subtotal 53,927 52,771
Deferred tax assets valuation allowance 4,656 4,175
Net deferred tax liabilities $ 58,583 $ 56,946
Noncurrent deferred tax liabilities $ 58,666 $ 57,032
Less: Noncurrent deferred tax assets (83) (86)
Net deferred tax liabilities $ 58,583 $ 56,946
At December 31, 2023, we had combined net operating and capital loss
carryforwards (tax effected) for federal income tax purposes of $824, state of
$774 and foreign of $2,819, expiring through 2043. Additionally, we had
federal credit carryforwards of $485 and state credit carryforwards of $1,582,
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
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AT&T Inc.
Dollars in millions except per share amounts
earnings to be indefinitely reinvested. U.S. income and foreign withholding
taxes have not been recorded on temporary differences related to investments
in certain foreign subsidiaries as such differences are considered
indefinitely reinvested. The amount of unrecognized deferred tax liability
does not have a material impact on the financial statements.
We recognize the financial statement effects of a tax return position when it
is more likely than not, based on the technical merits, that the position will
ultimately be sustained. For tax positions that meet this recognition
threshold, we apply our judgment, taking into account applicable tax laws, our
experience in managing tax audits and relevant GAAP, to determine the amount
of tax benefits to recognize in our financial statements. For each position,
the difference between the benefit realized on our tax return and the benefit
reflected in our financial statements is recorded on our consolidated balance
sheets as an unrecognized tax benefit (UTB). We update our UTBs at each
financial statement date to reflect the impacts of audit settlements and other
resolutions of audit issues, the expiration of statutes of limitation,
developments in tax law and ongoing discussions with taxing authorities. A
reconciliation of the change in our UTB balance from January 1 to December 31
for 2023 and 2022 is as follows:
Federal, State and Foreign Tax 2023 2022
Balance at beginning of year $ 9,657 $ 8,954
Increases for tax positions related to the current year 1,026 1,389
Increases for tax positions related to prior years 448 577
Decreases for tax positions related to prior years (212) (1,079)
Lapse of statute of limitations (16) (2)
Settlements 1,021 (182)
Balance at end of year 11,924 9,657
Accrued interest and penalties 1,785 1,930
Gross unrecognized income tax benefits 13,709 11,587
Less: Deferred federal and state income tax benefits (687) (723)
Less: Tax attributable to timing items included above (6,438) (4,640)
Total UTB that, if recognized, would impact the $ 6,584 $ 6,224
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 $2,361 at December 31, 2023 and
$1,767 at December 31, 2022. Current tax assets on our consolidated balance
sheet at December 31, 2023 were $2,079.
Accrued interest and penalties included in UTBs were $1,785 as of
December 31, 2023 and $1,930 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 $324 for 2023, $(86) for 2022 and $(129) 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.
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AT&T Inc.
Dollars in millions except per share amounts
The components of income tax (benefit) expense are as follows:
2023 2022 2021
Federal:
Current $ 2,280 $ 579 $ (2,400)
Deferred 2,250 2,206 6,872
4,530 2,785 4,472
State and local:
Current 423 21 289
Deferred (832) 912 648
(409) 933 937
Foreign:
Current 66 106 (66)
Deferred 38 (44) 52
104 62 (14)
Total $ 4,225 $ 3,780 $ 5,395
"Income (Loss) from Continuing Operations Before Income Taxes" in the
consolidated statements of income included the following components for the
years ended December 31:
2023 2022 2021
U.S. income (loss) before income taxes $ 20,506 $ (1,480) $ 29,678
Foreign income (loss) before income taxes (658) (1,614) (507)
Total $ 19,848 $ (3,094) $ 29,171
A reconciliation of income tax expense (benefit) on continuing operations and
the amount computed by applying the statutory federal income tax rate of 21%
to income from continuing operations before income taxes is as follows:
2023 2022 2021
Taxes computed at federal statutory rate $ 4,168 $ (650) $ 6,126
Increases (decreases) in income taxes resulting from:
State and local income taxes - net of federal income tax benefit 345 795 936
CARES Act federal NOL carryback - - (471)
Tax on foreign investments 102 43 47
Noncontrolling interest (259) (308) (291)
Permanent items and R&D credit (207) (121) (153)
Audit resolutions 319 (642) (220)
Divestitures (75) (481) (558)
Goodwill impairment1 9 5,210 16
Other - net (177) (66) (37)
Total $ 4,225 $ 3,780 $ 5,395
Effective Tax Rate 21.3 % (122.2) % 18.5 %
1 Goodwill impairments are not deductible for tax purposes.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES)
Act was enacted, which allows for a Net Operating Loss (NOL) generated in 2020
to be carried back to a year with a federal rate of 35%. During 2021, we
recorded a $471 tax benefit for the rate impact of the 2020 NOL carryback
adjusted for the domestic manufacturing deduction limitation in the carryback
year and applicable unrecognized tax benefits.
75
AT&T Inc.
Dollars in millions except per share amounts
NOTE 14. PENSION AND POSTRETIREMENT BENEFITS
We offer noncontributory pension programs covering the majority of domestic
nonmanagement employees in our Communications business. Nonmanagement
employees' pension benefits are generally calculated using one of two
formulas: a flat dollar amount applied to years of service according to job
classification or a cash balance plan with negotiated annual pension band
credits as well as interest credits. Most employees can elect to receive their
pension benefits in either a lump sum payment or an annuity.
Pension programs covering U.S. management employees are closed to new
entrants. These programs continue to provide benefits to participants that
were generally hired before January 1, 2015, who receive benefits under either
cash balance pension programs that include annual or monthly credits based on
salary as well as interest credits, or a traditional pension formula (i.e., a
stated percentage of employees' adjusted career income).
We also provide a variety of medical, dental and life insurance benefits to
certain retired employees under various plans and accrue actuarially
determined postretirement benefit costs as active employees earn these
benefits.
On April 26, 2023, AT&T and State Street Global Advisors Trust Company, as
independent fiduciary of the AT&T Pension Benefit Plan (Plan), entered
into a commitment agreement with subsidiaries of Athene Holding Ltd. (Athene)
under which AT&T agreed to purchase nonparticipating single premium group
annuity contracts that would transfer to Athene $8,067 of the Plan's defined
benefit pension obligations related to certain retirees, participants and
beneficiaries under the Plan.
