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AT&T Inc. |
Dollars in millions except per share amounts |
The following table presents assets, investments in equity affiliates and capital expenditures by segment:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
At or for the years ended December 31, | 2022 | | 2021 |
| | Assets | | Investments in Equity Method Investees | | Capital Expenditures | | Assets | | Investments in Equity Method Investees | | Capital Expenditures |
Communications | | $ | 471,444 | | | $ | — | | | $ | 18,962 | | | $ | 448,757 | | | $ | — | | | $ | 14,691 | |
Latin America | | 8,408 | | | — | | | 360 | | | 8,874 | | | — | | | 319 | |
Corporate and eliminations1 | | (76,999) | | | 3,533 | | | 304 | | | 93,991 | | | 6,168 | | | 535 | |
Total | | $ | 402,853 | | | $ | 3,533 | | | $ | 19,626 | | | $ | 551,622 | | | $ | 6,168 | | | $ | 15,545 | |
1Includes $119,776 of assets from discontinued operations at December 31, 2021. |
NOTE 5. REVENUE RECOGNITION
We report our revenues net of sales taxes and record certain regulatory fees, primarily Universal Service Fund (USF) fees, on a net basis. No customer accounted for more than 10% of consolidated revenues in 2022, 2021 or 2020.
Wireless, Advanced Data, Legacy Voice & Data Services and Equipment Revenue
We offer service-only contracts and contracts that bundle equipment used to access the services and/or with other service offerings. Some contracts have fixed terms and others are cancellable on a short-term basis (i.e., month-to-month arrangements).
Examples of service revenues include wireless, strategic services (e.g., virtual private network service), and legacy voice and data (e.g., traditional local and long-distance). These services represent a series of distinct services that is considered a separate performance obligation. Service revenue is recognized when services are provided, based upon either usage (e.g., minutes of traffic/bytes of data processed) or period of time (e.g., monthly service fees).
Some of our services require customer premises equipment that, when combined and integrated with AT&T’s specific network infrastructure, facilitates the delivery of service to the customer. In evaluating whether the equipment is a separate performance obligation, we consider the customer’s ability to benefit from the equipment on its own or together with other readily available resources and if so, whether the service and equipment are separately identifiable (i.e., is the service highly dependent on, or highly interrelated with the equipment). When equipment is a separate performance obligation, we record the sale of equipment when title has passed and the products are accepted by the customer. For devices sold through indirect channels (e.g., national dealers), revenue is recognized when the dealer accepts the device, not upon activation.
Our equipment and service revenues are predominantly recognized on a gross basis, as most of our services do not involve a third party and we typically control the equipment that is sold to our customers.
Revenue recognized from fixed term contracts that bundle services and/or equipment is allocated based on the standalone selling price of all required performance obligations of the contract (i.e., each item included in the bundle). Promotional discounts are attributed to each required component of the arrangement, resulting in recognition over the contract term. Standalone selling prices are determined by assessing prices paid for service-only contracts (e.g., arrangements where customers bring their own devices) and standalone device pricing.
We offer the majority of our customers the option to purchase certain wireless devices in installments over a specified period of time, and, in many cases, they may be eligible to trade in the original equipment for a new device and have the remaining unpaid balance paid or settled. For customers that elect these equipment installment payment programs, at the point of sale, we recognize revenue for the entire amount of revenue allocated to the customer receivable net of fair value of the trade-in right guarantee. The difference between the revenue recognized and the consideration received is recorded as a note receivable when the devices are not discounted and our right to consideration is unconditional. When installment sales include promotional discounts (e.g., “buy one get one free” or equipment discounts with trade-in of a device), the difference between revenue recognized and consideration received is recorded as a contract asset to be amortized over the contract term.
Less commonly, we offer certain customers highly discounted devices when they enter into a minimum service agreement term. For these contracts, we recognize equipment revenue at the point of sale based on a standalone selling price allocation. The
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AT&T Inc. |
Dollars in millions except per share amounts |
difference between the revenue recognized and the cash received is recorded as a contract asset that will amortize over the contract term.
Our contracts allow for customers to frequently modify their arrangement, without incurring penalties in many cases. When a contract is modified, we evaluate the change in scope or price of the contract to determine if the modification should be treated as a new contract or if it should be considered a change of the existing contract. We generally do not have significant impacts from contract modifications.
Revenues from transactions between us and our customers are recorded net of revenue-based regulatory fees and taxes. Cash incentives given to customers are recorded as a reduction of revenue. Nonrefundable, upfront service activation and setup fees associated with service arrangements are deferred and recognized over the associated service contract period or customer relationship life.
Revenue Categories
The following tables set forth reported revenue by category and by business unit:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
For the year ended December 31, 2022 |
| Communications | | | | | | | | |
| Mobility | | Business Wireline | | Consumer Wireline | | Latin America | | Corporate & Other | | Elim. | | Total |
Wireless service | $ | 60,499 | | | $ | — | | | $ | — | | | $ | 2,162 | | | $ | 13 | | | $ | — | | | $ | 62,674 | |
Business service | — | | | 21,891 | | | — | | | — | | | — | | | — | | | 21,891 | |
Broadband | — | | | — | | | 9,669 | | | — | | | — | | | — | | | 9,669 | |
Legacy voice and data | — | | | — | | | 1,746 | | | — | | | 323 | | | — | | | 2,069 | |
Other | — | | | — | | | 1,334 | | | — | | | 194 | | | — | | | 1,528 | |
Total Service | 60,499 | | | 21,891 | | | 12,749 | | | 2,162 | | | 530 | | | — | | | 97,831 | |
Equipment | 21,281 | | | 647 | | | — | | | 982 | | | — | | | — | | | 22,910 | |
Total | $ | 81,780 | | | $ | 22,538 | | | $ | 12,749 | | | $ | 3,144 | | | $ | 530 | | | $ | — | | | $ | 120,741 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
For the year ended December 31, 2021 |
| Communications | | | | | | | | |
| Mobility | | Business Wireline | | Consumer Wireline | | Latin America | | Corporate & Other | | Elim. | | Total |
Wireless service | $ | 57,590 | | | $ | — | | | $ | — | | | $ | 1,834 | | | $ | 74 | | | $ | — | | | $ | 59,498 | |
Video service | — | | | — | | | — | | | — | | | 15,423 | | | — | | | 15,423 | |
Business service | — | | | 23,224 | | | — | | | — | | | 70 | | | — | | | 23,294 | |
Broadband | — | | | — | | | 9,085 | | | — | | | — | | | — | | | 9,085 | |
| | | | | | | | | | | | | |
Legacy voice and data | — | | | — | | | 1,977 | | | — | | | 429 | | | — | | | 2,406 | |
Other | — | | | — | | | 1,384 | | | — | | | 611 | | | (136) | | | 1,859 | |
Total Service | 57,590 | | | 23,224 | | | 12,446 | | | 1,834 | | | 16,607 | | | (136) | | | 111,565 | |
Equipment | 20,664 | | | 713 | | | 93 | | | 913 | | | 90 | | | — | | | 22,473 | |
Total | $ | 78,254 | | | $ | 23,937 | | | $ | 12,539 | | | $ | 2,747 | | | $ | 16,697 | | | $ | (136) | | | $ | 134,038 | |
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AT&T Inc. |
Dollars in millions except per share amounts |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
For the year ended December 31, 2020 |
| Communications | | | | | | | | |
| Mobility | | Business Wireline | | Consumer Wireline | | Latin America | | Corporate & Other | | Elim. | | Total |
Wireless service | $ | 55,542 | | | $ | — | | | $ | — | | | $ | 1,656 | | | $ | 528 | | | $ | — | | | $ | 57,726 | |
Video service | — | | | — | | | — | | | — | | | 28,465 | | | — | | | 28,465 | |
Business service | — | | | 24,313 | | | — | | | — | | | 314 | | | — | | | 24,627 | |
Broadband | — | | | — | | | 8,534 | | | — | | | — | | | — | | | 8,534 | |
| | | | | | | | | | | | | |
Legacy voice and data | — | | | — | | | 2,213 | | | — | | | 554 | | | — | | | 2,767 | |
Other | — | | | — | | | 1,564 | | | — | | | 641 | | | (267) | | | 1,938 | |
Total Service | 55,542 | | | 24,313 | | | 12,311 | | | 1,656 | | | 30,502 | | | (267) | | | 124,057 | |
Equipment | 17,022 | | | 770 | | | 7 | | | 906 | | | 288 | | | — | | | 18,993 | |
Total | $ | 72,564 | | | $ | 25,083 | | | $ | 12,318 | | | $ | 2,562 | | | $ | 30,790 | | | $ | (267) | | | $ | 143,050 | |
Deferred Customer Contract Acquisition and Fulfillment Costs
Costs to acquire and fulfill customer contracts, including commissions on service activations, for our Mobility, Business Wireline and Consumer Wireline services, are deferred and amortized over the contract period or expected customer relationship life, which typically ranges from three years to five years.
During the first quarter of 2022, we updated our analysis of expected economic lives of customer relationships. As of January 1, 2022, we extended the amortization period for deferred acquisition and fulfillment contract costs within Mobility, Consumer Wireline and Business Wireline to better reflect the estimated economic lives of the relationships. These changes in accounting estimate decreased other cost of revenues approximately $395, or $0.04 per diluted share from continuing operations for the year ended December 31, 2022.
The following table presents the deferred customer contract acquisition and fulfillment costs included on our consolidated balance sheets at December 31:
| | | | | | | | | | | |
Consolidated Balance Sheets | 2022 | | 2021 |
Deferred Acquisition Costs | | | |
Prepaid and other current assets | $ | 2,893 | | | $ | 2,551 | |
Other Assets | 3,913 | | | 3,247 | |
Total deferred customer contract acquisition costs | $ | 6,806 | | | $ | 5,798 | |
| | | |
Deferred Fulfillment Costs | | | |
Prepaid and other current assets | $ | 2,481 | | | $ | 2,600 | |
Other Assets | 4,206 | | | 4,148 | |
Total deferred customer contract fulfillment costs | $ | 6,687 | | | $ | 6,748 | |
The following table presents deferred customer contract acquisition and fulfillment cost amortization included in “Other cost of revenue” for the years ended December 31:
| | | | | | | | | | | |
Consolidated Statements of Income | 2022 | | 20211 |
Deferred acquisition cost amortization | $ | 2,935 | | | $ | 2,965 | |
Deferred fulfillment cost amortization | 2,688 | | | 4,014 | |
1Includes deferred acquisition amortization of $409 and deferred fulfillment cost amortization of $1,162 from our separated Video business for the year ended December 31, 2021. |
Contract Assets and Liabilities
A contract asset is recorded when revenue is recognized in advance of our right to bill and receive consideration. The contract asset will decrease as services are provided and billed. For example, when installment sales include promotional discounts (e.g., “buy one get one free”) the difference between revenue recognized and consideration received is recorded as a contract asset to be amortized over the contract term.
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AT&T Inc. |
Dollars in millions except per share amounts |
Our contract assets primarily relate to our wireless businesses. Promotional equipment sales where we offer handset credits, which are allocated between equipment and service in proportion to their standalone selling prices, when customers commit to a specified service period result in additional contract assets recognized. These contract assets will amortize over the service contract period, resulting in lower future service revenue.
When consideration is received in advance of the delivery of goods or services, a contract liability is recorded. Reductions in the contract liability will be recorded as we satisfy the performance obligations.
The following table presents contract assets and liabilities on our consolidated balance sheets at December 31:
| | | | | | | | | | | |
Consolidated Balance Sheets | 2022 | | 2021 |
Contract asset | $ | 5,512 | | | $ | 4,389 | |
Current portion in “Prepaid and other current assets” | 2,941 | | | 2,582 |
Contract liability | 4,170 | | | 4,133 |
Current portion in “Advanced billings and customer deposits” | 3,816 | | | 3,776 |
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Our contract asset balance in 2022 reflects increased promotional equipment sales in our wireless business. We expect the amortization of these promotional costs to flatten in 2023.
Our beginning of period contract liabilities recorded as customer contract revenue during 2022 was $3,795.
Remaining Performance Obligations
Remaining performance obligations represent services we are required to provide to customers under bundled or discounted arrangements, which are satisfied as services are provided over the contract term. In determining the transaction price allocated, we do not include non-recurring charges and estimates for usage, nor do we consider arrangements with an original expected duration of less than one year, which are primarily prepaid wireless and residential internet agreements.
Remaining performance obligations associated with business contracts reflect recurring charges billed, adjusted to reflect estimates for sales incentives and revenue adjustments. Performance obligations associated with wireless contracts are estimated using a portfolio approach in which we review all relevant promotional activities, calculating the remaining performance obligation using the average service component for the portfolio and the average device price. As of December 31, 2022, the aggregate amount of the transaction price allocated to remaining performance obligations was $35,800, of which we expect to recognize approximately 76% by the end of 2024, with the balance recognized thereafter.
NOTE 6. ACQUISITIONS, DISPOSITIONS AND OTHER ADJUSTMENTS
Acquisitions
Spectrum Auctions On January 14, 2022, the Federal Communications Commission (FCC) announced that we were the winning bidder for 1,624 3.45 GHz licenses in Auction 110. We provided the FCC an upfront deposit of $123 in the third quarter of 2021 and paid the remaining $8,956 in the first quarter of 2022, for a total of $9,079. We funded the purchase price using cash and short-term investments. We received the licenses in May 2022 and classified the auction deposits and related capitalized interest as “Licenses – Net” on our December 31, 2022 consolidated balance sheet.
In February 2021, the FCC announced that AT&T was the winning bidder for 1,621 C-Band licenses, comprised of a total of 80 MHz nationwide, including 40 MHz in Phase I. We provided to the FCC an upfront deposit of $550 in 2020 and cash payments totaling $22,856 in the first quarter of 2021, for a total of $23,406. We received the licenses in July 2021 and classified the auction deposits, related capitalized interest and billed relocation costs as “Licenses – Net” on our December 31, 2021 consolidated balance sheet. In December 2021, we paid $955 of Incentive Payments upon clearing of Phase I spectrum and estimate that we will pay $2,112 upon clearing of Phase II spectrum, expected by the end of 2023. Additionally, we are responsible for approximately $1,100 of compensable relocation costs over the next several years as the spectrum is being cleared by satellite operators, of which we paid $650 in the fourth quarter of 2021 and $98 in the third quarter of 2022. Funding for the purchase price of the spectrum included a combination of cash on hand and short-term investments, as well as short- and long-term debt.
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AT&T Inc. |
Dollars in millions except per share amounts |
Cash paid, including spectrum deposits (net of refunds), capitalized interest, and any payments for incentive and relocation costs are included in “Acquisitions, net of cash acquired” on our consolidated statements of cash flows. Interest is capitalized until the spectrum is ready for its intended use.
In June 2020, we completed the acquisition of $2,379 of 37/39 GHz spectrum in an FCC auction. Prior to the auction, we exchanged the 39 GHz licenses with a book value of approximately $300 that were previously acquired through FiberTower Corporation for vouchers to be applied against the winning bids and recorded a $900 gain in the first quarter of 2020. These vouchers yielded a value of approximately $1,200, which was applied toward our gross bids. In the second quarter of 2020, we made the final cash payment of $949, bringing the total cash payment to $1,186.
Dispositions
Video Business On July 31, 2021, we closed our transaction with TPG to form a new company named DIRECTV, which is jointly governed by a board with representation from both AT&T and TPG, with TPG having tie-breaking authority on certain key decisions, most significantly the appointment and removal of the CEO.
In connection with the transaction, we contributed our U.S. Video business unit to DIRECTV for $4,250 of junior preferred units, an additional distribution preference of $4,200 and a 70% economic interest in common units (collectively “equity considerations”). TPG contributed approximately $1,800 in cash to DIRECTV for $1,800 of senior preferred units and a 30% economic interest in common units. See Note 10 for additional information on our accounting for our investment in DIRECTV.
Upon close of the transaction in the third quarter of 2021, we received approximately $7,170 in cash from DIRECTV ($7,600, net of $430 cash on hand) and transferred $195 of DIRECTV debt. Approximately $1,800 of the cash received is reported as cash received from financing activities in our consolidated statement of cash flows, as it relates to a note payable to DIRECTV, for which payment is tied to our agreement to cover net losses under the remaining term of the NFL SUNDAY TICKET contract up to a cap of $2,100 over the remaining period of the contract (see Note 19). The remainder of the net proceeds is reported as cash from investing activities. This transaction did not result in a material gain or loss.
In the first quarter of 2021, we applied held-for-sale accounting treatment to the assets and liabilities of the U.S. video business, and, accordingly, included the assets in “Prepaid and other current assets,” and the related liabilities in “Accounts payable and accrued liabilities,” on our consolidated balance sheet, up until the close of the transaction. The held-for-sale classification also resulted in ceasing depreciation and amortization on the designated assets.
The assets and liabilities of the Video operations, transferred to DIRECTV upon close of the transaction, were as follows:
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Current assets | | | | $ | 4,893 | |
Property, plant and equipment – net | | | | 2,673 | |
Licenses – net | | | | 5,798 | |
Other intangible assets – net | | | | 1,634 | |
Other assets | | | | 1,787 | |
Total Video assets | | | | $ | 16,785 | |
| | | | |
Current liabilities | | | | $ | 4,267 | |
Long-term debt | | | | 206 | |
Other noncurrent liabilities | | | | 343 | |
Total Video liabilities | | | | $ | 4,816 | |
Central European Media Enterprises Ltd. (CME) On October 13, 2020, we completed the sale of our 65.3% interest in CME, a European broadcasting company, for approximately $1,100. This disposition did not result in a material gain or loss.
Operations in Puerto Rico On October 31, 2020, we completed the sale of our wireless and wireline operations in Puerto Rico and the U.S. Virgin Islands for approximately $1,950 and recorded a pre-tax loss of $82. The proceeds were used to redeem $1,950 of cumulative preferred interests in a subsidiary that held notes secured by the proceeds of this sale.
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AT&T Inc. |
Dollars in millions except per share amounts |
Dispositions Reflected as Discontinued Operations
WarnerMedia On April 8, 2022, we completed the separation and distribution of our WarnerMedia business, and merger of Spinco, an AT&T subsidiary formed to hold the WarnerMedia business, with a subsidiary of Discovery, Inc., which was renamed Warner Bros. Discovery, Inc (WBD). Each AT&T shareholder was entitled to receive 0.241917 shares of WBD common stock for each share of AT&T common stock held as of the record date, which represented approximately 71% of WBD. In connection with and in accordance with the terms of the Separation and Distribution Agreement (SDA), prior to the distribution and merger, AT&T received approximately $40,400, which includes $38,800 of Spinco cash and $1,600 of debt retained by WarnerMedia. During the second quarter of 2022, assets of approximately $121,100 and liabilities of $70,600 were removed from our balance sheet as well as $45,041 of retained earnings and $5,632 of additional paid-in capital associated with the transaction. Additionally, in August 2022, we and WBD finalized the post-closing adjustment, pursuant to Section 1.3 of the SDA, which resulted in a $1,200 payment to WBD in the third quarter of 2022 and was reflected in the balance sheet as an adjustment to additional paid-in capital. (See Note 23)
AT&T, Spinco and Discovery entered into a Tax Matters Agreement, which governs the parties’ rights, responsibilities and obligations with respect to tax liabilities and benefits, the preservation of the expected tax-free status of the transactions contemplated by the SDA, and other matters regarding taxes.
Xandr On June 6, 2022, we completed the sale of the marketplace component of Xandr to Microsoft Corporation. Xandr was reflected in our historical financial statements as discontinued operations.
Vrio On November 15, 2021, we completed the sale of our Latin America video operations, Vrio, to Grupo Werthein and recorded a note receivable of $610 to be paid over four years, of which $300 is in the form of seller financing and the remainder is related to working capital adjustments. In the second quarter of 2021, we classified the Vrio disposal group as held-for-sale and reported the disposal group at fair value less cost to sell, which resulted in a noncash, pre-tax impairment charge of $4,555, including approximately $2,100 related to accumulated foreign currency translation adjustments and $2,500 related to property, plant and equipment and intangible assets. Approximately $80 of the impairment was attributable to noncontrolling interest. The assets and liabilities removed from our consolidated balance sheet included $851 of Vrio held-for-sale assets primarily related to deferred customer contract acquisition and fulfillment costs, prepaids and other deferred charges, and $2,872 of related liabilities primarily for reserves associated with accumulated foreign currency translation adjustments, which reversed against accumulated other comprehensive income upon close of the transaction. This disposition did not result in a net material gain or loss.
Otter Media During the third quarter of 2021, we disposed of substantially all of the assets of Otter Media. We received approximately $1,540 in cash and removed approximately $1,200 of goodwill associated with these assets. The dispositions did not result in a material gain or loss.
Playdemic Ltd. On September 20, 2021, we sold WarnerMedia’s mobile games app studio, Playdemic for approximately $1,370 in cash and recognized a pre-tax gain of $706 in “Other income (expense) – net,” on our consolidated statement of income. Approximately $600 of goodwill was removed related to this business.
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AT&T Inc. |
Dollars in millions except per share amounts |
NOTE 7. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is summarized as follows at December 31:
| | | | | | | | | | | | | | | | | |
| Lives (years) | | 2022 | | 2021 |
Land | - | | $ | 1,381 | | | $ | 1,401 | |
Buildings and improvements | 2-44 | | 38,751 | | | 38,204 | |
Central office equipment1 | 3-10 | | 98,468 | | | 97,070 | |
Cable, wiring and conduit | 15-50 | | 84,447 | | | 79,961 | |
Satellites | 14-17 | | 103 | | | 103 | |
Other equipment | 3-20 | | 81,658 | | | 85,929 | |
Software | 3-7 | | 17,640 | | | 16,520 | |
Under construction | - | | 7,182 | | | 5,425 | |
| | | 329,630 | | | 324,613 | |
Accumulated depreciation and amortization | | | 202,185 | | | 202,964 | |
Property, plant and equipment – net | | | $ | 127,445 | | | $ | 121,649 | |
1 Includes certain network software. | | | | | |
Our depreciation expense was $17,852 in 2022, $17,634 in 2021, and $19,028 in 2020. Depreciation expense included amortization of software totaling $2,972 in 2022, $2,909 in 2021 and $3,343 in 2020.
In December 2022, we recorded a noncash pre-tax charge of $1,413 to abandon conduits that will not be utilized to support future network activity. The abandonment was considered outside the ordinary course of business.
During the first quarter of 2022, we updated our analysis of economic lives of AT&T owned fiber network assets. As of January 1, 2022, we extended the estimated economic life and depreciation period of such costs to better reflect the physical life of the assets that we had been experiencing and absence of technological changes that would replace fiber as the best broadband technology in the industry. The change in accounting estimate decreased depreciation expense $280, or $0.03 per diluted share from continuing operations for the year ended December 31, 2022.
In December 2020, we reassessed our grouping of long-lived assets and identified certain impairment indicators, requiring us to evaluate the recoverability of the long-lived assets of our former Video business. Based on this evaluation, we determined that these assets were not fully recoverable and recognized pre-tax impairment charges totaling $7,255, of which $1,681 related to property, plant and equipment, including satellites. The reduced carrying amounts of the impaired assets became their new cost basis.
NOTE 8. LEASES
We have operating and finance leases for certain facilities and equipment used in our operations. Our leases generally have remaining lease terms of up to 15 years. Some of our real estate operating leases contain renewal options that may be exercised, and some of our leases include options to terminate the leases within one year.
We have recognized a right-of-use asset for both operating and finance leases, and a corresponding lease liability that represents the present value of our obligation to make payments over the lease term. The present value of the lease payments is calculated using the incremental borrowing rate for operating and finance leases, which was determined using a portfolio approach based on the rate of interest that we would have to pay to borrow an amount equal to the lease payments on a collateralized basis over a similar term. We use the unsecured borrowing rate and risk-adjust that rate to approximate a collateralized rate in the currency of the lease, which will be updated on a quarterly basis for measurement of new lease liabilities.
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AT&T Inc. |
Dollars in millions except per share amounts |
The components of lease expense were as follows:
| | | | | | | | | | | |
| 2022 | 2021 | 2020 |
Operating lease cost | $ | 5,437 | $ | 5,363 | $ | 5,331 |
Finance lease cost: | | | |
Amortization of right-of-use assets | $ | 204 | $ | 179 | $ | 185 |
Interest on lease obligation | 159 | 145 | 133 |
Total finance lease cost | $ | 363 | $ | 324 | $ | 318 |
The following table provides supplemental cash flows information related to leases:
| | | | | | | | | | | |
| 2022 | 2021 | 2020 |
Cash Flows from Operating Activities | | | |
Cash paid for amounts included in lease obligations: | | | |
Operating cash flows from operating leases | $ | 4,679 | $ | 4,580 | $ | 4,496 |
| | | |
Supplemental Lease Cash Flow Disclosures | | | |
Operating lease right-of-use assets obtained in exchange for new operating lease obligations | 3,751 | 3,396 | 4,057 |
The following tables set forth supplemental balance sheet information related to leases at December 31:
| | | | | | | | |
| 2022 | 2021 |
Operating Leases | | |
Operating lease right-of-use assets | $ | 21,814 | | $ | 21,824 | |
| | |
Accounts payable and accrued liabilities | $ | 3,547 | | $ | 3,393 | |
Operating lease obligation | 18,659 | | 18,956 | |
Total operating lease obligation | $ | 22,206 | | $ | 22,349 | |
| | |
Finance Leases | | |
Property, plant and equipment, at cost | $ | 2,770 | | $ | 2,494 | |
Accumulated depreciation and amortization | (1,224) | | (1,053) | |
Property, plant and equipment – net | $ | 1,546 | | $ | 1,441 | |
| | |
Current portion of long-term debt | $ | 170 | | $ | 127 | |
Long-term debt | 1,647 | | 1,442 | |
Total finance lease obligation | $ | 1,817 | | $ | 1,569 | |
| | |
| | |
| 2022 | 2021 |
Weighted-Average Remaining Lease Term (years) | | |
Operating leases | 8.1 | 8.2 |
Finance leases | 7.9 | 8.9 |
| | |
Weighted-Average Discount Rate | | |
Operating leases | 3.7 | % | 3.7 | % |
Finance leases | 8.0 | % | 8.2 | % |
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AT&T Inc. |
Dollars in millions except per share amounts |
The following table provides the expected future minimum maturities of lease obligations:
| | | | | | | | | | | |
At December 31, 2022 | Operating Leases | | Finance Leases |
2023 | $ | 4,657 | | | $ | 315 | |
2024 | 4,203 | | | 306 | |
2025 | 3,543 | | | 315 | |
2026 | 2,830 | | | 291 | |
2027 | 2,302 | | | 290 | |
Thereafter | 8,933 | | | 1,032 | |
Total lease payments | 26,468 | | | 2,549 | |
Less: imputed interest | (4,262) | | | (732) | |
Total | $ | 22,206 | | | $ | 1,817 | |
NOTE 9. GOODWILL AND OTHER INTANGIBLE ASSETS
We test goodwill for impairment at a reporting unit level, which is deemed to be our principal operating segments or one level below. With our annual impairment testing as of October 1, 2022, the calculated fair value of the Mobility reporting unit exceeded its book value; we recorded noncash impairment charges of $13,478 in our Business Wireline reporting unit, $10,508 in our Consumer Wireline reporting unit and $826 in our Mexico reporting unit. The decline in fair values was primarily due to changes in the macroeconomic environment, namely increased weighted-average cost of capital. Also, inflation pressure and lower projected cash flows driven by secular declines, predominantly at Business Wireline, impacted the fair values. A combination of discounted cash flow and market multiple approaches was used to determine the fair values. In the Communications segment, if all other assumptions were to remain unchanged, we expect the impairment charge would increase by approximately $3,400 if the weighted average cost of capital increased by 25 basis points, or $2,100 if the projected terminal growth rate declined by 25 basis points, or $2,800 if the projected long-term EBITDA margin declined 100 basis points.
Changes to our goodwill in 2022 primarily resulted from noncash impairments. Changes to our goodwill in 2021 primarily resulted from the sale of our Government Solutions business.
At December 31, 2022, our Communications segment has three reporting units: Mobility, Business Wireline and Consumer Wireline. The reporting unit is deemed to be the operating segment for Latin America.
The following table sets forth the changes in the carrying amounts of goodwill by operating segment:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | 2021 |
| Balance at Jan. 1 | | | | Impairments | | Dispositions, currency exchange and other | | Balance at Dec. 31 | | Balance at Jan. 1 | | | | | | Dispositions, currency exchange and other | | Balance at Dec. 31 |
Communications | | | | | | | | | | | | | | | | | | | |
Goodwill | $ | 91,924 | | | | | $ | — | | | $ | (43) | | | $ | 91,881 | | | $ | 91,976 | | | | | | | $ | (52) | | | $ | 91,924 | |
Impairments | — | | | | | (23,986) | | | — | | | (23,986) | | | — | | | | | | | — | | | — | |
Net goodwill | 91,924 | | | | | (23,986) | | | (43) | | | 67,895 | | | 91,976 | | | | | | | (52) | | | 91,924 | |
Latin America | 816 | | | | | (826) | | | 10 | | | — | | | 836 | | | | | | | (20) | | | 816 | |
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| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Total | $ | 92,740 | | | | | $ | (24,812) | | | $ | (33) | | | $ | 67,895 | | | $ | 92,812 | | | | | | | $ | (72) | | | $ | 92,740 | |
We review amortizing intangible assets for impairment whenever events or circumstances indicate that the carrying amount may not be recoverable over the remaining life of the asset or asset group.
Indefinite-lived wireless licenses increased in 2022 primarily due to recent auction activity and $1,120 of capitalized interest (see Note 6).
In 2021, as a result of the separation of our U.S. video business (see Note 6), we removed $5,798 of orbital slot licenses and $1,585 of customer lists that were transferred to DIRECTV. Indefinite-lived wireless licenses increased in 2021 primarily due to auction activity, compensable relocation and incentive payments, and capitalized interest (see Notes 6 and 22).
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AT&T Inc. |
Dollars in millions except per share amounts |
Our other intangible assets at December 31 are summarized as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | 2021 |
Other Intangible Assets | Weighted-Average Life | | Gross Carrying Amount | | Accumulated Amortization | | Currency Translation Adjustment | | Gross Carrying Amount | | Accumulated Amortization | | Currency Translation Adjustment |
Amortized intangible assets: | | | | | | | | | | | | | |
Wireless licenses | 21.6 years | | $ | 3,045 | | | $ | 425 | | | $ | (297) | | | $ | 3,083 | | | $ | 307 | | | $ | (440) | |
Trademarks and trade names | 15.0 years | | 26 | | | 11 | | | (6) | | | 27 | | | 11 | | | (7) | |
Customer lists and relationships | 12.6 years | | 413 | | | 304 | | | (75) | | | 577 | | | 429 | | | (98) | |
Other | 8.5 years | | 304 | | | 234 | | | — | | | 349 | | | 258 | | | — | |
Total | 21.1 years | | $ | 3,788 | | | $ | 974 | | | $ | (378) | | | $ | 4,036 | | | $ | 1,005 | | | $ | (545) | |
Indefinite-lived intangible assets not subject to amortization:
| | | | | | | | | | | | | | |
Wireless licenses | $ | 121,769 | | | | $ | 111,494 | |
Trade names | 5,241 | | | | 5,241 | |
Total | $ | 127,010 | | | | $ | 116,735 | |
|
Amortized intangible assets are definite-life assets, and, as such, we record amortization expense based on a method that most appropriately reflects our expected cash flows from these assets. Amortization expense for definite-life intangible assets was $169 for the year ended December 31, 2022, $218 for the year ended December 31, 2021 (reflecting the separation of our U.S. video business) and $3,495 for the year ended December 31, 2020. Estimated amortization expense for the next five years is: $161 for 2023, $154 for 2024, $142 for 2025, $142 for 2026 and $142 for 2027.
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AT&T Inc. |
Dollars in millions except per share amounts |
NOTE 10. EQUITY METHOD INVESTMENTS
Investments in partnerships, joint ventures and less than majority-owned subsidiaries in which we have significant influence are accounted for under the equity method.
On July 31, 2021, we closed our transaction with TPG to form a new company named DIRECTV (see Note 6). The transaction resulted in our deconsolidation of the Video business, with DIRECTV being accounted for under the equity method beginning August 1, 2021.
Our investments in equity affiliates at December 31, 2022 primarily included our interests in DIRECTV and SKY Mexico.
DIRECTV We account for our investment in DIRECTV under the equity method of accounting. DIRECTV is considered a variable interest entity for accounting purposes. As DIRECTV is jointly governed by a board with representation from both AT&T and TPG, with TPG having tie-breaking authority on certain key decisions, most significantly the appointment and removal of the CEO, we have concluded that we are not the primary beneficiary of DIRECTV.