The purchase of the group annuity contracts closed on May 3, 2023, covering
approximately 96,000 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 no cash or
asset contributions by AT&T. We transferred $8,067 of pension benefit
obligation and related plan assets upon close of the transaction and
recognized a pre-tax pension settlement gain of $363. 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.
76
AT&T Inc.
Dollars in millions except per share amounts
The following table presents the change in the projected benefit obligation
for the years ended December 31:
Pension Benefits Postretirement Benefits
2023 2022 2023 2022
Benefit obligation at beginning of year $ 42,828 $ 57,212 $ 7,280 $ 12,552
Service cost - benefits earned during the period 477 617 23 32
Interest cost on projected benefit obligation 1,876 1,747 340 277
Amendments - - (42) (2,370)
Actuarial (gain) loss 976 (10,894) 278 (1,919)
Benefits paid, including settlements (4,863) (5,854) (1,186) (1,292)
Group annuity contract transfer (8,067) - - -
Benefit obligation at end of year $ 33,227 $ 42,828 $ 6,693 $ 7,280
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 $ 40,874 $ 54,401 $ 2,160 $ 3,198
Actual return on plan assets 1,791 (7,673) 227 (370)
Benefits paid, including settlements 1 (4,863) (5,854) (624) (788)
Contributions - - - 120
Group annuity contract transfer (7,704) - - -
Fair value of plan assets at end of year 30,098 40,874 1,763 2,160
Unfunded status at end of year 2 $ (3,129) $ (1,954) $ (4,930) $ (5,120)
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 $ - $ - $ (521) $ (1,058)
Employee benefit obligation 2 (3,129) (1,954) (4,409) (4,062)
Net amount recognized $ (3,129) $ (1,954) $ (4,930) $ (5,120)
1Included in "Accounts payable and accrued liabilities."
2Included in "Postemployment benefit obligation," combined with international
pension obligations and other postemployment obligations of $152 and $1,044 at
December 31, 2023, and $161 and $1,083 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 $32,481 at December 31, 2023, and $42,137 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 $(1,017), $(4,789) and $(7,652) for the
years ended December 31, 2023, 2022 and 2021.
77
AT&T Inc.
Dollars in millions except per share amounts
The following table presents the components of net periodic benefit cost
(credit):
Pension Benefits Postretirement Benefits
2023 2022 2021 2023 2022 2021
Service cost - benefits earned $ 477 $ 617 $ 957 $ 23 $ 32 $ 45
during the period
Interest cost on projected benefit 1,876 1,747 1,276 340 277 210
obligation
Expected return on assets (2,533) (3,107) (3,513) (130) (112) (151)
Amortization of prior service credit (133) (133) (144) (2,472) (2,558) (2,537)
Net periodic benefit cost (credit) before (313) (876) (1,424) (2,239) (2,361) (2,433)
remeasurement
Actuarial (gain) loss 1,717 (115) (3,461) 181 (1,437) (334)
Settlement (gain) loss (363) - - - - -
Net pension and postretirement $ 1,041 $ (991) $ (4,885) $ (2,058) $ (3,798) $ (2,767)
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 $ 316 $ 416 $ 525 $ 6,354 $ 6,496 $ 8,408
Prior service (cost) credit - - - 32 1,786 -
Amortization of prior service credit (100) (100) (109) (1,863) (1,928) (1,912)
Total recognized in other (100) (100) (109) (1,831) (142) (1,912)
comprehensive (income) loss
Balance at end of year $ 216 $ 316 $ 416 $ 4,523 $ 6,354 $ 6,496
78
AT&T Inc.
Dollars in millions except per share amounts
Assumptions
In determining the projected benefit obligation and the net pension and
postretirement benefit cost, we used the following significant
weighted-average assumptions:
Pension Benefits Postretirement Benefits
2023 2022 2021 2023 2022 2021
Weighted-average discount rate for determining benefit obligation at December 5.00 % 5.20 % 3.00 % 5.00 % 5.20 % 2.80 %
31
Discount rate in effect for determining 5.40 % 4.40 % 3.30 % 5.20 % 4.00 % 2.90 %
service cost1
Discount rate in effect for determining interest cost1 5.30 % 3.90 % 2.30 % 5.10 % 3.20 % 1.60 %
Weighted-average interest credit rate for cash balance pension programs2 4.20 % 4.10 % 3.20 % - % - % - %
Long-term rate of return on plan assets 7.50 % 6.75 % 6.75 % 6.50 % 4.50 % 4.50 %
Composite rate of compensation 3.00 % 3.00 % 3.00 % 3.00 % 3.00 % 3.00 %
increase for determining benefit
obligation
Composite rate of compensation 3.00 % 3.00 % 3.00 % 3.00 % 3.00 % 3.00 %
increase for determining net cost
(credit)
1Weighted-average discount rates shown for years with interim remeasurements:
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 0.50%
increase in the weighted-average interest crediting rate would increase the
pension benefit obligation by $135.
We recognize gains and losses on pension and postretirement plan assets and
obligations immediately in "Other income (expense) - net" in our consolidated
statements of income. These gains and losses are generally measured annually
as of December 31 and accordingly, will normally be recorded during the
fourth quarter, unless an earlier remeasurement is required. Should actual
experience differ from actuarial assumptions, the projected pension benefit
obligation and net pension cost and accumulated postretirement benefit
obligation and postretirement benefit cost would be affected in future years.
Discount Rate Our assumed weighted-average discount rates for both pension and
postretirement benefits of 5.00%, 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 0.20%, resulting in an increase in our pension plan benefit
obligation of $916 and decreased our postretirement discount rate by 0.20%,
resulting in an increase in our postretirement benefit obligation of $110. For
the year ended December 31, 2022, we increased our pension discount rate by
2.20%, resulting in a decrease in our pension plan benefit obligation of
$11,738 and increased our postretirement discount rate by 2.40%, resulting in
a decrease in our postretirement benefit obligation of $2,102.
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.
79
AT&T Inc.
Dollars in millions except per share amounts
Expected Long-Term Rate of Return In 2024, our expected long-term rate of
return is 7.75% on pension plan assets and 4.00% on postretirement plan
assets, an increase of 0.25% for pension plan assets and a decrease of 2.50%
for postretirement plan assets. This update to our asset return assumptions
was due to economic forecasts and changes in the asset mix. Our long-term
rates of return reflect the average rate of earnings expected on the funds
invested, or to be invested, to provide for the benefits included in the
projected benefit obligations. In setting the long-term assumed rate of
return, management considers capital markets' future expectations, the asset
mix of the plans' investment and average historical asset return. Actual
long-term returns can, in relatively stable markets, also serve as a factor in
determining future expectations. We consider many factors that include, but
are not limited to, historical returns on plan assets, current market
information on long-term returns (e.g., long-term bond rates) and current and
target asset allocations between asset categories. The target asset allocation
is determined based on consultations with external investment advisers. If all
other factors were to remain unchanged, we expect that a 0.50% decrease in the
expected long-term rate of return would cause 2024 combined pension and
postretirement cost to increase $150. However, any differences in the rate and
actual returns will be included with the actuarial gain or loss recorded in
the fourth quarter when our plans are remeasured.
Composite Rate of Compensation Increase Our expected composite rate of
compensation increase cost of 3.00% in 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 4.50%. 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 4.25% to an
annual and ultimate trend rate of 4.50%. This change in assumption increased
our obligation by $19.
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 $120
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.
The plans' weighted-average asset targets and actual allocations as a
percentage of plan assets, including the notional exposure of future contracts
by asset categories at December 31 are as follows:
Pension Assets Postretirement (VEBA) Assets
Target 2023 2022 Target 2023 2022
Equity securities:
Domestic 2 % - 22 % 10 % 7 % 11 % - 21 % 16 % 21 %
International - % - 19 % 7 4 6 % - 16 % 11 21
Fixed income securities 34 % - 54 % 47 45 3 % - 13 % 8 47
Real assets 9 % - 29 % 16 16 - % - 6 % 1 1
Private equity 6 % - 26 % 20 14 - % - 6 % 1 1
Preferred interests - % - - % - 13 - % - - % - -
Other - % - 5 % - 1 59 % - 69 % 63 9
Total 100 % 100 % 100 % 100 %
80
AT&T Inc.
Dollars in millions except per share amounts
Prior to April 2023, the pension trust held preferred equity interests in
AT&T Mobility II LLC (Mobility II), the primary holding company for our
wireless business. The preferred equity interests were valued at $5,427 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.
81
AT&T Inc.
Dollars in millions except per share amounts
The following tables set forth by level, within the fair value hierarchy, the
pension and postretirement assets and liabilities at fair value as of
December 31, 2023:
Pension Assets and Liabilities at Fair Value
Level 1 Level 2 Level 3 Total
Non-interest bearing cash $ 102 $ - $ - $ 102
Interest bearing cash 5 - - 5
Foreign currency contracts - 5 - 5
Equity securities:
Domestic equities 2,146 - 2 2,148
International equities 1,085 - - 1,085
Fixed income securities:
Corporate bonds and other investments - 7,584 1 7,585
Government and municipal bonds 1 4,856 - 4,857
Mortgage-backed securities - 329 - 329
Real estate and real assets - - 2,954 2,954
Securities lending collateral 719 985 - 1,704
Receivable for variation margin 2 - - 2
Assets at fair value 4,060 13,759 2,957 20,776
Investments sold short and other liabilities at fair value (147) (1) - (148)
Total plan net assets at fair value $ 3,913 $ 13,758 $ 2,957 $ 20,628
Assets held at net asset value practical expedient
Private equity funds 5,889
Real estate funds 1,877
Commingled funds 3,863
Total assets held at net asset value practical expedient 11,629
Other assets (liabilities) 1 (2,159)
Total Plan Net Assets $ 30,098
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 $ 1,109 $ 3 $ - $ 1,112
Equity securities:
Domestic equities 1 - - 1
International equities - - 1 1
Total plan net assets at fair value $ 1,110 $ 3 $ 1 $ 1,114
Assets held at net asset value practical expedient
Private equity funds 8
Real estate funds 11
Commingled funds 624
Total assets held at net asset value practical expedient 643
Other assets (liabilities)1 6
Total Plan Net Assets $ 1,763
1Other assets (liabilities) include amounts receivable and accounts payable.
82
AT&T Inc.
Dollars in millions except per share amounts
The following tables set forth by level, within the fair value hierarchy, the
pension and postretirement assets and liabilities at fair value as of
December 31, 2022:
Pension Assets and Liabilities at Fair Value
Level 1 Level 2 Level 3 Total
Non-interest bearing cash $ 158 $ - $ - $ 158
Interest bearing cash 5 - - 5
Foreign currency contracts - 4 - 4
Equity securities:
Domestic equities 2,312 - 2 2,314
International equities 1,251 - - 1,251
Preferred interests - - 5,427 5,427
Fixed income securities:
Corporate bonds and other investments - 9,366 1 9,367
Government and municipal bonds - 5,450 - 5,450
Mortgage-backed securities - 220 - 220
Real estate and real assets - - 4,343 4,343
Securities lending collateral 1,137 1,407 - 2,544
Receivable for variation margin 5 - - 5
Assets at fair value 4,868 16,447 9,773 31,088
Investments sold short and other liabilities at fair value (261) (5) - (266)
Total plan net assets at fair value $ 4,607 $ 16,442 $ 9,773 $ 30,822
Assets held at net asset value practical expedient
Private equity funds 5,866
Real estate funds 1,907
Commingled funds 5,045
Total assets held at net asset value practical expedient 12,818
Other assets (liabilities) 1 (2,766)
Total Plan Net Assets $ 40,874
1Other assets (liabilities) include amounts receivable, accounts payable and
net adjustment for securities lending payable.
Postretirement Assets and Liabilities at Fair Value
Level 1 Level 2 Level 3 Total
Interest bearing cash $ 191 $ 4 $ - $ 195
Equity securities:
Domestic equities 258 - - 258
International equities 233 - 1 234
Securities lending collateral - 12 - 12
Assets at fair value 682 16 1 699
Securities lending payable and other liabilities - (12) - (12)
Total plan net assets at fair value $ 682 $ 4 $ 1 $ 687
Assets held at net asset value practical expedient
Commingled funds 13
Private equity funds 13
Real estate funds 1,445
Total assets held at net asset value practical expedient 1,471
Other assets (liabilities) 1 2
Total Plan Net Assets $ 2,160
1Other assets (liabilities) include amounts receivable and accounts payable.
83
AT&T Inc.