The ownership interests in DIRECTV, based on seniority are as follows:
•Preferred units with distribution rights of $1,800 held by TPG, which were fully distributed in 2021.
•Junior preferred units with distribution rights of $4,250 held by AT&T, of which $702 of distribution rights remain as of December 31, 2022.
•Distribution preference associated with Common units of $4,200 held by AT&T.
•Common units, with 70% held by AT&T and 30% held by TPG.
The initial fair value of the equity considerations on July 31, 2021 was $6,852, which was determined using a discounted cash flow model reflecting distribution rights and preference of the individual instruments. During 2022 and 2021, we recognized $1,808 and $619 of equity in net income of affiliates and received total distributions of $4,457 and $1,942, respectively, from DIRECTV. The book value of our investment in DIRECTV was $2,911 and $5,539 at December 31, 2022 and 2021.
Our share of net income or loss may differ from the stated ownership percentage interest of DIRECTV as the terms of the arrangement prescribe substantive non-proportionate cash distributions, both from operations and in liquidation, that are based on classes of interests held by investors. In the event that DIRECTV records a loss, that loss will be allocated to ownership interests based on their seniority, beginning with the most subordinated interests.
SKY Mexico We hold a 41.3% interest in SKY Mexico, which is a leading pay-TV provider in Mexico.
The following table presents summarized financial information for DIRECTV and our other equity method investments, consisting primarily of SKY Mexico and certain sports-related programming investments, at December 31, or for the year then ended:
| | | | | | | | | | | | | | | | | |
| 2022 | | 2021 | | 2020 |
Income Statements1 | | | | | |
| | | | | |
Operating revenues | $ | 25,794 | | | $ | 12,220 | | | $ | 1,282 | |
Operating income | 3,175 | | | 1,179 | | | 157 | |
Net income | 2,581 | | | 938 | | | 91 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Balance Sheets | | | | | |
| | | | | |
Current assets | 4,240 | | | 5,295 | | | |
Noncurrent assets | 14,211 | | | 17,022 | | | |
Current liabilities | 6,681 | | | 7,191 | | | |
Noncurrent liabilities | 7,951 | | | 8,614 | | | |
1Does not include DIRECTV for periods prior to August 1, 2021. |
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| | | | | |
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AT&T Inc. |
Dollars in millions except per share amounts |
The following table is a reconciliation of our investments in equity affiliates as presented on our consolidated balance sheets:
| | | | | | | | | | | |
| 2022 | | 2021 |
Beginning of year | $ | 6,168 | | | $ | 742 | |
Additional investments | 3 | | | — | |
Receipt of equity interest in DIRECTV | — | | | 6,852 | |
Distributions from DIRECTV in excess of cumulative equity in earnings | (2,649) | | | (1,323) | |
Other capital distributions | — | | | (6) | |
Dividends and distributions of cumulative earnings received | (1,815) | | | (701) | |
Equity in net income of affiliates | 1,791 | | | 603 | |
| | | |
| | | |
Currency translation adjustments | 25 | | | (14) | |
Other adjustments | 10 | | | 15 | |
End of year | $ | 3,533 | | | $ | 6,168 | |
NOTE 11. DEBT
Long-term debt of AT&T and its subsidiaries, including interest rates and maturities, is summarized as follows at December 31:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | 2021 |
Notes and debentures | | | |
| Interest Rates1 | | Maturities | | | | |
| 0.00% | - | 2.99% | | 2022 | - | 2039 | | $ | 24,603 | | | $ | 31,612 | |
| 3.00% | - | 4.99% | | 2022 | - | 2061 | | 91,201 | | | 107,635 | |
| 5.00% | - | 6.99% | | 2022 | - | 2095 | | 20,083 | | | 23,023 | |
| 7.00% | - | 12.00% | | 2022 | - | 2097 | | 4,884 | | | 5,056 | |
Credit agreement borrowings | 2,500 | | | 10,400 | |
Fair value of interest rate swaps recorded in debt | 13 | | | 16 | |
| 143,284 | | | 177,742 | |
Unamortized (discount) premium – net | (9,650) | | | (9,758) | |
Unamortized issuance costs | (427) | | | (508) | |
Total notes and debentures | 133,207 | | | 167,476 | |
Finance lease obligations | 1,817 | | | 1,569 | |
Total long-term debt, including current maturities | 135,024 | | | 169,045 | |
Current maturities of long-term debt | (6,601) | | | (7,934) | |
Current maturities of credit agreement borrowings | — | | | (10,100) | |
Total long-term debt | $ | 128,423 | | | $ | 151,011 | |
1Foreign debt includes the impact from hedges, when applicable. |
We had outstanding Euro, British pound sterling, Canadian dollar, Mexican peso, Australian dollar, and Swiss franc denominated debt of approximately $35,525 and $41,063 at December 31, 2022 and 2021, respectively.
The weighted-average interest rate of our long-term debt portfolio, including credit agreement borrowings and the impact of derivatives, was approximately 4.1% as of December 31, 2022 and 3.8% as of December 31, 2021.
Debt maturing within one year consisted of the following at December 31:
| | | | | | | | | | | |
| 2022 | | 2021 |
Current maturities of long-term debt | $ | 6,601 | | | $ | 7,934 | |
Commercial paper | 866 | | | 6,586 | |
Credit agreement borrowings | — | | | 10,100 | |
Total | $ | 7,467 | | | $ | 24,620 | |
| | |
AT&T Inc. |
Dollars in millions except per share amounts |
Financing Activities
During 2022, we received net proceeds of $479 on the issuance of $479 in long-term debt and proceeds of $3,250 on the issuance of credit agreement borrowings in various markets, with an average weighted maturity of approximately 2.0 years and a weighted average interest rate of 5.2%. We repaid $34,835 of long-term debt and credit agreement borrowings with a weighted average interest rate of 3.1%. Our debt activity during 2022 primarily consisted of the following:
| | | | | | | | | | | | | | | | | |
| First Quarter | Second Quarter | Third Quarter | Fourth Quarter | Full Year 2022 |
Net commercial paper borrowings | $ | 1,471 | | $ | (5,219) | | $ | (724) | | $ | (1,337) | | $ | (5,809) | |
Issuance of Notes and Debentures: | | | | | |
Private Financing | $ | — | | $ | — | | $ | 750 | | $ | — | | $ | 750 | |
2025 Term Loan | — | | — | | — | | 2,500 | | 2,500 | |
Other | 479 | | — | | — | | — | | 479 | |
Debt Issuances | $ | 479 | | $ | — | | $ | 750 | | $ | 2,500 | | $ | 3,729 | |
| | | | | |
Repayments: | | | | | |
2021 Syndicated Term Loan | $ | — | | $ | (7,350) | | $ | — | | $ | — | | $ | (7,350) | |
BAML Bilateral Term Loan – Tranche A | — | | (1,000) | | — | | — | | (1,000) | |
Private financing | — | | (750) | | — | | (750) | | (1,500) | |
Repayment of other short-term borrowings | $ | — | | $ | (9,100) | | $ | — | | $ | (750) | | $ | (9,850) | |
| | | | | |
USD notes1,2,3 | $ | (123) | | $ | (18,957) | | $ | — | | $ | (287) | | $ | (19,367) | |
Euro notes | — | | (3,343) | | — | | — | | (3,343) | |
BAML Bilateral Term Loan – Tranche B | — | | (1,000) | | — | | — | | (1,000) | |
Other | (667) | | (123) | | (199) | | (419) | | (1,408) | |
Repayments of long-term debt | $ | (790) | | $ | (23,423) | | $ | (199) | | $ | (706) | | $ | (25,118) | |
1On April 11, 2022, we issued notices for the redemption in full of all of the outstanding approximately $9,042 aggregate principal amount of various global notes due 2022 to 2026 with coupon rates ranging from 2.625% to 4.450% (Make-Whole Notes). The Make-Whole Notes were redeemed on the redemption dates set forth in the notices of redemption, at “make whole” redemption prices calculated as set forth in the respective redemption notices in the second quarter. |
2Includes $7,954 of cash paid toward the $8,822 aggregate principal amount of various notes that were tendered for cash in May 2022. The notes had interest rates ranging between 3.100% and 8.750% and original maturities ranging from 2026 to 2061. |
3Includes $287 of principal repayment on a $592 zero coupon note that matured in November 2022. The other $305 was applied to operating cash flows related to interest expense that accreted to the note over its life. |
As of December 31, 2022 and 2021, we were in compliance with all covenants and conditions of instruments governing our debt. Substantially all of our outstanding long-term debt is unsecured. Maturities of outstanding long-term notes and debentures, as of December 31, 2022, and the corresponding weighted-average interest rate scheduled for repayment are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2023 | | 2024 | | 2025 | | 2026 | | 2027 | | Thereafter |
Debt repayments1 | $ | 6,929 | | | $ | 8,950 | | | $ | 5,948 | | | $ | 8,619 | | | $ | 6,278 | | | $ | 110,949 | |
Weighted-average interest rate 2 | 3.7 | % | | 4.1 | % | | 5.5 | % | | 3.1 | % | | 3.7 | % | | 4.2 | % |
1Debt repayments represent maturity value. Foreign debt includes the impact from hedges, when applicable. Includes credit agreement borrowings. |
2Includes credit agreement borrowings. |
Credit Facilities
General
On January 29, 2021, we entered into a $14,700 Term Loan Credit Agreement (2021 Syndicated Term Loan), with Bank of America, N.A., as agent. On March 23, 2021, we borrowed $7,350 under the 2021 Syndicated Term Loan and the remaining $7,350 of lenders’ commitments was terminated. In the first quarter of 2022, the maturity date of the 2021 Syndicated Term Loan was extended to December 31, 2022. On April 13, 2022, the 2021 Syndicated Term Loan was paid off and terminated.
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AT&T Inc. |
Dollars in millions except per share amounts |
In March 2021, we entered into and drew on a $2,000 term loan credit agreement (BAML Bilateral Term Loan) consisting of (i) a $1,000 facility originally due December 31, 2021 (BAML Tranche A Facility) and subsequently extended to December 31, 2022 in the fourth quarter of 2021, and (ii) a $1,000 facility due December 31, 2022 (BAML Tranche B Facility), with Bank of America, N.A., as agent. On April 13, 2022, the BAML Bilateral Term Loan was paid off and terminated.
In November 2022, we entered into and drew on a $2,500 term loan agreement due February 16, 2025 (2025 Term Loan), with Mizuho Bank, Ltd., as agent. As of December 31, 2022, $2,500 was outstanding under this agreement.
Revolving Credit Agreements
In November 2022, we terminated one of our revolving credit agreements and amended and restated the other. We currently have one $12,000 revolving credit agreement that terminates on November 18, 2027 (Revolving Credit Agreement). No amounts were outstanding as of December 31, 2022.
Each of our credit and loan agreements contains covenants that are customary for an issuer with an investment grade senior debt credit rating. Our Revolving Credit Agreement and 2025 Term Loan include a net debt-to-EBITDA financial ratio covenant requiring AT&T to maintain, as of the last day of each fiscal quarter, a ratio of not more than 3.75-to-1. Other loan agreements include a net debt-to-EBITDA financial ratio covenant requiring AT&T to maintain, as of the last day of each fiscal quarter through June 30, 2023 a ratio of not more than 4.0-to-1, and a ratio of not more than 3.5-to-1 for any fiscal quarter thereafter.
The events of default are customary for agreements of this type and such events would result in the acceleration of, or would permit the lenders to accelerate, as applicable, required payments and would increase each agreement’s relevant Applicable Margin by 2.00% per annum.
The obligations of the lenders under the Revolving Credit Agreement to provide advances will terminate on November 18, 2027, unless the commitments are terminated in whole prior to that date. All advances must be repaid no later than the date on which lenders are no longer obligated to make any advances under the Revolving Credit Agreement.
The Revolving Credit Agreement provides that we and lenders representing more than 50% of the facility amount may agree to extend their commitments under the credit agreement for two one-year periods beyond the initial termination date. We have the right to terminate, in whole or in part, amounts committed by the lenders under the credit agreement in excess of any outstanding advances; however, any such terminated commitments may not be reinstated.
Advances under the Revolving Credit Agreement would bear interest, at our option, either:
•at a variable annual rate equal to: (1) the highest of (but not less than zero) (a) the rate of interest announced publicly by Citibank in New York, New York, from time to time, as Citibank’s base rate, (b) 0.5% per annum above the federal funds rate, and (c) the forward-looking term rate based on the secured overnight financing rate (“Term SOFR”) for a period of one month plus a credit spread adjustment of 0.10% plus 1.00%, plus (2) an applicable margin, as set forth in the credit agreement (the “Applicable Margin for Base Advances”); or
•at a rate equal to: (i) Term SOFR for a period of one, three or six months, as applicable, plus (ii) a credit spread adjustment of 0.10% plus (iii) an applicable margin, as set forth in the Revolving Credit Agreement (the “Applicable Margin for Benchmark Rate Advances”).
We pay a facility fee of 0.060%, 0.070%, 0.080% or 0.100% per annum of the amount of the lender commitments, depending on AT&T’s credit rating.
NOTE 12. FAIR VALUE MEASUREMENTS AND DISCLOSURE
The Fair Value Measurement and Disclosure framework in ASC 820, “Fair Value Measurement,” provides a three-tiered fair value hierarchy based on the reliability of the inputs used to determine fair value. Level 1 refers to fair values determined based on quoted prices in active markets for identical assets. Level 2 refers to fair values estimated using significant other observable inputs and Level 3 includes fair values estimated using significant unobservable inputs.
The level of an asset or liability within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Our valuation techniques maximize the use of observable inputs and minimize the use of unobservable inputs.
The valuation methodologies described above may produce a fair value calculation that may not be indicative of future net realizable value or reflective of future fair values. We believe our valuation methods are appropriate and consistent with other market participants. The use of different methodologies or assumptions to determine the fair value of certain financial
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AT&T Inc. |
Dollars in millions except per share amounts |
instruments could result in a different fair value measurement at the reporting date. There have been no changes in the methodologies used since December 31, 2021.
Long-Term Debt and Other Financial Instruments
The carrying amounts and estimated fair values of our long-term debt, including current maturities, and other financial instruments, are summarized as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 | | December 31, 2021 |
| Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
Notes and debentures1 | $ | 133,207 | | | $ | 122,524 | | | $ | 167,476 | | | $ | 193,068 | |
Commercial paper | 866 | | | 866 | | | 6,586 | | | 6,586 | |
| | | | | | | |
Investment securities2 | 2,692 | | | 2,692 | | | 3,214 | | | 3,214 | |
1Includes credit agreement borrowings. Excludes note payable to DIRECTV.
2Excludes investments accounted for under the equity method.
The carrying amount of debt with an original maturity of less than one year approximates fair value. The fair value measurements used for notes and debentures are considered Level 2 and are determined using various methods, including quoted prices for identical or similar securities in both active and inactive markets.
Following is the fair value leveling for investment securities that are measured at fair value and derivatives as of December 31, 2022 and December 31, 2021. Derivatives designated as hedging instruments are reflected as “Other Assets,” “Other noncurrent liabilities,” “Prepaid and other current assets” and “Accounts payable and accrued liabilities” on our consolidated balance sheets.
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| December 31, 2022 |
| Level 1 | | Level 2 | | Level 3 | | Total |
Equity Securities | | | | | | | |
Domestic equities | $ | 995 | | | $ | — | | | $ | — | | | $ | 995 | |
International equities | 198 | | | — | | | — | | | 198 | |
Fixed income equities | 189 | | | — | | | — | | | 189 | |
Available-for-Sale Debt Securities | — | | | 1,132 | | | — | | | 1,132 | |
Asset Derivatives | | | | | | | |
| | | | | | | |
Cross-currency swaps | — | | | 28 | | | — | | | 28 | |
| | | | | | | |
| | | | | | | |
Liability Derivatives | | | | | | | |
| | | | | | | |
Cross-currency swaps | — | | | (6,010) | | | — | | | (6,010) | |
| | | | | | | |
Foreign exchange contracts | — | | | (23) | | | — | | | (23) | |
|
| December 31, 2021 |
| Level 1 | | Level 2 | | Level 3 | | Total |
Equity Securities | | | | | | | |
Domestic equities | $ | 1,213 | | | $ | — | | | $ | — | | | $ | 1,213 | |
International equities | 221 | | | — | | | — | | | 221 | |
Fixed income equities | 219 | | | — | | | — | | | 219 | |
Available-for-Sale Debt Securities | — | | | 1,380 | | | — | | | 1,380 | |
Asset Derivatives | | | | | | | |
| | | | | | | |
Cross-currency swaps | — | | | 211 | | | — | | | 211 | |
| | | | | | | |
| | | | | | | |
Liability Derivatives | | | | | | | |
| | | | | | | |
Cross-currency swaps | — | | | (3,170) | | | — | | | (3,170) | |
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Investment Securities
Our investment securities include both equity and debt securities that are measured at fair value, as well as equity securities without readily determinable fair values. A substantial portion of the fair values of our investment securities is estimated based on quoted market prices. Investments in equity securities not traded on a national securities exchange are valued at cost, less
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AT&T Inc. |
Dollars in millions except per share amounts |
any impairment, and adjusted for changes resulting from observable, orderly transactions for identical or similar securities. Investments in debt securities not traded on a national securities exchange are valued using pricing models, quoted prices of securities with similar characteristics or discounted cash flows.