Dollars in millions except per share amounts
For the years ended December 31, 2023 and 2022, our postretirement assets did
not include significant investments in Level 3 assets, nor were there
significant changes in fair value of those assets during the period. The
tables below set forth a summary of changes in the fair value of the Level 3
pension assets:
Equities Fixed Income Funds Real Estate and Real Assets Total
Balance as of December 31, 2022 $ 5,429 $ 1 $ 4,343 $ 9,773
Realized gains (losses) (639) - 569 (70)
Unrealized gains (losses) 643 - (1,270) (627)
Purchases - - 128 128
Sales (5,431) - (816) (6,247)
Balance as of December 31, 2023 $ 2 $ 1 $ 2,954 $ 2,957
Equities Fixed Income Funds Real Estate and Real Assets Total
Balance as of December 31, 2021 $ 5,569 $ 2 $ 3,318 $ 8,889
Realized gains (losses) 1 - 22 23
Unrealized gains (losses) (139) - 802 663
Transfers in 1 1 20 22
Transfers out - (2) (29) (31)
Purchases - - 716 716
Sales (3) - (506) (509)
Balance as of December 31, 2022 $ 5,429 $ 1 $ 4,343 $ 9,773
Estimated Future Benefit Payments
Expected benefit payments are estimated using the same assumptions used in
determining our benefit obligation at December 31, 2023. Because benefit
payments will depend on future employment and compensation levels; average
years employed; average life spans; and payment elections, among other
factors, changes in any of these assumptions could significantly affect these
expected amounts. The following table provides expected benefit payments under
our pension and postretirement plans:
Pension Benefits Postretirement Benefits
2024 $ 3,185 $ 788
2025 2,907 664
2026 2,841 622
2027 2,826 588
2028 2,803 564
Years 2029 - 2033 13,340 2,252
Supplemental Retirement Plans
We also provide certain senior- and middle-management employees with
nonqualified, unfunded supplemental retirement and savings plans. While these
plans are unfunded, we have assets in a designated non-bankruptcy remote trust
that are independently managed and used to provide for certain of these
benefits. These plans include supplemental pension benefits as well as
compensation-deferral plans, some of which include a corresponding match by us
based on a percentage of the compensation deferral. For our supplemental
retirement plans, the projected benefit obligation was $1,437 and the net
supplemental retirement pension cost was $87 at and for the year ended
December 31, 2023. The projected benefit obligation was $1,544 and the net
supplemental retirement pension credit was $234 at and for the year ended
December 31, 2022.
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 4.90% at December 31,
2023 and 5.10% 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 $101 in 2023, $94 in 2022 and $171 in 2021.
84
AT&T Inc.
Dollars in millions except per share amounts
Contributory Savings Plans
We maintain contributory savings plans that cover substantially all employees.
Under the savings plans, we match in cash or company stock a stated percentage
of eligible employee contributions, subject to a specified ceiling. There are
no debt-financed shares held by the Employee Stock Ownership Plans, allocated
or unallocated.
Our match of employee contributions to the savings plans is fulfilled with
purchases of our stock on the open market or company cash. Benefit cost, which
is based on the cost of shares or units allocated to participating employees'
accounts or the cash contributed to participant accounts, was $570, $611 and
$614 for the years ended December 31, 2023, 2022 and 2021.
NOTE 15. SHARE-BASED PAYMENTS
Under our various plans, senior and other management employees and nonemployee
directors have received nonvested stock and stock units. The shares will vest
over a period of one to four years in accordance with the terms of those
plans.
We grant performance stock units, which are nonvested stock units, based upon
our stock price at the date of grant and award them in the form of AT&T
common stock and cash at the end of a three-year period, subject to the
achievement of certain performance goals. We treat the cash settled portion of
these awards as a liability. Effective with the 2021 plan year, for the
majority of employees, performance shares were replaced with restricted stock
units that do not have any performance conditions. These new restricted stock
units vest ratably over a three-year period. We grant forfeitable restricted
stock and stock units, which are valued at the market price of our common
stock at the date of grant and predominantly vest over a three- to five-year
period. We also grant other nonvested stock units and award them in cash at
the end of a three-year period, subject to the achievement of certain
market-based conditions. As of December 31, 2023, we were authorized to issue
up to approximately 123 million shares of common stock (in addition to shares
that may be issued upon exercise of outstanding options or upon vesting of
performance stock units or other nonvested stock units) to officers, employees
and directors pursuant to these various plans.
We account for our share-based payment arrangements based on the fair value of
the awards on their respective grant date, which may affect our ability to
fully realize the value shown on our consolidated balance sheets of deferred
tax assets associated with compensation expense. We record a valuation
allowance when our future taxable income is not expected to be sufficient to
recover the asset. Accordingly, there can be no assurance that the current
stock price of our common shares will rise to levels sufficient to realize the
entire tax benefit currently reflected on our consolidated balance sheets.
However, to the extent we generate excess tax benefits (i.e., those additional
tax benefits in excess of the deferred taxes associated with compensation
expense previously recognized) the potential future impact on income would be
reduced.
Our consolidated statements of income include the compensation cost recognized
for those plans as operating expenses, as well as the associated tax benefits,
which are reflected in the table below:
2023 2022 2021
Performance stock units $ 79 $ 168 $ 248
Restricted stock and stock units 400 350 199
Other nonvested stock units - - -
Stock options - - -
Total $ 479 $ 518 $ 447
Income tax benefit $ 118 $ 127 $ 110
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AT&T Inc.
Dollars in millions except per share amounts
A summary of the status of our nonvested stock units as of December 31, 2023,
and changes during the year then ended is presented as follows (shares in
millions):
Nonvested Stock Units Shares Weighted-Average Grant-
Date Fair Value
Nonvested at January 1, 2023 36 $ 22.07
Granted 22 19.24
Vested (27) 22.05
Forfeited (3) 20.05
Nonvested at December 31, 2023 28 $ 20.05
As of December 31, 2023, there was $445 of total unrecognized compensation
cost related to nonvested share-based payment arrangements granted. That cost
is expected to be recognized over a weighted-average period of 1.76 years. The
total fair value of shares vested during the year was $592 for 2023, compared
to $783 for 2022 and $608 for 2021.
It is our intent to satisfy share option exercises using our treasury stock.
Cash received from stock option exercises was $1 for 2023, $2 for 2022 and $11
for 2021.
NOTE 16. STOCKHOLDERS' AND MEZZANINE EQUITY
Authorized Shares We have authorized 14 billion common shares of AT&T
stock and 10 million preferred shares of AT&T stock, each with a par value
of $1.00 per share. Cumulative perpetual preferred shares consist of the
following:
•Series A: 48 thousand shares outstanding at December 31, 2023 and
December 31, 2022, with a $25,000 per share liquidation preference and a
dividend rate of 5.000%.
•Series B: 20 thousand shares outstanding at December 31, 2023 and
December 31, 2022, with a €100,000 per share liquidation preference, and an
initial rate of 2.875%, subject to reset after May 1, 2025.
•Series C: 70 thousand shares outstanding at December 31, 2023 and
December 31, 2022, with a $25,000 per share liquidation preference, and a
dividend rate of 4.75%.
So long as the quarterly preferred dividends are declared and paid on a timely
basis on each series of preferred shares, there are no limitations on our
ability to declare a dividend on or repurchase AT&T common shares. The
preferred shares are optionally redeemable by AT&T at the liquidation
price on or after five years from the issuance date, or upon certain other
contingent events.
Stock Repurchase Program From time to time, we repurchase shares of common
stock for distribution through our employee benefit plans or in connection
with certain acquisitions. In March 2014, our Board of Directors approved an
authorization program to repurchase 300 million shares of common stock, of
which approximately 144 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 no shares repurchased and
during 2022, we repurchased approximately 34 million shares totaling $662
under the March 2014 authorization.
Dividend Declarations In December 2023 and December 2022, AT&T declared a
quarterly preferred dividend of $36. In December 2023 and December 2022,
AT&T declared a quarterly common dividend of $0.2775 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 320 million Series A Cumulative Perpetual Preferred
Membership Interests in Mobility II (Mobility preferred interests), which paid
cash distributions of 7% 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
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AT&T Inc.
Dollars in millions except per share amounts
affiliates, or our ability to declare a dividend on or repurchase AT&T
shares. All outstanding Mobility preferred interests were repurchased as of
April 2023, leaving no amounts outstanding at December 31, 2023.
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) twenty-five 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
250 million shares of AT&T common stock to settle put and redemption
options.
On October 24, 2022, approximately 105 million Mobility preferred interests
were put to AT&T by a third-party investor, for which we paid
approximately $2,600 cash to redeem. On December 27, 2022, the AT&T
pension trust provided written notice of its right to require us to purchase
the remaining 213 million, or approximately $5,340, of Mobility preferred
interests outstanding. The terms of the instruments limited the amount we were
required to redeem in any 12-month period to approximately 107 million
shares, or $2,670. With the certainty of redemption, the Mobility preferred
interests were reclassified from equity to a liability at fair value, with
approximately $2,670 recorded in current liabilities as "Accounts payable and
accrued liabilities," representing the amount required to be redeemed within
one year, and $2,670 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 213 million Mobility preferred interests
outstanding, which had a redemption value of approximately $5,340 and paid
cash distributions of $373 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 213 million Mobility preferred interest
for a purchase price, including accrued and unpaid distributions, of $5,414.
Tower Holdings Preferred Interests
In 2019, we issued $6,000 nonconvertible cumulative preferred interests in a
wireless subsidiary (Tower Holdings) that holds interests in various tower
assets and have the right to receive approximately $6,000 if the purchase
options from the tower companies are exercised.
The membership interests in Tower Holdings consist of (1) common interests,
which are held by a consolidated subsidiary of AT&T, and (2) two series of
preferred interests (collectively the "Tower preferred interests"). The
September series (Tower Class A-1) of the preferred interests totals $1,500
and pays an initial preferred distribution of 5.0%, and the December series
(Tower Class A-2) totals $4,500 and pays an initial preferred distribution of
4.75%. Distributions are paid quarterly, subject to declaration, and reset
every five years. Any failure to declare or pay distributions on the Tower
preferred interests would not impose any limitation on cash movements between
affiliates, or our ability to declare a dividend on or repurchase AT&T
shares. We can call the Tower preferred interests at the issue price beginning
five years from the issuance date or upon the receipt of proceeds from the
sale of the underlying assets. The 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 two or more periods
or to meet certain other requirements, including a minimum credit rating. If
notice is given upon such an event, all other holders of equal or more
subordinate classes of membership interests in Tower Holdings are entitled to
receive the same form of consideration payable to the holders of the preferred
interests, resulting in a deemed liquidation for accounting purposes.
Telco LLC Preferred Interests
In September 2020, we issued $2,000 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
$5,250 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 $7,250 (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 4.25% annually,
subject to declaration, and subject to reset every seven years, and (3) Telco
Class A-2 and A-3 preferred interest which pay an initial preferred
distribution
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AT&T Inc.
Dollars in millions except per share amounts
of 6.85% annually, subject to declaration, and subject to reset on November 1,
2027 and every seven years thereafter. Failure to pay distributions on the
Telco preferred interests would not limit cash movements between affiliates,
or our ability to declare a dividend on or repurchase AT&T shares. We can
call the Telco preferred interests at the issue price beginning seven years
from the issuance date. The Telco preferred interests are included in
"Noncontrolling interest" on the consolidated balance sheets.
The holders of the Telco preferred interests have the option to require
redemption upon the occurrence of certain contingent events, such as the
failure of Telco LLC to pay the preferred distribution for two or more periods
or to meet certain other requirements, including a minimum credit rating. If
notice is given, all other holders of equal or more subordinate classes of
members' equity are entitled to receive the same form of consideration payable
to the holders of the preferred interests, resulting in a deemed liquidation
for accounting purposes.
Mobility II Redeemable Noncontrolling Interests
In June 2023, we issued two million 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. 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 $2,000
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.
A holder of the Mobility noncontrolling interests may put the interests to
Mobility II on or after the earliest of certain events or each June 15 and
December 15, beginning on June 15, 2028. Mobility II may redeem the interests
on each March 15 and September 15, beginning on March 15, 2028. The price at
which a put option or a redemption option can be exercised is the sum of (a)
$1,000 per Mobility noncontrolling interest plus (b) any accrued and unpaid
distributions. The redemption price must be paid in cash.