The components comprising total gains and losses in the period on equity securities are as follows:
| | | | | | | | | | | | | | | | | |
For the years ended December 31, | 2022 | | 2021 | | 2020 |
Total gains (losses) recognized on equity securities | $ | (309) | | | $ | 293 | | | $ | 171 | |
Gains (Losses) recognized on equity securities sold | (80) | | | (5) | | | (25) | |
Unrealized gains (losses) recognized on equity securities held at end of period | $ | (229) | | | $ | 298 | | | $ | 196 | |
At December 31, 2022, available-for-sale debt securities totaling $1,132 have maturities as follows - less than one year: $38; one to three years: $158; three to five years: $170; five or more years: $766.
Our cash equivalents (money market securities), short-term investments (certificate and time deposits) and nonrefundable customer deposits are recorded at amortized cost, and the respective carrying amounts approximate fair values. Short-term investments and nonrefundable customer deposits are recorded in “Prepaid and other current assets” and our investment securities are recorded in “Other Assets” on the consolidated balance sheets.
Derivative Financial Instruments
We enter into derivative transactions to manage certain market risks, primarily interest rate risk and foreign currency exchange risk. This includes the use of interest rate swaps, interest rate locks, foreign exchange forward contracts and combined interest rate foreign exchange contracts (cross-currency swaps). We do not use derivatives for trading or speculative purposes. We record derivatives on our consolidated balance sheets at fair value that is derived from observable market data, including yield curves and foreign exchange rates (all of our derivatives are Level 2). Cash flows associated with derivative instruments are presented in the same category on the consolidated statements of cash flows as the item being hedged.
Fair Value Hedging Periodically, we enter into and designate fixed-to-floating interest rate swaps as fair value hedges. The purpose of these swaps is to manage interest rate risk by managing our mix of fixed-rate and floating-rate debt. These swaps involve the receipt of fixed-rate amounts for floating interest rate payments over the life of the swaps without exchange of the underlying principal amount.
We also designate most of our cross-currency swaps and foreign exchange contracts as fair value hedges. The purpose of these contracts is to hedge foreign currency risk associated with changes in spot rates on foreign denominated debt. For cross-currency hedges, we have elected to exclude the change in fair value of the swap related to both time value and cross-currency basis spread from the assessment of hedge effectiveness. For foreign exchange contracts, we have elected to exclude the change in fair value of forward points from the assessment of hedge effectiveness.
Unrealized and realized gains or losses from fair value hedges impact the same category on the consolidated statements of income as the item being hedged, including the earnings impact of excluded components. In instances where we have elected to exclude components from the assessment of hedge effectiveness related to fair value hedges, unrealized gains or losses on such excluded components are recorded as a component of accumulated OCI and recognized into earnings over the life of the hedging instrument. Unrealized gains on derivatives designated as fair value hedges are recorded at fair value as assets, and unrealized losses are recorded at fair market value as liabilities. Except for excluded components, changes in the fair value of derivative instruments designated as fair value hedges are offset against the change in fair value of the hedged assets or liabilities through earnings. In the years ended December 31, 2022 and 2021, no ineffectiveness was measured on fair value hedges.
Cash Flow Hedging We designated some of our cross-currency swaps as cash flow hedges to hedge our exposure to variability in expected future cash flows that are attributable to foreign currency risk generated from our foreign-denominated debt. These agreements include initial and final exchanges of principal from fixed foreign currency denominated amounts to fixed U.S. dollar denominated amounts, to be exchanged at a specified rate that is usually determined by the market spot rate upon issuance. They also include an interest rate swap of a fixed or floating foreign currency-denominated interest rate to a fixed U.S. dollar denominated interest rate.
On September 30, 2022, we de-designated most of our cross-currency swaps from cash flow hedges and re-designated these swaps as fair value hedges. The amount remaining in accumulated other comprehensive loss related to cash flow hedges on the de-designation date was $1,857. The amount will be reclassified to earnings when the hedged item is recognized in earnings or
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AT&T Inc. |
Dollars in millions except per share amounts |
when it becomes probable that the forecasted transactions will not occur. The election of fair value hedge designation for cross-currency swaps does not have an impact on our financial results.
Unrealized gains on derivatives designated as cash flow hedges are recorded at fair value as assets, and unrealized losses are recorded at fair value as liabilities. For derivative instruments designated as cash flow hedges, changes in fair value are reported as a component of accumulated OCI and are reclassified into the consolidated statements of income in the same period the hedged transaction affects earnings.
Periodically, we enter into and designate interest rate locks to partially hedge the risk of changes in interest payments attributable to increases in the benchmark interest rate during the period leading up to the probable issuance of fixed-rate debt. We designate our interest rate locks as cash flow hedges. Gains and losses when we settle our interest rate locks are amortized into income over the life of the related debt. Over the next 12 months, we expect to reclassify $59 from accumulated OCI to “Interest expense” due to the amortization of net losses on historical interest rate locks.
Collateral and Credit-Risk Contingency We have entered into agreements with our derivative counterparties establishing collateral thresholds based on respective credit ratings and netting agreements. At December 31, 2022, we had posted collateral of $886 (a deposit asset) and held collateral of $0 (a receipt liability). Under the agreements, if AT&T’s credit rating had been downgraded two ratings levels by Fitch Ratings, one level by S&P and one level by Moody’s, before the final collateral exchange in December, we would have been required to post additional collateral of $42. If AT&T’s credit rating had been downgraded three ratings levels by Fitch Ratings, two levels by S&P, and two levels by Moody’s, we would have been required to post additional collateral of $5,728. At December 31, 2021, we had posted collateral of $135 (a deposit asset) and held collateral of $7 (a receipt liability). We do not offset the fair value of collateral, whether the right to reclaim cash collateral (a receivable) or the obligation to return cash collateral (a payable) exists, against the fair value of the derivative instruments.
Following are the notional amounts of our outstanding derivative positions at December 31:
| | | | | | | | | | | |
| 2022 | | 2021 |
| | | |
Cross-currency swaps | $ | 38,213 | | | $ | 40,737 | |
| | | |
Foreign exchange contracts | 617 | | | — | |
Total | $ | 38,830 | | | $ | 40,737 | |
Following are the related hedged items affecting our financial position and performance:
| | | | | | | | | | | | | | | | | |
Effect of Derivatives on the Consolidated Statements of Income | | | | | |
Fair Value Hedging Relationships | | | | | |
For the years ended December 31, | 2022 | | 2021 | | 2020 |
Interest rate swaps (Interest expense): | | | | | |
Gain (Loss) on interest rate swaps | $ | (3) | | | $ | (4) | | | $ | (6) | |
Gain (Loss) on long-term debt | 3 | | | 4 | | | 6 | |
Cross-currency swaps: | | | | | |
Gain (Loss) on cross-currency swaps | 2,195 | | | (91) | | | — | |
Gain (Loss) on long-term debt | (2,195) | | | 91 | | | — | |
Gain (Loss) recognized in accumulated OCI | 297 | | | (17) | | | — | |
Foreign exchange contracts: | | | | | |
Gain (Loss) on foreign exchange contracts | (12) | | | — | | | — | |
Gain (Loss) on long-term debt | 12 | | | — | | | — | |
Gain (Loss) recognized in accumulated OCI | (12) | | | — | | | — | |
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AT&T Inc. |
Dollars in millions except per share amounts |
In addition, the net swap settlements that accrued and settled in the periods above were offset against “Interest expense.”
| | | | | | | | | | | | | | | | | |
Cash Flow Hedging Relationships | | | | | |
For the years ended December 31, | 2022 | | 2021 | | 2020 |
Cross-currency swaps: | | | | | |
Gain (Loss) recognized in accumulated OCI | $ | (1,119) | | | $ | (873) | | | $ | (378) | |
Foreign exchange contracts: | | | | | |
Gain (Loss) recognized in accumulated OCI | 3 | | | (17) | | | 3 | |
Other income (expense) – net reclassified from accumulated OCI into income | 1 | | | 1 | | | (3) | |
Interest rate locks: | | | | | |
Gain (Loss) recognized in accumulated OCI | — | | | — | | | (648) | |
Interest income (expense) reclassified from accumulated OCI into income | (65) | | | (92) | | | (84) | |
Other income (expense) reclassified from accumulated OCI into income | (45) | | | — | | | — | |
Distribution of WarnerMedia | (12) | | | — | | | — | |
Nonrecurring Fair Value Measurements
In addition to assets and liabilities that are recorded at fair value on a recurring basis, impairment indicators may subject goodwill and long-lived assets to nonrecurring fair value measurements. The implied fair values of the Business Wireline, Consumer Wireline and Mexico reporting units and the former U.S. video business were estimated using both the discounted cash flow as well as market multiple approaches (see Note 9). The inputs to these models are considered Level 3.
NOTE 13. INCOME TAXES
Significant components of our deferred tax liabilities (assets) are as follows at December 31:
| | | | | | | | | | | |
| 2022 | | 2021 |
Depreciation and amortization | $ | 36,570 | | | $ | 35,894 | |
Licenses and nonamortizable intangibles | 19,339 | | | 15,573 | |
Employee benefits | (2,251) | | | (3,178) | |
Deferred fulfillment costs | 1,989 | | | 1,797 | |
Equity in partnership | 3,284 | | | 3,285 | |
Net operating loss and other carryforwards | (5,817) | | | (6,109) | |
Other – net | (343) | | | 2,153 | |
Subtotal | 52,771 | | | 49,415 | |
Deferred tax assets valuation allowance | 4,175 | | | 4,343 | |
Net deferred tax liabilities | $ | 56,946 | | | $ | 53,758 | |
| | | |
Noncurrent deferred tax liabilities | $ | 57,032 | | | $ | 53,767 | |
Less: Noncurrent deferred tax assets | (86) | | | (9) | |
Net deferred tax liabilities | $ | 56,946 | | | $ | 53,758 | |
At December 31, 2022, we had combined net operating and capital loss carryforwards (tax effected) for federal income tax purposes of $892, state of $747 and foreign of $2,441, expiring through 2042. Additionally, we had federal credit carryforwards of $293 and state credit carryforwards of $1,444, expiring primarily through 2042.
We recognize a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion, or all, of a deferred tax asset will not be realized. Our valuation allowances at December 31, 2022 and 2021 related primarily to state and foreign net operating losses and state credit carryforwards.
We consider post-1986 unremitted foreign earnings subjected to the one-time transition tax not to be indefinitely reinvested as such earnings can be repatriated without any significant incremental tax costs. We consider other types of unremitted foreign earnings to be indefinitely reinvested. U.S. income and foreign withholding taxes have not been recorded on temporary
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AT&T Inc. |
Dollars in millions except per share amounts |
differences related to investments in certain foreign subsidiaries as such differences are considered indefinitely reinvested. Determination of the amount of unrecognized deferred tax liability is not practicable.
We recognize the financial statement effects of a tax return position when it is more likely than not, based on the technical merits, that the position will ultimately be sustained. For tax positions that meet this recognition threshold, we apply our judgment, taking into account applicable tax laws, our experience in managing tax audits and relevant GAAP, to determine the amount of tax benefits to recognize in our financial statements. For each position, the difference between the benefit realized on our tax return and the benefit reflected in our financial statements is recorded on our consolidated balance sheets as an unrecognized tax benefit (UTB). We update our UTBs at each financial statement date to reflect the impacts of audit settlements and other resolutions of audit issues, the expiration of statutes of limitation, developments in tax law and ongoing discussions with taxing authorities. A reconciliation of the change in our UTB balance from January 1 to December 31 for 2022 and 2021 is as follows:
| | | | | | | | | | | |
Federal, State and Foreign Tax | 2022 | | 2021 |
Balance at beginning of year | $ | 8,954 | | | $ | 9,415 | |
Increases for tax positions related to the current year | 1,389 | | | 677 | |
Increases for tax positions related to prior years | 577 | | | 332 | |
Decreases for tax positions related to prior years | (1,079) | | | (1,169) | |
Lapse of statute of limitations | (2) | | | (6) | |
Settlements | (182) | | | (295) | |
| | | |
| | | |
Balance at end of year | 9,657 | | | 8,954 | |
Accrued interest and penalties | 1,930 | | | 2,054 | |
Gross unrecognized income tax benefits | 11,587 | | | 11,008 | |
Less: Deferred federal and state income tax benefits | (723) | | | (728) | |
Less: Tax attributable to timing items included above | (4,640) | | | (3,428) | |
Total UTB that, if recognized, would impact the effective income tax rate as of the end of the year | $ | 6,224 | | | $ | 6,852 | |
Periodically we make deposits to taxing jurisdictions which reduce our UTB balance but are not included in the reconciliation above. The amount of deposits that reduced our UTB balance was $1,767 at December 31, 2022 and $377 at December 31, 2021.
Accrued interest and penalties included in UTBs were $1,930 as of December 31, 2022 and $2,054 as of December 31, 2021. We record interest and penalties related to federal, state and foreign UTBs in income tax expense. The net interest and penalty expense (benefit) included in income tax expense was $(86) for 2022, $(129) for 2021 and $127 for 2020.
We file income tax returns in the U.S. federal jurisdiction and various state, local and foreign jurisdictions. As a large taxpayer, our income tax returns are regularly audited by the Internal Revenue Service (IRS) and other taxing authorities.
The IRS has completed field examinations of our tax returns through 2015. All audit periods prior to 2005 are closed for federal examination purposes and we have effectively resolved all outstanding audit issues for years through 2010 with the IRS Appeals Division. Those years will be closed as the final paperwork is processed in the coming months.
While we do not expect material changes, we are generally unable to estimate the range of impacts on the balance of the remaining uncertain tax positions or the impact on the effective tax rate from the resolution of these issues until each year is closed; and it is possible that the amount of unrecognized benefit with respect to our uncertain tax positions could increase or decrease within the next 12 months.
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AT&T Inc. |
Dollars in millions except per share amounts |
The components of income tax (benefit) expense are as follows:
| | | | | | | | | | | | | | | | | |
| 2022 | | 2021 | | 2020 |
Federal: | | | | | |
Current | $ | 579 | | | $ | (2,400) | | | $ | (346) | |
Deferred | 2,206 | | | 6,872 | | | 858 | |
| 2,785 | | | 4,472 | | | 512 | |
State and local: | | | | | |
Current | 21 | | | 289 | | | 338 | |
Deferred | 912 | | | 648 | | | 272 | |
| 933 | | | 937 | | | 610 | |
Foreign: | | | | | |
Current | 106 | | | (66) | | | 14 | |
Deferred | (44) | | | 52 | | | 32 | |
| 62 | | | (14) | | | 46 | |
Total | $ | 3,780 | | | $ | 5,395 | | | $ | 1,168 | |
“Income (Loss) from Continuing Operations Before Income Taxes” in the Consolidated Statements of Income included the following components for the years ended December 31:
| | | | | | | | | | | | | | | | | |
| 2022 | | 2021 | | 2020 |
U.S. income (loss) before income taxes | $ | (1,480) | | | $ | 29,678 | | | $ | 510 | |
Foreign income (loss) before income taxes | (1,614) | | | (507) | | | (864) | |
Total | $ | (3,094) | | | $ | 29,171 | | | $ | (354) | |
A reconciliation of income tax expense (benefit) on continuing operations and the amount computed by applying the statutory federal income tax rate of 21% to income from continuing operations before income taxes is as follows:
| | | | | | | | | | | | | | | | | |
| 2022 | | 2021 | | 2020 |
Taxes computed at federal statutory rate | $ | (650) | | | $ | 6,126 | | | $ | (74) | |
Increases (decreases) in income taxes resulting from: | | | | | |
State and local income taxes – net of federal income tax benefit | 795 | | | 936 | | | 170 | |
CARES Act federal NOL carryback | — | | | (471) | | | — | |
Tax on foreign investments | 43 | | | 47 | | | (124) | |
Noncontrolling interest | (308) | | | (291) | | | (286) | |
Permanent items and R&D credit | (121) | | | (153) | | | (195) | |
Audit resolutions | (642) | | | (220) | | | (112) | |
Divestitures | (481) | | | (558) | | | 107 | |
Goodwill impairment1 | 5,210 | | | 16 | | | 1,702 | |
Other – net | (66) | | | (37) | | | (20) | |
Total | $ | 3,780 | | | $ | 5,395 | | | $ | 1,168 | |
Effective Tax Rate | (122.2) | % | | 18.5 | % | | (329.9) | % |
|
1 Goodwill impairments are not deductible for tax purposes. |
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was enacted, which allows for a Net Operating Loss (NOL) generated in 2020 to be carried back to a year with a federal rate of 35%. During 2021, we recorded a $471 tax benefit for the rate impact of the 2020 NOL carryback adjusted for the domestic manufacturing deduction limitation in the carryback year and applicable unrecognized tax benefits.