NOTE 17. SALES OF RECEIVABLES
We have agreements with various third-party financial institutions pertaining
to the sales of certain types of our accounts receivable. The most significant
of these programs consists of receivables arising from equipment installment
plans, which are sold for cash and beneficial interests, such as deferred
purchase price, when applicable. Under the terms of our agreement for this
program, we continue to service the transferred receivables on behalf of the
financial institutions.
The following table sets forth a summary of cash proceeds received, net of
remittances paid, from sales of receivables for the years ended December 31:
2023 2022 2021
Net cash received from equipment installment receivables1 $ 648 $ 1,875 $ 1,000
Net cash received (paid) from other programs2 824 620 (295)
Total net cash impact to cash flows from operating activities $ 1,472 $ 2,495 $ 705
1Cash from initial sales of $10,980, $11,129 and $9,740 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 $924 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.
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AT&T Inc.
Dollars in millions except per share amounts
The following table sets forth a summary of the equipment installment
receivables and accounts being serviced at December 31:
2023 2022
Gross receivables: $ 3,714 $ 4,165
Balance sheet classification
Accounts receivable
Notes receivable 1,695 1,789
Trade receivables 548 522
Other Assets
Noncurrent notes and trade receivables 1,471 1,854
Outstanding portfolio of receivables derecognized from $ 12,027 $ 11,030
our consolidated balance sheets
Cash proceeds received, net of remittances1 9,361 8,519
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.
The following table sets forth a summary of equipment installment receivables
sold under this program:
2023 2022 2021
Gross receivables sold1 $ 11,104 $ 11,510 $ 10,793
Net receivables sold2 10,603 11,061 10,502
Cash proceeds received 10,980 11,129 9,740
Beneficial interests recorded - 245 1,080
Guarantee obligation recorded 932 703 434
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).
The following table presents the previously transferred equipment installment
receivables, which we repurchased in exchange for the associated beneficial
interests:
2023 2022 2021
Fair value of repurchased receivables $ 2,997 $ 3,314 $ 1,424
Carrying value of beneficial interests 3,013 3,335 1,334
Gain (loss) on repurchases1 $ (16) $ (21) $ 90
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
$2,270 and $2,318, respectively, of which $1,296 and $1,278 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 $385 and $419, respectively, of which $111 and
$73 are included in "Accounts payable and accrued liabilities" on our
consolidated balance sheets, with the remainder
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AT&T Inc.
Dollars in millions except per share amounts
in "Other noncurrent liabilities." Our maximum exposure to loss as a result of
selling these equipment installment receivables is limited to the total amount
of our beneficial interests and guarantee obligation.
NOTE 18. TOWER TRANSACTION
In December 2013, we closed our transaction with Crown Castle International
Corp. (Crown Castle) in which Crown Castle gained the exclusive rights to
lease and operate 9,048 wireless towers and purchased 627 of our wireless
towers for $4,827 in cash. The leases have various terms with an average
length of approximately 28 years. As the leases expire, Crown Castle will have
fixed price purchase options for these towers totaling approximately $4,200,
based on their estimated fair market values at the end of the lease terms. We
sublease space on the towers from Crown Castle for an initial term of ten
years, 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
3.9%. The financing obligation is increased by interest expense and estimated
future net cash flows generated and retained by Crown Castle from operation of
the tower sites, and reduced by our contractual payments. We continue to
include the tower assets in "Property, Plant and Equipment - Net" on our
consolidated balance sheets and depreciate them accordingly. At December 31,
2023 and 2022, the tower assets had a balance of $647 and $686, respectively.
Our depreciation expense for these assets was $39 for each of 2023, 2022 and
2021.
Payments made to Crown Castle under this arrangement were $264 for 2023. At
December 31, 2023, the future minimum payments under the sublease arrangement
are $269 for 2024, $274 for 2025, $280 for 2026, $285 for 2027, $291 for 2028
and $1,686 thereafter.
NOTE 19. TRANSACTIONS WITH DIRECTV
We account for our investment in DIRECTV under the equity method and record
our share of DIRECTV earnings as equity in net income of affiliates, with
DIRECTV considered a related party. (See Note 10)
At December 31, 2023, our investment in DIRECTV was $877. The following table
sets forth our share of DIRECTV's earnings included in equity in net income of
affiliates and cash distributions received from DIRECTV as of December 31:
2023 2022 2021
DIRECTV's earnings included in equity in net income of affiliates $ 1,666 $ 1,808 $ 619
Distributions classified as operating activities $ 1,666 $ 1,808 $ 619
Distributions classified as investing activities 2,049 2,649 1,323
Cash distributions received from DIRECTV $ 3,715 $ 4,457 $ 1,942
In 2021, in addition to the assets and liabilities contributed to DIRECTV, we
recorded total obligations of $2,100 to cover certain net losses under the NFL
SUNDAY TICKET contract, of which $1,800 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 $130 and $1,211, 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 five years. 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 $730,
$1,260 and $550 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 $280 and
accounts payable to DIRECTV of $30.
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.
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AT&T Inc.
Dollars in millions except per share amounts
NOTE 20. FIRSTNET
In 2017, the First Responder Network Authority (FirstNet) selected AT&T to
build and manage the first nationwide broadband network dedicated to America's
first responders. Under the 25-year agreement, FirstNet provides 20 MHz of
valuable telecommunications spectrum and success-based payments of $6,500 to
support network buildout, which has been substantially completed. We are
required to construct a network that achieves coverage and nationwide
interoperability requirements and have a contractual commitment to make
sustainability payments of $18,000 over the 25-year contract. These
sustainability payments represent our commitment to fund FirstNet's operating
expenses and future reinvestments in the network which we own and operate,
which we estimate in the $3,000 or less range over the life of the 25-year
contract. After FirstNet's operating expenses are paid, we anticipate the
remaining amount, expected to be in the $15,000 range, will be reinvested into
the network. On January 30, 2024, FirstNet agreed to reinvest up to $6,300 in
the network over the next 10 years, subject to authorization.
During 2023, we submitted $195 in sustainability payments, with future
payments under the agreement of $561 for 2024, $420 for 2025; $896 for 2026,
$1,566 for 2027, $1,658 for 2028; and $11,909 thereafter. Amounts paid to
FirstNet, which are not expected to be returned to AT&T to be reinvested
into our network, will be expensed in the period paid. In the event FirstNet
does not reinvest any funds to construct, operate, improve and maintain this
network, our maximum exposure to loss is the total amount of the
sustainability payments, which would be reflected in higher expense.