AT&T is subject to the Global Intangible Low Taxed Income (GILTI) provisions created under the Tax Cuts and Jobs Act of 2017. We report the tax impact of GILTI as a period cost when incurred.
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AT&T Inc. |
Dollars in millions except per share amounts |
NOTE 14. PENSION AND POSTRETIREMENT BENEFITS
We offer noncontributory pension programs covering the majority of domestic nonmanagement employees in our Communications business. Nonmanagement employees’ pension benefits are generally calculated using one of two formulas: a flat dollar amount applied to years of service according to job classification or a cash balance plan with negotiated annual pension band credits as well as interest credits. Most employees can elect to receive their pension benefits in either a lump sum payment or an annuity.
Pension programs covering U.S. management employees are closed to new entrants. These programs continue to provide benefits to participants that were generally hired before January 1, 2015, who receive benefits under either cash balance pension programs that include annual or monthly credits based on salary as well as interest credits, or a traditional pension formula (i.e., a stated percentage of employees’ adjusted career income).
We also provide a variety of medical, dental and life insurance benefits to certain retired employees under various plans and accrue actuarially determined postretirement benefit costs as active employees earn these benefits.
During the third quarter of 2022, we committed to, and reflected in our results, plan changes impacting postretirement health and welfare benefits. This plan change aligns our benefit plans to market level.
Obligations and Funded Status
For defined benefit pension plans, the benefit obligation is the projected benefit obligation, the actuarial present value, as of our December 31 measurement date, of all benefits attributed by the pension benefit formula to employee service rendered to that date. The amount of benefit to be paid depends on a number of future events incorporated into the pension benefit formula, including estimates of the average life of employees and their beneficiaries and average years of service rendered. It is measured based on assumptions concerning future interest rates and future employee compensation levels as applicable.
For postretirement benefit plans, the benefit obligation is the accumulated postretirement benefit obligation, the actuarial present value as of the measurement date of all future benefits attributed under the terms of the postretirement benefit plans to employee service.
The following table presents the change in the projected benefit obligation for the years ended December 31:
| | | | | | | | | | | | | | | | | | | | | | | |
| Pension Benefits | | Postretirement Benefits |
| 2022 | | 2021 | | 2022 | | 2021 |
Benefit obligation at beginning of year | $ | 57,212 | | | $ | 62,158 | | | $ | 12,552 | | | $ | 13,928 | |
Service cost - benefits earned during the period | 617 | | | 957 | | | 32 | | | 45 | |
Interest cost on projected benefit obligation | 1,747 | | | 1,276 | | | 277 | | | 210 | |
Amendments | — | | | — | | | (2,370) | | | — | |
Actuarial (gain) loss | (10,894) | | | (1,237) | | | (1,919) | | | (275) | |
Benefits paid, including settlements | (5,854) | | | (5,942) | | | (1,292) | | | (1,356) | |
| | | | | | | |
| | | | | | | |
Benefit obligation at end of year | $ | 42,828 | | | $ | 57,212 | | | $ | 7,280 | | | $ | 12,552 | |
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AT&T Inc. |
Dollars in millions except per share amounts |
The following table presents the change in the fair value of plan assets for the years ended December 31 and the plans’ funded status at December 31:
| | | | | | | | | | | | | | | | | | | | | | | |
| Pension Benefits | | Postretirement Benefits |
| 2022 | | 2021 | | 2022 | | 2021 |
Fair value of plan assets at beginning of year | $ | 54,401 | | | $ | 54,606 | | | $ | 3,198 | | | $ | 3,843 | |
Actual return on plan assets | (7,673) | | | 5,737 | | | (370) | | | 210 | |
Benefits paid, including settlements 1 | (5,854) | | | (5,942) | | | (788) | | | (1,163) | |
Contributions | — | | | — | | | 120 | | | 308 | |
| | | | | | | |
Fair value of plan assets at end of year | 40,874 | | | 54,401 | | | 2,160 | | | 3,198 | |
Unfunded status at end of year 2 | $ | (1,954) | | | $ | (2,811) | | | $ | (5,120) | | | $ | (9,354) | |
1At our discretion, certain postretirement benefits may be paid from our cash accounts, which does not reduce Voluntary Employee Benefit Association (VEBA) assets. Future benefit payments may be made from VEBA trusts and thus reduce those asset balances. |
2Funded status is not indicative of our ability to pay ongoing pension benefits or of our obligation to fund retirement trusts. Required pension funding is determined in accordance with the Employee Retirement Income Security Act of 1974, as amended (ERISA) and applicable regulations. |
Amounts recognized on our consolidated balance sheets at December 31 are listed below:
| | | | | | | | | | | | | | | | | | | | | | | |
| Pension Benefits | | Postretirement Benefits |
| 2022 | | 2021 | | 2022 | | 2021 |
Current portion of employee benefit obligation 1 | $ | — | | | $ | — | | | $ | (1,058) | | | $ | (1,106) | |
Employee benefit obligation 2 | (1,954) | | | (2,811) | | | (4,062) | | | (8,248) | |
Net amount recognized | $ | (1,954) | | | $ | (2,811) | | | $ | (5,120) | | | $ | (9,354) | |
1Included in “Accounts payable and accrued liabilities.” |
2Included in “Postemployment benefit obligation,” combined with international pension obligations and other postemployment obligations of $161 and $1,083 at December 31, 2022, and $364 and $1,226 at December 31, 2021, respectively. |
The accumulated benefit obligation for our pension plans represents the actuarial present value of benefits based on employee service and compensation as of a certain date and does not include an assumption about future compensation levels. The accumulated benefit obligation for our pension plans was $42,137 at December 31, 2022, and $56,159 at December 31, 2021.
Net Periodic Benefit Cost and Other Amounts Recognized in Other Comprehensive Income
Periodic Benefit Costs
The service cost component of net periodic pension cost (credit) is recorded in operating expenses in the consolidated statements of income while the remaining components are recorded in “Other income (expense) – net.” Our combined net pension and postretirement cost (credit) recognized in our consolidated statements of income was $(4,789), $(7,652) and $711 for the years ended December 31, 2022, 2021 and 2020.
The following table presents the components of net periodic benefit cost (credit):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Pension Benefits | | Postretirement Benefits |
| 2022 | | 2021 | | 2020 | | 2022 | | 2021 | | 2020 |
Service cost – benefits earned during the period | $ | 617 | | | $ | 957 | | | $ | 1,029 | | | $ | 32 | | | $ | 45 | | | $ | 53 | |
Interest cost on projected benefit obligation | 1,747 | | | 1,276 | | | 1,687 | | | 277 | | | 210 | | | 416 | |
Expected return on assets | (3,107) | | | (3,513) | | | (3,557) | | | (112) | | | (151) | | | (178) | |
Amortization of prior service credit | (133) | | | (144) | | | (113) | | | (2,558) | | | (2,537) | | | (2,329) | |
Net periodic benefit cost (credit) before remeasurement | (876) | | | (1,424) | | | (954) | | | (2,361) | | | (2,433) | | | (2,038) | |
Actuarial (gain) loss | (115) | | | (3,461) | | | 2,404 | | | (1,437) | | | (334) | | | 1,299 | |
Net pension and postretirement cost (credit) | $ | (991) | | | $ | (4,885) | | | $ | 1,450 | | | $ | (3,798) | | | $ | (2,767) | | | $ | (739) | |
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AT&T Inc. |
Dollars in millions except per share amounts |
Other Changes in Benefit Obligations Recognized in Other Comprehensive Income
The following table presents the after-tax changes in benefit obligations recognized in OCI and the after-tax prior service credits that were amortized from OCI into net periodic benefit costs:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Pension Benefits | | Postretirement Benefits |
| 2022 | | 2021 | | 2020 | | 2022 | | 2021 | | 2020 |
Balance at beginning of year | $ | 416 | | | $ | 525 | | | $ | 361 | | | $ | 6,496 | | | $ | 8,408 | | | $ | 8,163 | |
Prior service (cost) credit | — | | | — | | | 250 | | | 1,786 | | | — | | | 2,001 | |
Amortization of prior service credit | (100) | | | (109) | | | (86) | | | (1,928) | | | (1,912) | | | (1,756) | |
Total recognized in other comprehensive (income) loss | (100) | | | (109) | | | 164 | | | (142) | | | (1,912) | | | 245 | |
Balance at end of year | $ | 316 | | | $ | 416 | | | $ | 525 | | | $ | 6,354 | | | $ | 6,496 | | | $ | 8,408 | |
Assumptions
In determining the projected benefit obligation and the net pension and postretirement benefit cost, we used the following significant weighted-average assumptions:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Pension Benefits | | Postretirement Benefits |
| 2022 | | 2021 | | 2020 | | 2022 | | 2021 | | 2020 |
Weighted-average discount rate for determining benefit obligation at December 31 | 5.20 | % | | 3.00 | % | | 2.70 | % | | 5.20 | % | | 2.80 | % | | 2.40 | % |
Discount rate in effect for determining service cost1 | 4.40 | % | | 3.30 | % | | 3.60 | % | | 4.00 | % | | 2.90 | % | | 3.50 | % |
Discount rate in effect for determining interest cost1 | 3.90 | % | | 2.30 | % | | 2.90 | % | | 3.20 | % | | 1.60 | % | | 2.70 | % |
Weighted-average interest credit rate for cash balance pension programs2 | 4.10 | % | | 3.20 | % | | 3.10 | % | | — | % | | — | % | | — | % |
Long-term rate of return on plan assets | 6.75 | % | | 6.75 | % | | 7.00 | % | | 4.50 | % | | 4.50 | % | | 4.75 | % |
Composite rate of compensation increase for determining benefit obligation | 3.00 | % | | 3.00 | % | | 3.00 | % | | 3.00 | % | | 3.00 | % | | 3.00 | % |
Composite rate of compensation increase for determining net cost (credit) | 3.00 | % | | 3.00 | % | | 3.00 | % | | 3.00 | % | | 3.00 | % | | 3.00 | % |
1Weighted-average discount rates shown for years with interim remeasurements: 2022 and 2021 for pension benefits and 2022 for postretirement benefits. |
2Weighted-average interest crediting rates for cash balance pension programs relate only to the cash balance portion of total pension benefits. A 0.50% increase in the weighted-average interest crediting rate would increase the pension benefit obligation by $135. |
We recognize gains and losses on pension and postretirement plan assets and obligations immediately in “Other income (expense) – net” in our consolidated statements of income. These gains and losses are generally measured annually as of December 31 and accordingly, will normally be recorded during the fourth quarter, unless an earlier remeasurement is required. Should actual experience differ from actuarial assumptions, the projected pension benefit obligation and net pension cost and accumulated postretirement benefit obligation and postretirement benefit cost would be affected in future years.
Discount Rate Our assumed weighted-average discount rates for both pension and postretirement benefits of 5.20%, at December 31, 2022, reflect the hypothetical rate at which the projected benefit obligation could be effectively settled or paid out to participants. We determined our discount rate based on a range of factors, including a yield curve composed of the rates of return on several hundred high-quality, fixed income corporate bonds available at the measurement date and corresponding to the related expected durations of future cash outflows. These bonds had an average rating of at least Aa3 or AA- by the nationally recognized statistical rating organizations, denominated in U.S. dollars, and generally not callable, convertible or index linked. For the year ended December 31, 2022, when compared to the year ended December 31, 2021, we increased our pension discount rate by 2.20%, resulting in a decrease in our pension plan benefit obligation of $11,738 and increased our postretirement discount rate by 2.40%, resulting in a decrease in our postretirement benefit obligation of $2,102. For the year ended December 31, 2021, we increased our pension discount rate by 0.30%, resulting in a decrease in our pension plan benefit
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AT&T Inc. |
Dollars in millions except per share amounts |
obligation of $1,645 and increased our postretirement discount rate by 0.40%, resulting in a decrease in our postretirement benefit obligation of $341.
We utilize a full yield curve approach in the estimation of the service and interest components of net periodic benefit costs for pension and other postretirement benefits. Under this approach, we apply discounting using individual spot rates from a yield curve composed of the rates of return on several hundred high-quality, fixed income corporate bonds available at the measurement date. These spot rates align to each of the projected benefit obligations and service cost cash flows. The service cost component relates to the active participants in the plan, so the relevant cash flows on which to apply the yield curve are considerably longer in duration on average than the total projected benefit obligation cash flows, which also include benefit payments to retirees. Interest cost is computed by multiplying each spot rate by the corresponding discounted projected benefit obligation cash flows. The full yield curve approach reduces any actuarial gains and losses based upon interest rate expectations (e.g., built-in gains in interest cost in an upward sloping yield curve scenario), or gains and losses merely resulting from the timing and magnitude of cash outflows associated with our benefit obligations. Neither the annual measurement of our total benefit obligations nor annual net benefit cost is affected by the full yield curve approach.
Expected Long-Term Rate of Return In 2023, our expected long-term rate of return is 7.50% on pension plan assets and 6.50% on postretirement plan assets, an increase of 0.75% for pension plan assets and 2.00% for postretirement plan assets. This update to our asset return assumptions was due to economic forecasts and changes in the asset mix. Our long-term rates of return reflect the average rate of earnings expected on the funds invested, or to be invested, to provide for the benefits included in the projected benefit obligations. In setting the long-term assumed rate of return, management considers capital markets’ future expectations, the asset mix of the plans’ investment and average historical asset return. Actual long-term returns can, in relatively stable markets, also serve as a factor in determining future expectations. We consider many factors that include, but are not limited to, historical returns on plan assets, current market information on long-term returns (e.g., long-term bond rates) and current and target asset allocations between asset categories. The target asset allocation is determined based on consultations with external investment advisers. If all other factors were to remain unchanged, we expect that a 0.50% decrease in the expected long-term rate of return would cause 2023 combined pension and postretirement cost to increase $201. However, any differences in the rate and actual returns will be included with the actuarial gain or loss recorded in the fourth quarter when our plans are remeasured.
Composite Rate of Compensation Increase Our expected composite rate of compensation increase cost of 3.00% in 2022 and 2021 reflects the long-term average rate of salary increases.
Healthcare Cost Trend Our healthcare cost trend assumptions are developed based on historical cost data, the near-term outlook and an assessment of likely long-term trends. Based on our assessment of expectations of healthcare industry inflation, our 2023 assumed annual healthcare prescription drug cost trend and medical cost trend for eligible participants will increase from an annual and ultimate trend rate of 4.25% to an annual and ultimate trend rate of 4.50%. This change in assumption increased our obligation by $19. For 2022, our assumed annual healthcare prescription drug cost trend and medical cost trend for eligible participants increased from an annual and ultimate trend rate of 4.00% to an annual and ultimate trend rate of 4.25%. This change in assumption increased our obligation by $31.
Plan Assets
Plan assets consist primarily of private and public equity, government and corporate bonds, and real assets (real estate and natural resources). The asset allocations of the pension plans are maintained to meet ERISA requirements. Any plan contributions, as determined by ERISA regulations, are made to a pension trust for the benefit of plan participants. We do not have significant ERISA required contributions to our pension plans for 2023.
We maintain VEBA trusts to partially fund postretirement benefits; however, there are no ERISA or regulatory requirements that these postretirement benefit plans be funded annually. We made discretionary contributions of $120 in December 2022 and $308 in December 2021 to our postretirement plan.