The $6,500 of initial funding from FirstNet is contingent on the achievement
of six operating capability milestones and certain first responder subscriber
adoption targets. These milestones are based on coverage objectives of the
first responder network during the construction period, which is expected to
be over five years, and subscriber adoption targets. Funding payments received
from FirstNet are reflected as a reduction from the costs capitalized in the
construction of the network and, as appropriate, a reduction of associated
operating expenses. As of December 31, 2023, we have collected $6,404 of the
$6,500 for the completion of certain tasks.
NOTE 21. CONTINGENT LIABILITIES
We are party to numerous lawsuits, regulatory proceedings and other matters
arising in the ordinary course of business. In evaluating these matters on an
ongoing basis, we take into account amounts already accrued on the balance
sheet. In our opinion, although the outcomes of these proceedings are
uncertain, they should not have a material adverse effect on our financial
position, results of operations or cash flows.
We have contractual obligations to purchase certain goods or services from
various other parties. Our purchase obligations are expected to be
approximately $7,555 in 2024, $12,856 in total for 2025 and 2026, $8,187 in
total for 2027 and 2028 and $909 in total for years thereafter.
See Note 12 for a discussion of collateral and credit-risk contingencies.
NOTE 22. SUPPLIER AND VENDOR FINANCING PROGRAMS
Supplier Financing Program
We actively manage the timing of our supplier payments for operating items to
optimize the use of our cash and seek to make payments on 90-day or greater
terms, while providing suppliers with access to bank facilities that permit
earlier payment at their cost. Our supplier financing program does not result
in changes to our normal, contracted payment cycles or cash from operations.
At the supplier's election, they can receive payment of AT&T obligations
prior to the scheduled due dates, at a discounted price from the third-party
financial institution. The discounted price paid by participating suppliers is
based on a variable rate that is indexed to the overnight borrowing rate. We
agree to pay the financial institution the stated amount generally within 90
days of receipt of the invoice. We do not have pledged assets or other
guarantees under our supplier financing program.
Our outstanding payment obligations are included in "Accounts payable and
accrued liabilities" on our consolidated balance sheets and are reported as
operating or investing (when capitalizable) activities in our statements of
cash flows when paid.
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AT&T Inc.
Dollars in millions except per share amounts
The following table presents the change in the supplier financing obligation
for the year ended December 31:
2023
Confirmed obligations outstanding at the beginning of year $ 2,869
Invoices received 12,496
Invoices paid (12,521)
Confirmed obligations outstanding at the end of year $ 2,844
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.
The following table presents the change in the direct supplier financing
obligation for the years ended December 31:
2023 2022
Obligations outstanding at the beginning of year $ 5,486 $ 4,551
Invoices extended 17,376 16,570
Invoices paid (17,420) (15,635)
Obligations outstanding at the end of year $ 5,442 $ 5,486
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.
The following table presents the change in the vendor financing obligation for
the years ended December 31:
2023 2022
Obligations outstanding at the beginning of year $ 5,607 $ 4,487
Commitments 2,651 5,817
Payments (5,742) (4,697)
Obligations outstanding at the end of year1 $ 2,516 $ 5,607
1Total vendor financing payables at December 31, 2023 at December 31, 2022
were approximately $2,833 and $6,147, respectively, of which $1,975 and $4,592
are included in "Accounts payable and accrued liabilities."
NOTE 23. ADDITIONAL FINANCIAL INFORMATION
December 31,
Consolidated Balance Sheets 2023 2022
Accounts payable and accrued liabilities:
Accounts payable $ 27,309 $ 31,101
Accrued payroll and commissions 1,698 1,605
Current portion of employee benefit obligation 631 1,173
Current portion of Mobility preferred interests - 2,670
Accrued interest 2,187 2,160
Accrued taxes 1,022 798
Other 3,005 3,137
Total accounts payable and accrued liabilities $ 35,852 $ 42,644
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AT&T Inc.
Dollars in millions except per share amounts
Consolidated Statements of Income 2023 2022 2021
Advertising expense $ 2,576 $ 2,462 $ 2,732
Interest income $ 303 $ 143 $ 119
Interest expense incurred $ 7,578 $ 7,402 $ 7,670
Capitalized interest - capital expenditures (179) (174) (173)
Capitalized interest - spectrum1 (695) (1,120) (781)
Total interest expense $ 6,704 $ 6,108 $ 6,716
1Included in "Acquisitions, net of cash acquired" on our consolidated
statements of cash flows.
Cash and Cash Flows We typically maintain our restricted cash balances for
purchases and sales of certain investment securities and funding of certain
deferred compensation benefit payments.
The following table summarizes cash and cash equivalents and restricted cash
balances contained on our consolidated balance sheets:
December 31,
Cash and Cash Equivalents and Restricted Cash 2023 2022 2021 2020
Cash and cash equivalents from continuing operations $ 6,722 $ 3,701 $ 19,223 $ 7,924
Cash and cash equivalents from discontinued operations - - 1,946 1,816
Restricted cash in Prepaid and other current assets 2 1 3 9
Restricted cash in Other Assets 109 91 144 121
Cash and cash equivalents and restricted cash $ 6,833 $ 3,793 $ 21,316 $ 9,870
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 $ 7,370 $ 7,772 $ 7,485
Income taxes, net of refunds1 1,599 592 252
1Total cash income taxes paid, net of refunds, by AT&T was $1,599, $696
and $700 for 2023, 2022 and 2021, respectively.
Purchase of property and equipment $ 17,674 $ 19,452 $ 15,372
Interest during construction - capital expenditures1 179 174 173
Total Capital expenditures $ 17,853 $ 19,626 $ 15,545
Business acquisitions $ - $ - $ -
Spectrum acquisitions 2,247 9,080 24,672
Interest during construction - spectrum1 695 1,120 781
Total Acquisitions, net of cash acquired $ 2,942 $ 10,200 $ 25,453
1Total capitalized interest was $874, $1,294 and $954 for 2023, 2022 and 2021,
respectively.
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.
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AT&T Inc.
Dollars in millions except per share amounts
NOTE 24. DISCONTINUED OPERATIONS
Upon the separation and distribution, the WarnerMedia business met the
criteria for discontinued operations. For discontinued operations, we also
evaluated transactions that were components of AT&T's single plan of a
strategic shift, including dispositions that previously did not individually
meet the criteria due to materiality, and have determined discontinued
operations to be comprised of WarnerMedia, Vrio, Xandr and Playdemic.
The following is a summary of operating results included in income (loss) from
discontinued operations for the years ended:
2023 2022 2021
Revenues $ - $ 9,454 $ 34,826
Operating Expenses
Cost of revenues - 5,481 19,400
Selling, general and administrative - 2,791 8,275
Asset abandonments and impairments1 - - 4,691
Depreciation and amortization - 1,172 5,010
Total operating expenses - 9,444 37,376
Interest expense - 131 168
Equity in net income (loss) of affiliates - (27) 28
Other income (expense) - net2 - (87) 466
Total other income (expense) - (245) 326
Net loss before income taxes - (235) (2,224)
Income tax expense (benefit) - (54) 73
Net loss from discontinued operations $ - $ (181) $ (2,297)
12021 includes $4,555 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 $706 from Playdemic for
the year ended 2021.
In preparation for close of the separation and distribution, on April 7, 2022,
Spinco drew $10,000 on its $10,000 term loan credit agreement (Spinco Term
Loan), which conveyed to WBD. Total debt conveyed was approximately $41,600,
which included $1,600 of existing WarnerMedia debt, $30,000 of Spinco senior
notes issued in March 2022 and the $10,000 Spinco Term Loan. WarnerMedia cash
transfer to Discovery was approximately $2,660.
NOTE 25. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following tables represent our quarterly financial results:
2023 Calendar Quarter
First Second1 Third1 Fourth1 Annual
Total Operating Revenues $ 30,139 $ 29,917 $ 30,350 $ 32,022 $ 122,428
Operating Income 6,002 6,406 5,782 5,271 23,461
Net Income from 4,453 4,762 3,826 2,582 15,623
Continuing Operations
Net Income from Continuing 4,176 4,437 3,444 2,135 14,192
Operations Attributable to Common Stock
Basic Earnings Per Share
Attributable to Common Stock from $ 0.58 $ 0.61 $ 0.48 $ 0.30 $ 1.97
Continuing Operations2
Diluted Earnings Per Share
Attributable to Common Stock from $ 0.57 $ 0.61 $ 0.48 $ 0.30 $ 1.97
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.
94
AT&T Inc.
Dollars in millions except per share amounts
2022 Calendar Quarter
First1 Second1 Third1 Fourth1,2 Annual
Total Operating Revenues $ 29,712 $ 29,643 $ 30,043 $ 31,343 $ 120,741
Operating Income (Loss) 5,537 4,956 6,012 (21,092) (4,587)
Net Income (Loss) from 5,149 4,751 6,346 (23,120) (6,874)
Continuing Operations
Net Income (Loss) from Continuing 4,747 4,319 5,924 (23,536) (8,546)
Operations Attributable to Common Stock
Basic Earnings (Loss) Per Share
Attributable to Common Stock from $ 0.66 $ 0.60 $ 0.82 $ (3.20) $ (1.10)
Continuing Operations3
Diluted Earnings (Loss) Per Share
Attributable to Common Stock from $ 0.65 $ 0.59 $ 0.79 $ (3.20) $ (1.10)
Continuing Operations3
1Includes actuarial gains and losses on pension and postretirement benefit
plans (Note 14).
2Includes goodwill impairments (Note 9) and an asset abandonment charge (Note
7).
3Quarterly earnings per share impacts may not add to full-year earnings per
share impacts due to the difference in weighted-average common shares for the
quarters versus the weighted-average common shares for the year.
95
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.
96
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.
97
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 Weighted average Number of securities
exercise of
exercise price of outstanding
outstanding options, warrants and rights
options, warrants remaining available for future issuance under equity compensation plans
(a)
and rights (excluding securities reflected in column (a))
(b)
(c)
Equity compensation plans approved by security holders 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.
98
AT&T Inc.
Dollars in millions except per share amounts
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
Information required by Item 404 of Regulation S-K is included in the
registrant's Proxy Statement under the heading "Related Person Transactions,"
which is incorporated herein by reference pursuant to General Instruction
G(3). Information required by Item 407(a) of Regulation S-K is included in the
registrant's Proxy Statement under the heading "Director Independence," which
is incorporated herein by reference pursuant to General Instruction G(3).
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information required by this Item is included in the registrant's Proxy
Statement under the heading "Principal Accountant Fees and Services," which is
incorporated herein by reference pursuant to General Instruction G(3).
Part IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)Documents filed as a part of the report:
Page
(1) Report of Independent Registered Public Accounting Firm (PCAOB ID: 42) 40 (#BKMK_144)
Financial Statements covered by Report of Independent Registered Public
Accounting Firm:
Consolidated Statements of Income 43 (#BKMK_155)
Consolidated Statements of Comprehensive Income 44 (#BKMK_157)
Consolidated Balance Sheets 45 (#BKMK_160)
Consolidated Statements of Cash Flows 46 (#BKMK_163)
Consolidated Statements of Changes in Stockholders' Equity 47 (#BKMK_166)
Notes to Consolidated Financial Statements 49 (#BKMK_171)
(2) Financial Statement Schedules:
II - Valuation and Qualifying Accounts 102 (#BKMK_346)
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.
99
AT&T Inc.
Dollars in millions except per share amounts
100
AT&T Inc.
Dollars in millions except per share amounts
101
AT&T Inc.
Dollars in millions except per share amounts
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Allowance for Credit Losses
COL. A COL. B COL. C COL. D COL. E
Additions
(1) (2) (3)
Balance at Beginning of Period Charged to Charged to Other Acquisitions Deductions (b) Balance at End
Costs and Expenses (a)
Accounts of Period (c)
Year 2023 $ 1,011 1,969 - - 2,224 $ 756
Year 2022 $ 1,163 1,865 - - 2,017 $ 1,011
Year 2021 $ 1,457 1,241 - - 1,535 $ 1,163
(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 Charged to Other Acquisitions Deductions Balance at End
Costs and Expenses
Accounts
of Period
Year 2023 $ 4,175 481 - - - $ 4,656
Year 2022 $ 4,343 (168) - - - $ 4,175
Year 2021 $ 4,557 (214) - - - $ 4,343
102
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
/s/ Sabrina Sanders
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
103
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