The principal investment objectives are to ensure the availability of funds to pay pension and postretirement benefits as they become due under a broad range of future economic scenarios, maximize long-term investment return with an acceptable level of risk based on our pension and postretirement obligations, and diversify broadly across and within the capital markets to insulate asset values against adverse experience in any one market. Each asset class has broadly diversified characteristics. Substantial biases toward any particular investing style or type of security are sought to be avoided by managing the aggregation of all accounts with portfolio benchmarks. Asset and benefit obligation forecasting studies are conducted periodically, generally every two to three years, or when significant changes have occurred in market conditions, benefits, participant demographics or funded status. Decisions regarding investment policy are made with an understanding of the effect of asset allocation on funded status, future contributions and projected expenses.
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AT&T Inc. |
Dollars in millions except per share amounts |
The plans’ weighted-average asset targets and actual allocations as a percentage of plan assets, including the notional exposure of future contracts by asset categories at December 31 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Pension Assets | | Postretirement (VEBA) Assets |
| Target | | 2022 | | 2021 | | Target | | 2022 | | 2021 |
Equity securities: | | | | | | | | | | | | | | | |
Domestic | 5 | % | - | 25 | % | | 7 | % | | 16 | % | | 16 | % | - | 26 | % | | 21 | % | | 19 | % |
International | 1 | % | - | 21 | % | | 4 | | | 13 | | | 16 | % | - | 26 | % | | 21 | | | 19 | |
Fixed income securities | 40 | % | - | 50 | % | | 45 | | | 38 | | | 42 | % | - | 52 | % | | 47 | | | 39 | |
Real assets | — | % | - | 20 | % | | 16 | | | 10 | | | — | % | - | 6 | % | | 1 | | | 1 | |
Private equity | — | % | - | 16 | % | | 14 | | | 12 | | | — | % | - | 6 | % | | 1 | | | 1 | |
Preferred interests | 8 | % | - | 18 | % | | 13 | | | 10 | | | — | % | - | — | % | | — | | | — | |
Other | — | % | - | 5 | % | | 1 | | | 1 | | | 5 | % | - | 15 | % | | 9 | | | 21 | |
Total | | | | | 100 | % | | 100 | % | | | | | | 100 | % | | 100 | % |
The pension trust holds preferred equity interests valued at $5,427 in AT&T Mobility II LLC (Mobility II), the primary holding company for our wireless business. The preferred equity interests were valued at $5,562 as of December 31, 2021. On December 27, 2022, the pension trust provided written notice of its right to require AT&T to purchase Mobility preferred interests outstanding. (See Note 16)
At December 31, 2022, AT&T securities represented 14% of assets held by our pension trust, including the preferred interests in Mobility II. The VEBA trusts included in these financial statements no longer hold AT&T securities.
Investment Valuation
Investments are stated at fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability at the measurement date.
Investments in securities traded on a national securities exchange are valued at the last reported sales price on the final business day of the year. If no sale was reported on that date, they are valued at the last reported bid price. Investments in securities not traded on a national securities exchange are valued using pricing models, quoted prices of securities with similar characteristics or discounted cash flows. Shares of registered investment companies are valued based on quoted market prices, which represent the net asset value of shares held at year-end.
Other commingled investment entities are valued at quoted redemption values that represent the net asset values of units held at year-end which management has determined approximates fair value.
Real estate and natural resource direct investments are valued at amounts based upon appraisal reports. Fixed income securities valuation is based upon observable prices for comparable assets, broker/dealer quotes (spreads or prices), or a pricing matrix that derives spreads for each bond based on external market data, including the current credit rating for the bonds, credit spreads to Treasuries for each credit rating, sector add-ons or credits, issue-specific add-ons or credits as well as call or other options.
The preferred interests in Mobility II are valued by an independent fiduciary using an income approach.
Purchases and sales of securities are recorded as of the trade date. Realized gains and losses on sales of securities are determined on the basis of average cost. Interest income is recognized on the accrual basis. Dividend income is recognized on the ex-dividend date.
Non-interest bearing cash and overdrafts are valued at cost, which approximates fair value.
Fair Value Measurements
See Note 12 for a discussion of the fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value.
| | |
AT&T Inc. |
Dollars in millions except per share amounts |
The following tables set forth by level, within the fair value hierarchy, the pension and postretirement assets and liabilities at fair value as of December 31, 2022:
| | | | | | | | | | | | | | | | | | | | | | | |
Pension Assets and Liabilities at Fair Value as of December 31, 2022 |
| Level 1 | | Level 2 | | Level 3 | | Total |
Non-interest bearing cash | $ | 158 | | | $ | — | | | $ | — | | | $ | 158 | |
Interest bearing cash | 5 | | | — | | | — | | | 5 | |
Foreign currency contracts | — | | | 4 | | | — | | | 4 | |
Equity securities: | | | | | | | |
Domestic equities | 2,312 | | | — | | | 2 | | | 2,314 | |
International equities | 1,251 | | | — | | | — | | | 1,251 | |
Preferred interests | — | | | — | | | 5,427 | | | 5,427 | |
Fixed income securities: | | | | | | | |
Corporate bonds and other investments | — | | | 9,366 | | | 1 | | | 9,367 | |
Government and municipal bonds | — | | | 5,450 | | | — | | | 5,450 | |
Mortgage-backed securities | — | | | 220 | | | — | | | 220 | |
Real estate and real assets | — | | | — | | | 4,343 | | | 4,343 | |
Securities lending collateral | 1,137 | | | 1,407 | | | — | | | 2,544 | |
Receivable for variation margin | 5 | | | — | | | — | | | 5 | |
Assets at fair value | 4,868 | | | 16,447 | | | 9,773 | | | 31,088 | |
Investments sold short and other liabilities at fair value | (261) | | | (5) | | | — | | | (266) | |
Total plan net assets at fair value | $ | 4,607 | | | $ | 16,442 | | | $ | 9,773 | | | $ | 30,822 | |
Assets held at net asset value practical expedient | | | | | | | |
Private equity funds | | | | | | | 5,866 | |
Real estate funds | | | | | | | 1,907 | |
Commingled funds | | | | | | | 5,045 | |
Total assets held at net asset value practical expedient | | | | | | | 12,818 | |
Other assets (liabilities) 1 | | | | | | | (2,766) | |
Total Plan Net Assets | | | | | | | $ | 40,874 | |
1Other assets (liabilities) include amounts receivable, accounts payable and net adjustment for securities lending payable. |
| | | | | | | | | | | | | | | | | | | | | | | |
Postretirement Assets and Liabilities at Fair Value as of December 31, 2022 |
| Level 1 | | Level 2 | | Level 3 | | Total |
Interest bearing cash | $ | 191 | | | $ | 4 | | | $ | — | | | $ | 195 | |
Equity securities: | | | | | | | |
Domestic equities | 258 | | | — | | | — | | | 258 | |
International equities | 233 | | | — | | | 1 | | | 234 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Securities lending collateral | — | | | 12 | | | — | | | 12 | |
Assets at fair value | 682 | | | 16 | | | 1 | | | 699 | |
Securities lending payable and other liabilities | — | | | (12) | | | — | | | (12) | |
Total plan net assets at fair value | $ | 682 | | | $ | 4 | | | $ | 1 | | | $ | 687 | |
Assets held at net asset value practical expedient | | | | | | | |
Private equity funds | | | | | | | 13 | |
Real estate funds | | | | | | | 13 | |
Commingled funds | | | | | | | 1,445 | |
Total assets held at net asset value practical expedient | | | | | | | 1,471 | |
Other assets (liabilities)1 | | | | | | | 2 | |
Total Plan Net Assets | | | | | | | $ | 2,160 | |
1Other assets (liabilities) include amounts receivable and accounts payable. |
| | |
AT&T Inc. |
Dollars in millions except per share amounts |
The following tables set forth by level, within the fair value hierarchy, the pension and postretirement assets and liabilities at fair value as of December 31, 2021:
| | | | | | | | | | | | | | | | | | | | | | | |
Pension Assets and Liabilities at Fair Value as of December 31, 2021 |
| Level 1 | | Level 2 | | Level 3 | | Total |
Non-interest bearing cash | $ | 167 | | | $ | — | | | $ | — | | | $ | 167 | |
Interest bearing cash | 11 | | | — | | | — | | | 11 | |
Foreign currency contracts | — | | | 5 | | | — | | | 5 | |
Equity securities: | | | | | | | |
Domestic equities | 7,693 | | | — | | | 1 | | | 7,694 | |
International equities | 4,117 | | | — | | | 7 | | | 4,124 | |
Preferred interests | — | | | — | | | 5,562 | | | 5,562 | |
Fixed income securities: | | | | | | | |
Corporate bonds and other investments | — | | | 11,168 | | | 2 | | | 11,170 | |
Government and municipal bonds | — | | | 6,977 | | | — | | | 6,977 | |
Mortgage-backed securities | — | | | 268 | | | — | | | 268 | |
Real estate and real assets | — | | | — | | | 3,318 | | | 3,318 | |
Securities lending collateral | 1,645 | | | 1,285 | | | — | | | 2,930 | |
Receivable for variation margin | 8 | | | — | | | — | | | 8 | |
Assets at fair value | 13,641 | | | 19,703 | | | 8,890 | | | 42,234 | |
Investments sold short and other liabilities at fair value | (529) | | | (3) | | | (1) | | | (533) | |
Total plan net assets at fair value | $ | 13,112 | | | $ | 19,700 | | | $ | 8,889 | | | $ | 41,701 | |
Assets held at net asset value practical expedient | | | | | | | |
Private equity funds | | | | | | | 6,454 | |
Real estate funds | | | | | | | 2,329 | |
Commingled funds | | | | | | | 6,780 | |
Total assets held at net asset value practical expedient | | | | | | | 15,563 | |
Other assets (liabilities) 1 | | | | | | | (2,863) | |
Total Plan Net Assets | | | | | | | $ | 54,401 | |
1Other assets (liabilities) include amounts receivable, accounts payable and net adjustment for securities lending payable. |
| | | | | | | | | | | | | | | | | | | | | | | |
Postretirement Assets and Liabilities at Fair Value as of December 31, 2021 |
| Level 1 | | Level 2 | | Level 3 | | Total |
Interest bearing cash | $ | 371 | | | $ | 295 | | | $ | — | | | $ | 666 | |
Equity securities: | | | | | | | |
Domestic equities | 323 | | | — | | | — | | | 323 | |
International equities | 287 | | | — | | | 1 | | | 288 | |
Fixed income securities: | | | | | | | |
Corporate bonds and other investments | 1 | | | — | | | — | | | 1 | |
| | | | | | | |
| | | | | | | |
Securities lending collateral | — | | | 9 | | | — | | | 9 | |
Assets at fair value | 982 | | | 304 | | | 1 | | | 1,287 | |
Securities lending payable and other liabilities | — | | | (9) | | | — | | | (9) | |
Total plan net assets at fair value | $ | 982 | | | $ | 295 | | | $ | 1 | | | $ | 1,278 | |
Assets held at net asset value practical expedient | | | | | | | |
Commingled funds | | | | | | | 1,883 | |
Private equity funds | | | | | | | 19 | |
Real estate funds | | | | | | | 16 | |
Total assets held at net asset value practical expedient | | | | | | | 1,918 | |
Other assets (liabilities) 1 | | | | | | | 2 | |
Total Plan Net Assets | | | | | | | $ | 3,198 | |
1Other assets (liabilities) include amounts receivable and accounts payable. |
| | |
AT&T Inc. |
Dollars in millions except per share amounts |
For the years ended December 31, 2022 and 2021, our postretirement assets did not include significant investments in Level 3 assets, nor were there significant changes in fair value of those assets during the period. The tables below set forth a summary of changes in the fair value of the Level 3 pension assets for the years ended:
| | | | | | | | | | | | | | | | | | | | | | | |
| Equities | | Fixed Income Funds | | Real Estate and Real Assets | | Total |
Balance as of December 31, 2021 | $ | 5,569 | | | $ | 2 | | | $ | 3,318 | | | $ | 8,889 | |
Realized gains (losses) | 1 | | | — | | | 22 | | | 23 | |
Unrealized gains (losses) | (139) | | | — | | | 802 | | | 663 | |
Transfers in | 1 | | | 1 | | | 20 | | | 22 | |
Transfers out | — | | | (2) | | | (29) | | | (31) | |
Purchases | — | | | — | | | 716 | | | 716 | |
Sales | (3) | | | — | | | (506) | | | (509) | |
Balance as of December 31, 2022 | $ | 5,429 | | | $ | 1 | | | $ | 4,343 | | | $ | 9,773 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Equities | | Fixed Income Funds | | Real Estate and Real Assets | | Total |
Balance as of December 31, 2020 | $ | 5,793 | | | $ | 53 | | | $ | 2,544 | | | $ | 8,390 | |
Realized gains (losses) | 2 | | | — | | | (31) | | | (29) | |
Unrealized gains (losses) | (203) | | | — | | | 558 | | | 355 | |
Transfers in | — | | | 1 | | | — | | | 1 | |
Transfers out | (7) | | | (8) | | | — | | | (15) | |
Purchases | 7 | | | 1 | | | 425 | | | 433 | |
Sales | (23) | | | (45) | | | (178) | | | (246) | |
Balance as of December 31, 2021 | $ | 5,569 | | | $ | 2 | | | $ | 3,318 | | | $ | 8,889 | |
Estimated Future Benefit Payments
Expected benefit payments are estimated using the same assumptions used in determining our benefit obligation at December 31, 2022. Because benefit payments will depend on future employment and compensation levels; average years employed; average life spans; and payment elections, among other factors, changes in any of these assumptions could significantly affect these expected amounts. The following table provides expected benefit payments under our pension and postretirement plans:
| | | | | | | | | | | |
| Pension Benefits | | Postretirement Benefits |
2023 | $ | 5,612 | | | $ | 1,211 | |
2024 | 3,734 | | | 801 | |
2025 | 3,747 | | | 640 | |
2026 | 3,632 | | | 598 | |
2027 | 3,561 | | | 568 | |
Years 2028 - 2032 | 16,688 | | | 2,322 | |
Supplemental Retirement Plans
We also provide certain senior- and middle-management employees with nonqualified, unfunded supplemental retirement and savings plans. While these plans are unfunded, we have assets in a designated non-bankruptcy remote trust that are independently managed and used to provide for certain of these benefits. These plans include supplemental pension benefits as well as compensation-deferral plans, some of which include a corresponding match by us based on a percentage of the compensation deferral. For our supplemental retirement plans, the projected benefit obligation was $1,544 and the net supplemental retirement pension credit was $234 at and for the year ended December 31, 2022. The projected benefit obligation was $2,326 and the net supplemental retirement pension credit was $41 at and for the year ended December 31, 2021.
We use the same significant assumptions for the composite rate of compensation increase in determining our projected benefit obligation and the net pension and postemployment benefit cost. Our discount rates of 5.10% at December 31, 2022 and 2.70% at December 31, 2021 were calculated using the same methodologies used in calculating the discount rates for our qualified pension and postretirement benefit plans.
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AT&T Inc. |
Dollars in millions except per share amounts |
Deferred compensation expense was $94 in 2022, $171 in 2021 and $183 in 2020.
Contributory Savings Plans
We maintain contributory savings plans that cover substantially all employees. Under the savings plans, we match in cash or company stock a stated percentage of eligible employee contributions, subject to a specified ceiling. There are no debt-financed shares held by the Employee Stock Ownership Plans, allocated or unallocated.
Our match of employee contributions to the savings plans is fulfilled with purchases of our stock on the open market or company cash. Benefit cost, which is based on the cost of shares or units allocated to participating employees’ accounts or the cash contributed to participant accounts, was $611, $614 and $646 for the years ended December 31, 2022, 2021 and 2020.
NOTE 15. SHARE-BASED PAYMENTS
Under our various plans, senior and other management employees and nonemployee directors have received nonvested stock and stock units. The shares will vest over a period of one to four years in accordance with the terms of those plans.
We grant performance stock units, which are nonvested stock units, based upon our stock price at the date of grant and award them in the form of AT&T common stock and cash at the end of a three-year period, subject to the achievement of certain performance goals. We treat the cash settled portion of these awards as a liability. Effective with the 2021 plan year, for the majority of employees, performance shares were replaced with restricted stock units that do not have any performance conditions. These new restricted stock units vest ratably over a three-year period. We grant forfeitable restricted stock and stock units, which are valued at the market price of our common stock at the date of grant and predominantly vest over a three- to five-year period. We also grant other nonvested stock units and award them in cash at the end of a three-year period, subject to the achievement of certain market-based conditions. As of December 31, 2022, we were authorized to issue up to approximately 128 million shares of common stock (in addition to shares that may be issued upon exercise of outstanding options or upon vesting of performance stock units or other nonvested stock units) to officers, employees and directors pursuant to these various plans.
We account for our share-based payment arrangements based on the fair value of the awards on their respective grant date, which may affect our ability to fully realize the value shown on our consolidated balance sheets of deferred tax assets associated with compensation expense. We record a valuation allowance when our future taxable income is not expected to be sufficient to recover the asset. Accordingly, there can be no assurance that the current stock price of our common shares will rise to levels sufficient to realize the entire tax benefit currently reflected on our consolidated balance sheets. However, to the extent we generate excess tax benefits (i.e., those additional tax benefits in excess of the deferred taxes associated with compensation expense previously recognized) the potential future impact on income would be reduced.
Our consolidated statements of income include the compensation cost recognized for those plans as operating expenses, as well as the associated tax benefits, which are reflected in the table below:
| | | | | | | | | | | | | | | | | |
| 2022 | | 2021 | | 2020 |
Performance stock units | $ | 168 | | | $ | 248 | | | $ | 348 | |
Restricted stock and stock units | 350 | | | 199 | | | 74 | |
Other nonvested stock units | — | | | — | | | — | |
Stock options | — | | | — | | | — | |
Total | $ | 518 | | | $ | 447 | | | $ | 422 | |
Income tax benefit | $ | 127 | | | $ | 110 | | | $ | 104 | |
| | |
AT&T Inc. |
Dollars in millions except per share amounts |
A summary of the status of our nonvested stock units as of December 31, 2022, and changes during the year then ended is presented as follows (shares in millions):
| | | | | | | | | | | |
Nonvested Stock Units | Shares | | Weighted-Average Grant- Date Fair Value |
Nonvested at January 1, 2022 | 35 | | | $ | 32.33 | |
Granted | 21 | | | 23.64 | |
Vested | (28) | | | 27.64 | |
Forfeited | (5) | | | 23.76 | |
Spin-off Adjustment 1 | 13 | | | NA |
Nonvested at December 31, 2022 | 36 | | | $ | 22.07 | |
1 In connection with the WarnerMedia transaction, AT&T made certain adjustments to the number of stock awards to maintain the intrinsic value prior to the spin-off. |
As of December 31, 2022, there was $547 of total unrecognized compensation cost related to nonvested share-based payment arrangements granted. That cost is expected to be recognized over a weighted-average period of 1.69 years. The total fair value of shares vested during the year was $783 for 2022, compared to $608 for 2021 and $471 for 2020.
It is our intent to satisfy share option exercises using our treasury stock. Cash received from stock option exercises was $2 for 2022, $11 for 2021 and $21 for 2020.
NOTE 16. STOCKHOLDERS’ EQUITY
Authorized Shares We have authorized 14 billion common shares of AT&T stock and 10 million preferred shares of AT&T stock, each with a par value of $1.00 per share. Cumulative perpetual preferred shares consist of the following:
•Series A: 48 thousand shares outstanding at December 31, 2022 and December 31, 2021, with a $25,000 per share liquidation preference and a dividend rate of 5.000%.
•Series B: 20 thousand shares outstanding at December 31, 2022 and December 31, 2021, with a €100,000 per share liquidation preference, and an initial rate of 2.875%, subject to reset after May 1, 2025.
•Series C: 70 thousand shares outstanding at December 31, 2022 and December 31, 2021, with a $25,000 per share liquidation preference, and a dividend rate of 4.75%.
So long as the quarterly preferred dividends are declared and paid on a timely basis on each series of preferred shares, there are no limitations on our ability to declare a dividend on or repurchase AT&T common shares. The preferred shares are optionally redeemable by AT&T at the liquidation price on or after five years from the issuance date, or upon certain other contingent events.
Stock Repurchase Program From time to time, we repurchase shares of common stock for distribution through our employee benefit plans or in connection with certain acquisitions. Our Board of Directors has approved the following authorization to repurchase common stock: (1) March 2013 authorization program of 300 million shares, which was completed in 2020 and (2) March 2014 authorization program for 300 million shares, with approximately 144 million outstanding at December 31, 2022.
To implement these authorizations, we used open market repurchases, relying on Rule 10b5-1 of the Securities Exchange Act of 1934, where feasible. We also used accelerated share repurchase agreements with large financial institutions to repurchase our stock. During 2021, there were no shares repurchased under the March 2014 authorization. During 2022, we repurchased approximately 34 million shares totaling $662 under the March 2014 authorization.
Dividend Declarations In December 2022 and December 2021, AT&T declared a quarterly preferred dividend of $36. In December 2022 and December 2021, AT&T declared a common dividend of $0.2775 and $0.52 per share of common stock, respectively.
Preferred Interests Issued by Subsidiaries We have issued cumulative perpetual preferred membership interests in certain subsidiaries. The preferred interests are entitled to cash distributions, subject to declaration. The preferred interests are included in “Noncontrolling interest” on the consolidated balance sheets.
| | |
AT&T Inc. |
Dollars in millions except per share amounts |
Mobility II
In 2018, we issued 320 million Series A Cumulative Perpetual Preferred Membership Interests in Mobility II (Mobility preferred interests), which pay cash distributions of 7% per annum, subject to declaration. So long as the distributions are declared and paid, the terms of the Mobility preferred equity interests will not impose any limitations on cash movements between affiliates, or our ability to declare a dividend on or repurchase AT&T shares.
A holder of the Mobility preferred interests may put the interests to Mobility II. Mobility II may redeem the interests upon a change in control of Mobility II or on or after September 9, 2022. When either option arises due to a passage of time, that option may be exercised only during certain periods.
The price at which a put option or a redemption option can be exercised is the greater of (1) the market value of the interests as of the last date of the quarter preceding the date of the exercise of a put or redemption option and (2) the sum of (a) twenty-five dollars plus (b) any accrued and unpaid distributions. The redemption price may be paid with cash, AT&T common stock, or a combination of cash and AT&T common stock, at Mobility II’s sole election. In no event shall Mobility II be required to deliver more than 250 million shares of AT&T common stock to settle put and redemption options. We have the intent and ability to settle the Mobility preferred equity interests with cash.
On October 24, 2022, approximately 105 million Mobility preferred interests were put to AT&T by a third-party investor, for which we paid approximately $2,600 cash to redeem. On December 27, 2022, the AT&T pension trust provided written notice of its right to require us to purchase the remaining 213 million, or approximately $5,340, of Mobility preferred interests outstanding. The terms of the instruments limit the amount we are required to redeem in any 12-month period to approximately 107 million shares, or $2,670. We expect to redeem approximately $2,670 of the Mobility preferred interests primarily in October 2023 and $2,670 in October 2024, unless the interests are called or the puts are accepted by AT&T prior to those dates. With the certainty of redemption, the remaining Mobility preferred interests were reclassified from equity to a liability at fair value, with approximately $2,670 recorded in current liabilities as “Accounts payable and accrued liabilities” and $2,670 recorded in “Other noncurrent liabilities.” The liabilities associated with the Mobility preferred interests are considered Level 3 under the Fair Value Measurement and Disclosure framework (see Notes 12 and 14). The difference between the carrying value of the Mobility preferred interest, which represented fair value at contribution, and the fair value of the instrument upon settlement and/or balance sheet reclassification was recorded as an adjustment to additional paid-in capital.
As of December 31, 2022, we have approximately 213 million Mobility preferred interests outstanding, which have a redemption value of approximately $5,340 and pay cash distributions of $373 per annum, subject to declaration.
Tower Holdings
In 2019, we issued $6,000 nonconvertible cumulative preferred interests in a wireless subsidiary (Tower Holdings) that holds interests in various tower assets and have the right to receive approximately $6,000 if the purchase options from the tower companies are exercised.
The membership interests in Tower Holdings consist of (1) common interests, which are held by a consolidated subsidiary of AT&T, and (2) two series of preferred interests (collectively the “Tower preferred interests”). The September series (Class A-1) of the preferred interests totals $1,500 and pays an initial preferred distribution of 5.0%, and the December series (Class A-2) totals $4,500 and pays an initial preferred distribution of 4.75%. Distributions are paid quarterly, subject to declaration, and reset every five years. Any failure to declare or pay distributions on the Tower preferred interests would not impose any limitation on cash movements between affiliates, or our ability to declare a dividend on or repurchase AT&T shares. We can call the Tower preferred interests at the issue price beginning five years from the issuance date or upon the receipt of proceeds from the sale of the underlying assets.
The holders of the Tower preferred interests have the option to require redemption upon the occurrence of certain contingent events, such as the failure of AT&T to pay the preferred distribution for two or more periods or to meet certain other requirements, including a minimum credit rating. If notice is given upon such an event, all other holders of equal or more subordinate classes of membership interests in Tower Holdings are entitled to receive the same form of consideration payable to the holders of the preferred interests, resulting in a deemed liquidation for accounting purposes.
Telco LLC
In September 2020, we issued $2,000 nonconvertible cumulative preferred interests out of a newly created limited liability company (Telco LLC) that was formed to hold telecommunication-related assets.
Members’ equity in Telco LLC consist of (1) member’s interests, which are held by a consolidated subsidiary of AT&T, and (2) preferred interests (Telco preferred interests), which pay an initial preferred distribution of 4.25% annually, subject to declaration, and subject to reset every seven years. Failure to pay distributions on the Telco preferred interests would not limit
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AT&T Inc. |
Dollars in millions except per share amounts |
cash movements between affiliates, or our ability to declare a dividend on or repurchase AT&T shares. We can call the Telco preferred interests at the issue price beginning seven years from the issuance date.
The holders of the Telco preferred interests have the option to require redemption upon the occurrence of certain contingent events, such as the failure of Telco LLC to pay the preferred distribution for two or more periods or to meet certain other requirements, including a minimum credit rating. If notice is given, all other holders of equal or more subordinate classes of members’ equity are entitled to receive the same form of consideration payable to the holders of the preferred interests, resulting in a deemed liquidation for accounting purposes.
PR Holdings
In 2019, we issued $1,950 nonconvertible cumulative preferred interests in a subsidiary (PR Holdings) that held notes secured by the proceeds from our agreement to sell wireless and wireline operations in Puerto Rico and the U.S. Virgin Islands. These preferred interests were redeemed on November 6, 2020. (See Note 6)
The membership interests in PR Holdings consisted of (1) common interests, which were held by consolidated subsidiaries of AT&T, and (2) preferred interests (PR preferred interests). The PR preferred interests paid an initial preferred distribution at an annual rate of 4.75%. Distributions were paid quarterly, subject to declaration.
NOTE 17. SALES OF RECEIVABLES
We have agreements with various third-party financial institutions pertaining to the sales of certain types of our accounts receivable. The most significant of these programs consists of receivables arising from equipment installment plans, which are sold for cash and a deferred purchase price. Under this program, we transfer receivables to purchasers in exchange for cash and additional consideration upon settlement of the receivables. Under the terms of our agreement for this program, we continue to service the transferred receivables on behalf of the financial institutions.
The following table sets forth a summary of cash proceeds received, net of remittances paid, from sales of receivables for the years ended December 31:
| | | | | | | | | | | | | | | | | |
| 2022 | | 2021 | | 2020 |
Net cash received (paid) from equipment installment receivables1 | $ | 1,875 | | | $ | 1,000 | | | $ | (1,565) | |
Net cash received (paid) from other programs | 620 | | | (295) | | | 295 | |
Total net cash impact to cash flows from operating activities | $ | 2,495 | | | $ | 705 | | | $ | (1,270) | |
1Net cash from initial sales of $11,129, $9,740 and $6,089 for the years ended December 31, 2022, 2021 and 2020, respectively. |
The sales of receivables did not have a material impact on our consolidated statements of income or to “Total Assets” reported on our consolidated balance sheets. We reflect cash receipts on sold receivables as cash flows from operations in our consolidated statements of cash flows. Cash receipts on the deferred purchase price are classified as cash flows from investing activities, when applicable.
The following table sets forth a summary of the equipment installment receivables and accounts being serviced at December 31:
| | | | | | | | | | | | | | | |
| 2022 | | 2021 |
| | | | | | | |
Gross receivables: | $ | 4,165 | | | | | $ | 4,361 | | | |
Balance sheet classification | | | | | | | |
Accounts receivable | | | | | | | |
Notes receivable | 1,789 | | | | | 1,846 | | | |
Trade receivables | 522 | | | | | 606 | | | |
Other Assets | | | | | | | |
Noncurrent notes and trade receivables | 1,854 | | | | | 1,909 | | | |
| | | | | | | |
Outstanding portfolio of receivables derecognized from our consolidated balance sheets | $ | 11,030 | | | | | $ | 9,767 | | | |
Cash proceeds received, net of remittances1 | 8,519 | | | | | 6,644 | | | |
1Represents amounts to which financial institutions remain entitled, excluding the deferred purchase price. | | |
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AT&T Inc. |
Dollars in millions except per share amounts |
We offer our customers the option to purchase certain wireless devices in installments over a specified period of time and, in many cases, once certain conditions are met, they may be eligible to trade in the original equipment for a new device and have the remaining unpaid balance paid or settled.
We maintain a program under which we transfer a portion of these receivables through our bankruptcy-remote subsidiary in exchange for cash and additional consideration upon settlement of the receivables, referred to as the deferred purchase price. In the event a customer trades in a device prior to the end of the installment contract period, we agree to make a payment to the financial institutions equal to any outstanding remaining installment receivable balance. Accordingly, we record a guarantee obligation for this estimated amount at the time the receivables are transferred.
The following table sets forth a summary of equipment installment receivables sold under this program:
| | | | | | | | | | | | | | | | | |
| 2022 | | 2021 | | 2020 |
Gross receivables sold | $ | 11,510 | | | $ | 10,793 | | | $ | 7,270 | |
Net receivables sold1 | 11,061 | | | 10,502 | | | 7,026 | |
Cash proceeds received | 11,129 | | | 9,740 | | | 6,089 | |
Deferred purchase price recorded | 245 | | | 1,080 | | | 1,021 | |
Guarantee obligation recorded | 703 | | | 434 | | | 157 | |
1Receivables net of allowance, imputed interest and equipment trade-in right guarantees. |
The deferred purchase price and guarantee obligation are initially recorded at estimated fair value and subsequently adjusted for changes in present value of expected cash flows. The estimation of their fair values is based on remaining installment payments expected to be collected and the expected timing and value of device trade-ins. The estimated value of the device trade-ins considers prices offered to us by independent third parties and contemplate changes in value after the launch of a device model. The fair value measurements used for the deferred purchase price and the guarantee obligation are considered Level 3 under the Fair Value Measurement and Disclosure framework (see Note 12).
The following table presents the previously transferred equipment installment receivables, which we repurchased in exchange for the associated deferred purchase price:
| | | | | | | | | | | | | | | | | |
| 2022 | | 2021 | | 2020 |
Fair value of repurchased receivables | $ | 3,314 | | | $ | 1,424 | | | $ | 1,271 | |
Carrying value of deferred purchase price | 3,335 | | | 1,334 | | | 1,235 | |
Gain (loss) on repurchases1 | $ | (21) | | | $ | 90 | | | $ | 36 | |
1These gains (losses) are included in “Selling, general and administrative” expense in the consolidated statements of income. |
At December 31, 2022 and December 31, 2021, our deferred purchase price receivable was $2,318 and $3,177, respectively, of which $1,278 and $2,123 are included in “Prepaid and other current assets” on our consolidated balance sheets, with the remainder in “Other Assets.” The guarantee obligation at December 31, 2022 and December 31, 2021 was $419 and $371, respectively, of which $73 and $101 are included in “Accounts payable and accrued liabilities” on our consolidated balance sheets, with the remainder in “Other noncurrent liabilities.” Our maximum exposure to loss as a result of selling these equipment installment receivables is limited to the total amount of our deferred purchase price and guarantee obligation.
NOTE 18. TOWER TRANSACTION
In December 2013, we closed our transaction with Crown Castle International Corp. (Crown Castle) in which Crown Castle gained the exclusive rights to lease and operate 9,048 wireless towers and purchased 627 of our wireless towers for $4,827 in cash. The leases have various terms with an average length of approximately 28 years. As the leases expire, Crown Castle will have fixed price purchase options for these towers totaling approximately $4,200, based on their estimated fair market values at the end of the lease terms. We sublease space on the towers from Crown Castle for an initial term of ten years at current market rates, subject to optional renewals in the future.
We determined that we did not transfer control of the tower assets, which prevented us from achieving sale-leaseback accounting for the transaction, and we accounted for the cash proceeds from Crown Castle as a financing obligation on our consolidated balance sheets. We record interest on the financing obligation using the effective interest method at a rate of approximately 3.9%. The financing obligation is increased by interest expense and estimated future net cash flows generated and retained by Crown Castle from operation of the tower sites, and reduced by our contractual payments. We continue to include the tower assets in “Property, Plant and Equipment – Net” on our consolidated balance sheets and depreciate them
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AT&T Inc. |
Dollars in millions except per share amounts |
accordingly. At December 31, 2022 and 2021, the tower assets had a balance of $686 and $725, respectively. Our depreciation expense for these assets was $39 for each of 2022, 2021 and 2020.
Payments made to Crown Castle under this arrangement were $258 for 2022. At December 31, 2022, the future minimum payments under the sublease arrangement are $264 for 2023, $269 for 2024, $274 for 2025, $280 for 2026, $285 for 2027 and $421 thereafter.
NOTE 19. TRANSACTIONS WITH DIRECTV
Effective August 1, 2021, we began accounting for our investment in DIRECTV under the equity method and recorded our share of DIRECTV earnings as equity in net income of affiliates, with DIRECTV considered a related party (see Note 10).
For the year ended December 31, 2022, our share of DIRECTV’s earnings included in equity in net income of affiliates was $1,808. Cash distributions from DIRECTV totaled $4,457, with $1,808 classified as operating activities and $2,649 classified as investing activities in our consolidated statement of cash flows. Our investment in DIRECTV at December 31, 2022 was $2,911.
In addition to the assets and liabilities contributed to DIRECTV, we recorded total obligations of $2,100 to cover certain net losses under the NFL SUNDAY TICKET contract, of which $1,800 is in the form of a note payable to DIRECTV. For the year ended December 31, 2022, cash payments to DIRECTV on the note totaled $1,211 and were classified as financing activities in our consolidated statement of cash flows. Amounts due under the DIRECTV note were $130 at December 31, 2022.
We also provide DIRECTV with network transport for U-verse products and sales services under commercial arrangements for up to five years. Under separate transition services agreements, we provide DIRECTV certain operational support, including servicing of certain of their customer receivables for up to three years. For the year ended December 31, 2022, we billed DIRECTV approximately $1,260 for these costs, which were primarily recorded as a reduction to the operations and support expenses incurred and resulted in net retained costs to AT&T of approximately $737.
At December 31, 2022, we had accounts receivable from DIRECTV of $360 and accounts payable to DIRECTV of $120.
We are not committed, implicitly or explicitly, to provide financial or other support, other than noted above, as our involvement with DIRECTV is limited to the carrying amount of the assets and liabilities recognized on our balance sheet.
NOTE 20. FIRSTNET
In 2017, the First Responder Network Authority (FirstNet) selected AT&T to build and manage the first nationwide broadband network dedicated to America’s first responders. Under the 25-year agreement, FirstNet provides 20 MHz of valuable telecommunications spectrum and success-based payments of $6,500 over the first five years to support network buildout. We are required to construct a network that achieves coverage and nationwide interoperability requirements and have a contractual commitment to make sustainability payments of $18,000 over the 25-year contract. These sustainability payments represent our commitment to fund FirstNet’s operating expenses and future reinvestments in the network which we own and operate, which we estimate in the $3,000 or less range over the life of the 25-year contract. After FirstNet’s operating expenses are paid, we anticipate the remaining amount, expected to be in the $15,000 range, will be reinvested into the network.
During 2022, we submitted $195 in sustainability payments, with future payments under the agreement of $195 for 2023, 2024 and 2025; $1,590 for 2026, $1,665 for 2027; and $13,365 thereafter. Amounts paid to FirstNet, which are not expected to be returned to AT&T to be reinvested into our network, will be expensed in the period paid. In the event FirstNet does not reinvest any funds to construct, operate, improve and maintain this network, our maximum exposure to loss is the total amount of the sustainability payments, which would be reflected in higher expense.
The $6,500 of initial funding from FirstNet is contingent on the achievement of six operating capability milestones and certain first responder subscriber adoption targets. These milestones are based on coverage objectives of the first responder network during the construction period, which is expected to be over five years, and subscriber adoption targets. Funding payments received from FirstNet are reflected as a reduction from the costs capitalized in the construction of the network and, as appropriate, a reduction of associated operating expenses. As of December 31, 2022, we have collected approximately $6,120 for the completion of certain tasks and anticipate collecting nearly all of the remainder of the $6,500 as we fulfill contractual deliveries set out by FirstNet in 2023.
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AT&T Inc. |
Dollars in millions except per share amounts |
NOTE 21. CONTINGENT LIABILITIES
We are party to numerous lawsuits, regulatory proceedings and other matters arising in the ordinary course of business. In evaluating these matters on an ongoing basis, we take into account amounts already accrued on the balance sheet. In our opinion, although the outcomes of these proceedings are uncertain, they should not have a material adverse effect on our financial position, results of operations or cash flows.
We have contractual obligations to purchase certain goods or services from various other parties. Our purchase obligations are expected to be approximately $12,313 in 2023, $11,424 in total for 2024 and 2025, $2,457 in total for 2026 and 2027 and $821 in total for years thereafter.
See Note 12 for a discussion of collateral and credit-risk contingencies.
NOTE 22. ADDITIONAL FINANCIAL INFORMATION
| | | | | | | | | | | |
| December 31, |
Consolidated Balance Sheets | 2022 | | 2021 |
Accounts payable and accrued liabilities: | |
Accounts payable | $ | 31,101 | | | $ | 29,511 | |
Accrued payroll and commissions | 1,605 | | | 2,082 | |
Current portion of employee benefit obligation | 1,173 | | | 1,234 | |
Current portion of Mobility preferred interests1 | 2,670 | | | — | |
Accrued interest | 2,160 | | | 2,438 | |
Accrued taxes | 798 | | | 1,148 | |
Other | 3,137 | | | 2,682 | |
Total accounts payable and accrued liabilities | $ | 42,644 | | | $ | 39,095 | |
1Reported as noncontrolling interest in 2021. (See Note 16) |
| | | | | | | | | | | | | | | | | |
Consolidated Statements of Income | 2022 | | 2021 | | 2020 |
Advertising expense | $ | 2,462 | | | $ | 2,732 | | | $ | 2,705 | |
Interest expense incurred | $ | 7,402 | | | $ | 7,670 | | | $ | 7,850 | |
Capitalized interest – capital expenditures | (174) | | | (173) | | | (123) | |
Capitalized interest – spectrum1 | (1,120) | | | (781) | | | — | |
Total interest expense | $ | 6,108 | | | $ | 6,716 | | | $ | 7,727 | |
1Included in “Acquisitions, net of cash acquired” on our consolidated statements of cash flows. |
Cash and Cash Flows We typically maintain our restricted cash balances for purchases and sales of certain investment securities and funding of certain deferred compensation benefit payments.
The following table summarizes cash and cash equivalents and restricted cash balances contained on our consolidated balance sheets:
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, |
Cash and Cash Equivalents and Restricted Cash | 2022 | | 2021 | | 2020 | | 2019 |
Cash and cash equivalents from continuing operations | $ | 3,701 | | | $ | 19,223 | | | $ | 7,924 | | | $ | 9,702 | |
Cash and cash equivalents from discontinued operations | — | | | 1,946 | | | 1,816 | | | 2,428 | |
Restricted cash in Prepaid and other current assets | 1 | | | 3 | | | 9 | | | 69 | |
Restricted cash in Other Assets | 91 | | | 144 | | | 121 | | | 96 | |
Cash and cash equivalents and restricted cash | $ | 3,793 | | | $ | 21,316 | | | $ | 9,870 | | | $ | 12,295 | |
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AT&T Inc. |
Dollars in millions except per share amounts |
The following tables summarize certain cash flow activities from continuing operations:
| | | | | | | | | | | | | | | | | |
Consolidated Statements of Cash Flows | 2022 | | 2021 | | 2020 |
Cash paid (received) during the year for: | | | | | |
Interest | $ | 7,772 | | | $ | 7,485 | | | $ | 8,010 | |
Income taxes, net of refunds1 | 592 | | | 252 | | | 577 | |
1Total cash income taxes paid, net of refunds, by AT&T was $696, $700 and $993 for 2022, 2021 and 2020, respectively. |
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| | | | | |
Purchase of property and equipment | $ | 19,452 | | | $ | 15,372 | | | $ | 14,567 | |
Interest during construction - capital expenditures1 | 174 | | | 173 | | | 123 | |
Total Capital expenditures | $ | 19,626 | | | $ | 15,545 | | | $ | 14,690 | |
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| | | | | |
| | | | | |
Business acquisitions | $ | — | | | $ | — | | | $ | 12 | |
Spectrum acquisitions | 9,080 | | | 24,672 | | | 1,613 | |
Interest during construction - spectrum1 | 1,120 | | | 781 | | | — | |
Total Acquisitions, net of cash acquired | $ | 10,200 | | | $ | 25,453 | | | $ | 1,625 | |
1Total capitalized interest was $1,294, $954 and $123 for 2022, 2021 and 2020, respectively. |
Noncash Investing and Financing Activities In connection with capital improvements and the acquisition of other productive assets, we negotiate favorable payment terms (referred to as vendor financing), which are reported as financing activities in our statements of cash flows when paid. We recorded $5,817 of vendor financing commitments related to capital investments in 2022, $5,282 in 2021 and $4,664 in 2020.
Total vendor financing payables included in our December 31, 2022 consolidated balance sheet were approximately $6,147, with $4,592 due within one year (in “Accounts payable and accrued liabilities”) and the remainder predominantly due within five years (in “Other noncurrent liabilities”).
Labor Contracts As of January 31, 2023, we employed approximately 160,700 persons. Approximately 42% of our employees are represented by the Communications Workers of America (CWA), the International Brotherhood of Electrical Workers (IBEW) or other unions. After expiration of in place agreements with these groups, work stoppages or labor disruptions may occur in the absence of new contracts or other agreements being reached. The main contracts included the following:
•A contract covering approximately 7,000 Mobility employees in nine states, for which we reached tentative agreement in February 2023.
•A contract covering approximately 400 employees supporting internet-based products is set to expire in July 2023.
•A contract covering approximately 200 Mobility employees in Illinois is set to expire in May 2023.
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AT&T Inc. |
Dollars in millions except per share amounts |
NOTE 23. DISCONTINUED OPERATIONS
Upon the separation and distribution, the WarnerMedia business met the criteria for discontinued operations. For discontinued operations, we also evaluated transactions that were components of AT&T’s single plan of a strategic shift, including dispositions that previously did not individually meet the criteria due to materiality, and have determined discontinued operations to be comprised of WarnerMedia, Vrio, Xandr and Playdemic.
The following is a summary of operating results included in income (loss) from discontinued operations for the years ended:
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| | 2022 | | 2021 | | 2020 |
Revenues | | $ | 9,454 | | | $ | 34,826 | | | $ | 28,710 | |
Operating Expenses | | | | | | |
Cost of revenues | | 5,481 | | | 19,400 | | | 14,269 | |
Selling, general and administrative | | 2,791 | | | 8,275 | | | 7,222 | |
Asset abandonments and impairments1 | | — | | | 4,691 | | | 3,193 | |
Depreciation and amortization | | 1,172 | | | 5,010 | | | 5,993 | |
Total operating expenses | | 9,444 | | | 37,376 | | | 30,677 | |
Interest expense | | 131 | | | 168 | | | 198 | |
Equity in net income (loss) of affiliates | | (27) | | | 28 | | | 6 | |
Other income (expense) — net2 | | (87) | | | 466 | | | (343) | |
Total other income (expense) | | (245) | | | 326 | | | (535) | |
Net loss before income taxes | | (235) | | | (2,224) | | | (2,502) | |
Income tax expense (benefit) | | (54) | | | 73 | | | (203) | |
Net loss from discontinued operations | | $ | (181) | | | $ | (2,297) | | | $ | (2,299) | |
12021 includes $4,555 impairment resulting from our assessment of the recoverability of Vrio’s net assets. 2020 includes approximately $2,200 of goodwill impairment at Vrio and $1,000 from production, content and other impairment at WarnerMedia. The implied fair value of the Vrio business was estimated using both the discounted cash flow as well as market multiple approaches. The fair values of film productions were estimated using a discounted cash flow approach. The inputs to all of these approaches are considered Level 3. |
2“Other income (expense) - net” includes the gain of $706 from Playdemic for the year ended 2021. |
The following is a summary of assets and liabilities attributable to discontinued operations, which were included in our historical Consolidated Balance Sheet at December 31:
| | | | | | | | | |
| | | 2021 |
Assets: | | | |
Current assets | | | $ | 9,005 | |
Noncurrent Inventories and Theatrical Film and Television Production Costs | | | 18,983 | |
Property, Plant and Equipment — Net | | | 4,255 | |
Goodwill | | | 40,484 | |
Other Intangibles — Net | | | 40,273 | |
Other Assets | | | 6,776 | |
Total Assets, discontinued operations | | | $ | 119,776 | |
| | | |
Liabilities: | | | |
Current liabilities | | | $ | 12,912 | |
Other liabilities | | | 20,643 | |
Total Liabilities, discontinued operations | | | $ | 33,555 | |
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In preparation for close of the separation and distribution, on April 7, 2022, Spinco drew $10,000 on its $10,000 term loan credit agreement (Spinco Term Loan), which conveyed to WBD. Total debt conveyed was approximately $41,600, which included $1,600 of existing WarnerMedia debt, $30,000 of Spinco senior notes issued in March 2022 and the $10,000 Spinco Term Loan. WarnerMedia cash transfer to Discovery was approximately $2,660.
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AT&T Inc. |
Dollars in millions except per share amounts |
NOTE 24. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following tables represent our quarterly financial results:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2022 Calendar Quarter | | |
| First1 | | Second1 | | Third1 | | Fourth1,2 | | Annual |
Total Operating Revenues | $ | 29,712 | | | $ | 29,643 | | | $ | 30,043 | | | $ | 31,343 | | | $ | 120,741 | |
Operating Income (Loss) | 5,537 | | | 4,956 | | | 6,012 | | | (21,092) | | | (4,587) | |
Net Income (Loss) from Continuing Operations | 5,149 | | | 4,751 | | | 6,346 | | | (23,120) | | | (6,874) | |
Net Income (Loss) from Continuing Operations Attributable to Common Stock | 4,747 | | | 4,319 | | | 5,924 | | | (23,536) | | | (8,546) | |
Basic Earnings (Loss) Per Share | | | | | | | | | |
Attributable to Common Stock from Continuing Operations3 | $ | 0.66 | | | $ | 0.60 | | | $ | 0.82 | | | $ | (3.20) | | | $ | (1.10) | |
Diluted Earnings (Loss) Per Share | | | | | | | | | |
Attributable to Common Stock from Continuing Operations3 | $ | 0.65 | | | $ | 0.59 | | | $ | 0.79 | | | $ | (3.20) | | | $ | (1.10) | |
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. |
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| 2021 Calendar Quarter | | |
| First1 | | Second1 | | Third1 | | Fourth1 | | Annual |
Total Operating Revenues | $ | 35,877 | | | $ | 35,740 | | | $ | 31,326 | | | $ | 31,095 | | | $ | 134,038 | |
Operating Income | 7,194 | | | 7,572 | | | 6,237 | | | 4,894 | | | 25,897 | |
Net Income from Continuing Operations | 7,586 | | | 5,969 | | | 5,019 | | | 5,202 | | | 23,776 | |
Net Income from Continuing Operations Attributable to Common Stock | 7,143 | | | 5,526 | | | 4,613 | | | 4,802 | | | 22,084 | |
Basic Earnings Per Share | | | | | | | | | |
Attributable to Common Stock from Continuing Operations2 | $ | 0.99 | | | $ | 0.77 | | | $ | 0.64 | | | $ | 0.67 | | | $ | 3.07 | |
Diluted Earnings Per Share | | | | | | | | | |
Attributable to Common Stock from Continuing Operations2 | $ | 0.97 | | | $ | 0.76 | | | $ | 0.63 | | | $ | 0.66 | | | $ | 3.02 | |
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. |
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AT&T Inc. |
Dollars in millions except per share amounts |